<PAGE>

--------------------------------------------------------------------------------
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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                            Washington, D. C. 20549

                               ----------------

                                   FORM 10-Q

(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, 2001

                                       OR

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934

                        Commission File Number: 0-22369

                               ----------------

                               BEA SYSTEMS, INC.
             (Exact name of registrant as specified in its charter)

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

                            2315 North First Street
                           San Jose, California 95131
                    (Address of principal executive offices)

                                 (408) 570-8000
              (Registrant's telephone number, including area code)

                               ----------------

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

   As of May 31, 2001, there were approximately 394,185,392 shares of the
Registrant's Common Stock outstanding.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>

                               BEA SYSTEMS, INC.

                                     INDEX

<TABLE>
<CAPTION>
                                                                        Page No.
                                                                        --------
 <C>      <S>                                                           <C>
 PART I.  FINANCIAL INFORMATION


 ITEM 1.  Financial Statements (Unaudited):


          Condensed Consolidated Statements of Operations and
           Comprehensive Income (Loss) for the three months ended
           April 30, 2001 and 2000...................................       3

          Condensed Consolidated Balance Sheets as of April 30, 2001
           and January 31, 2001......................................       4


          Condensed Consolidated Statements of Cash Flows for the
           three months ended April 30, 2001 and 2000................       5


          Notes to Condensed Consolidated Financial Statements.......       6


 ITEM 2.  Management's Discussion and Analysis of Financial Condition
           and Results of Operations.................................      13


 ITEM 3.  Quantitative and Qualitative Disclosure about Market
           Risks.....................................................      29


 PART II. OTHER INFORMATION


 ITEM 6.  Exhibits and Reports on Form 8-K...........................      32


 Signatures...........................................................     33
</TABLE>

                                       2
<PAGE>

                         PART I. FINANCIAL INFORMATION

ITEM I. FINANCIAL STATEMENTS

                               BEA SYSTEMS, INC.

                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                        AND COMPREHENSIVE INCOME (LOSS)
                     (in thousands, except per share data)
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                              Three months
                                                             ended April 30,
                                                            ------------------
                                                              2001      2000
                                                            --------  --------
<S>                                                         <C>       <C>
Revenues:
  License fees............................................. $161,193  $ 85,239
  Services.................................................   95,970    68,443
                                                            --------  --------
    Total revenues.........................................  257,163   153,682
Cost of revenues:
  Cost of license fees.....................................    5,652     3,775
  Cost of services.........................................   50,745    40,413
  Amortization of certain acquired intangible assets.......    6,413     9,983
                                                            --------  --------
    Total cost of revenues.................................   62,810    54,171
                                                            --------  --------
Gross profit...............................................  194,353    99,511
Operating expenses:
  Sales and marketing......................................  108,156    68,695
  Research and development.................................   29,525    18,879
  General and administrative...............................   18,182    10,864
  Amortization of goodwill.................................   16,009    12,195
  Acquisition-related charges..............................      --      2,200
                                                            --------  --------
    Total operating expenses...............................  171,872   112,833
                                                            --------  --------
Income (loss) from operations..............................   22,481   (13,322)
Interest income and other, net.............................   13,717     4,146
                                                            --------  --------
Income (loss) before provision for income taxes............   36,198    (9,176)
Provision for income taxes.................................   15,574     3,207
                                                            --------  --------
Net income (loss)..........................................   20,624   (12,383)
Other comprehensive income (loss):
  Foreign currency translation adjustments.................   (1,655)      142
  Unrealized gain (loss) on available-for-sale investments,
   net of income taxes.....................................       85      (240)
                                                            --------  --------
Comprehensive income (loss)................................ $ 19,054  $(12,481)
                                                            ========  ========
Basic and diluted net income (loss) per share.............. $   0.05  $  (0.03)
                                                            ========  ========
Number of shares used in per share calculations:
  Basic....................................................  391,700   366,950
                                                            ========  ========
  Diluted..................................................  424,620   366,950
                                                            ========  ========
</TABLE>

                            See accompanying notes.

                                       3
<PAGE>

                               BEA SYSTEMS, INC.

                     CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                         April 30,   January 31,
                                                           2001         2001
                                                        -----------  -----------
                                                        (Unaudited)
<S>                                                     <C>          <C>
                        ASSETS
                        ------
Current assets:
  Cash and cash equivalents............................ $  700,091   $  907,635
  Restricted cash (see Note 6.)........................    202,550        4,998
  Short-term investments...............................      9,884       33,294
  Accounts receivable, net.............................    205,790      214,706
  Deferred tax assets..................................      1,983       20,035
  Other current assets.................................     29,015       26,223
                                                        ----------   ----------
    Total current assets...............................  1,149,313    1,206,891
Property and equipment, net............................     52,598       51,223
Goodwill, net..........................................    122,594      138,404
Acquired intangible assets, net........................     41,635       52,288
Deferred tax assets....................................        --         9,915
Long-term restricted cash..............................    140,361          --
Other long-term assets.................................    135,847      133,615
                                                        ----------   ----------
    Total assets....................................... $1,642,348   $1,592,336
                                                        ==========   ==========

         LIABILITIES AND STOCKHOLDERS' EQUITY
         ------------------------------------

Current liabilities:
  Accounts payable..................................... $   11,732   $   15,233
  Accrued liabilities..................................    154,700      133,092
  Accrued income taxes.................................     24,934       24,307
  Deferred revenues....................................    222,306      203,947
  Current portion of notes payable and other
   obligations.........................................      9,781       13,321
                                                        ----------   ----------
    Total current liabilities..........................    423,453      389,900
Deferred tax liabilities...............................      4,383       32,350
Notes payable and other long-term obligations..........      2,735        2,661
Convertible subordinated notes.........................    561,421      561,421
Commitments and contingencies
Stockholders' equity:
  Common stock.........................................        393          390
  Additional paid-in capital...........................    818,897      793,729
  Accumulated deficit..................................   (165,249)    (185,873)
  Notes receivable from stockholders...................       (198)        (198)
  Deferred compensation................................       (396)        (523)
  Accumulated other comprehensive loss.................     (3,091)      (1,521)
                                                        ----------   ----------
    Total stockholders' equity.........................    650,356      606,004
                                                        ----------   ----------
    Total liabilities and stockholders' equity......... $1,642,348   $1,592,336
                                                        ==========   ==========
</TABLE>

                            See accompanying notes.

                                       4
<PAGE>

                               BEA SYSTEMS, INC.

                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
                                  (Unaudited)
<TABLE>
<CAPTION>
                                                              Three months
                                                                  ended
                                                                April 30,
                                                            ------------------
                                                              2001      2000
                                                            --------  --------
<S>                                                         <C>       <C>
Operating activities:
  Net income (loss)........................................ $ 20,624  $(12,383)
  Adjustments to reconcile net income (loss) to net cash
   provided by operating activities:
    Depreciation...........................................    4,503     2,333
    Amortization of deferred compensation..................      127       188
    Amortization of certain acquired intangible assets and
     acquisition-related charges...........................   22,422    24,379
    Amortization of debt issuance costs....................      543       561
    Debt conversion premium................................      --        236
    Net gain on sale of WebGain preferred stock and
     convertible note receivable...........................  (17,374)      --
    Write-down of equity investments.......................   10,655       --
    Changes in operating assets and liabilities............   43,073    12,056
    Other..................................................    3,340       967
                                                            --------  --------
Net cash provided by operating activities..................   87,913    28,337
                                                            --------  --------
Investing activities:
  Purchase of property and equipment.......................   (6,371)   (7,618)
  Payments for acquisitions, net of cash acquired and
   equity investments......................................   (6,753)  (55,288)
  Proceeds from the maturity of a long-term investment
   security................................................   14,908       --
  Increase in restricted cash for guarantees...............   (2,500)     (274)
  Purchases of available-for-sale short-term investments...  (10,109)   (2,307)
  Proceeds from maturities of available-for-sale short-term
   investments.............................................   33,641    38,848
                                                            --------  --------
Net cash provided by (used in) investing activities........   22,816   (26,639)
                                                            --------  --------
Financing activities:
  Net borrowings under lines of credit.....................      --      1,882
  Net proceeds (payments) on notes payable and other
   obligations.............................................      219    (9,277)
  Debt conversion premium..................................      --       (236)
  Other....................................................     (610)      720
  Increase in restricted cash for collateral on land lease
   transaction............................................. (335,800)      --
  Net proceeds received for employee stock purchases.......   22,558    18,595
                                                            --------  --------
Net cash provided by (used in) financing activities........ (313,633)   11,684
                                                            --------  --------
Net increase (decrease) in cash and cash equivalents....... (202,904)   13,382
Effect of exchange rate changes on cash....................   (4,640)     (794)
Cash and cash equivalents at beginning of period...........  907,635   763,294
                                                            --------  --------
Cash and cash equivalents at end of period................. $700,091  $775,882
                                                            ========  ========
</TABLE>

                            See accompanying notes.

                                       5
<PAGE>

                               BEA SYSTEMS, INC.

             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Basis of Presentation

   The condensed consolidated financial statements included herein are
unaudited and reflect all adjustments (consisting only of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
presentation of the financial position, results of operations and cash flows
for the interim periods. Certain amounts reported in prior periods have been
reclassified to conform to the presentation adopted in the current period.
Such reclassifications did not change the previously reported operating income
(loss) or net income (loss) amounts. These condensed consolidated financial
statements should be read in conjunction with the Consolidated Financial
Statements and Notes thereto, together with Management's Discussion and
Analysis of Financial Condition and Results of Operations contained in the BEA
Systems, Inc. ("BEA" or the "Company") Annual Report on Form 10-K for the
fiscal year ended January 31, 2001. The results of operations for the three
months ended April 30, 2001 are not necessarily indicative of the results for
the entire fiscal year ending January 31, 2002.

   The consolidated balance sheet at January 31, 2001 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.

 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 persuasive evidence of an agreement exists, delivery of the
product has occurred, the fee is fixed or determinable, and collectibility 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 evidence of the fair value of all undelivered elements exists. Under
the residual method, the fair value of the undelivered elements is deferred
and the remaining portion of the arrangement fee is recognized as revenue. If
evidence of the fair value of one or more undelivered elements does not exist,
revenue is deferred and recognized when delivery of those elements occurs or
when fair value can be established. When the Company enters into a license
agreement requiring that the Company provide significant customization of the
software products, the license and related consulting services revenue is
recognized in accordance with AICPA Statement of Position 81-1, Accounting for
Performance of Construction-Type and Certain Production-Type Contracts. If the
fee due from the customer is not fixed or determinable, revenue is recognized
as cash is received from the customer, assuming all other revenue recognition
criteria have been met. The Company considers all arrangements with payment
terms longer than normal not to be fixed or determinable. Revenue arrangements
with resellers are recognized on a sell-through basis.

   Services revenue includes consulting services, post-contract customer
support and training. Consulting revenue and the related cost of services are
recognized on a time and materials basis; however, revenues from certain
fixed-price contracts are recognized on the percentage of completion basis,
which involves the use of estimates. Actual results could differ from those
estimates and, as a result, future gross margin on such contracts may be more
or less than anticipated. The amount of consulting fixed-price contracts
recognized on a percentage of completion basis has not been material to date.
Software maintenance agreements provide technical support and the right to
unspecified upgrades on an if-and-when available basis. Post-contract customer
support revenue is recognized ratably over the term of the support period
(generally one year) and training and other service revenues are recognized as
the related services are provided. The unrecognized portion of amounts billed
in advance for licenses and services is recorded as deferred revenues.

 Investments in equity securities

   As of April 30, 2001 and January 31, 2001, the Company's net private equity
investments, including the investment in WebGain, Inc., totaled $39.8 million
and $50.9 million, respectively. These investments

                                       6
<PAGE>

                               BEA SYSTEMS, INC.

       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

are accounted for under the cost method, as ownership is less than 20 percent
and/or the Company does not have the ability to exercise significant influence
over the operations of the investee companies. In accordance with agreements
regarding the sale of the Company's investment in WebGain, Inc. to WP Equity
Partners, Inc., a related party, the Company recorded an additional net gain
of $17.4 million during the first quarter of fiscal 2002, which is included in
interest income and other, net. The Company regularly reviews its portfolio of
equity investments in private companies for impairment. In the first quarter
of fiscal 2002, the Company concluded that a decline in value of the portfolio
had occurred that was other than temporary. Accordingly, a write-down of these
investments of approximately $10.7 million was recorded in interest income and
other, net. During the first quarter of fiscal 2002, the Company derived
revenues from several of these companies representing in aggregate less than 1
percent of total revenues.

 Effect of new accounting pronouncements

   In June 1998, the Financial Accounting Standards Board ("FASB") released
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities ("FAS 133"). FAS 133 establishes the
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts (collectively
referred to as derivatives) and for hedging activities. It requires that an
entity recognizes all derivatives as either assets or liabilities in the
statement of financial position and measures those instruments at fair value.
In July 1999, Statement of Financial Accounting Standards No. 137, Accounting
for Derivative Instruments and Hedging Activities--Deferral of the Effective
Date of FASB Statement 133 ("FAS 137") was issued. FAS 137 deferred the
effective date of FAS 133 until the first fiscal quarter of fiscal years
beginning after June 15, 2000. The Company was required to adopt the
provisions of FAS 133 effective February 1, 2001. The adoption of FAS 133 did
not have a material impact on the Company's financial position or results of
operations.

Note 2. Supplemental Cash Flow Disclosures and Related Party Receivables

   In February 2001, the Company sold additional shares of WebGain, Inc.
Series A Preferred Stock with a carrying value of $2.9 million to WP Equity
Partners, Inc. in exchange for a note receivable due from WP Equity Partners,
Inc. in the amount of approximately $6.6 million. For the three months ended
April 30, 2000, convertible debt holders converted approximately $8.0 million
of the $250 million 4% Convertible Subordinated Notes due June 15, 2005 ("2005
Notes") into common stock. The value of stock issued in business acquisitions
for the three months ended April 30, 2000 was approximately $23.2 million.

   As of April 30, 2001 and January 31, 2001, the balance due from WP Equity
Partners, Inc. was $74.6 million and $50.0 million, respectively.

Note 3. Net Income (Loss) Per Share

   Basic net income (loss) per share is computed based on the weighted average
number of shares of the Company's common stock outstanding less shares subject
to the Company's right to repurchase. Diluted net income (loss) per share is
computed based on the weighted average number of shares of the Company's
outstanding common stock and common equivalent shares (stock options and
convertible notes), if dilutive. The treasury stock method is used to
calculate the dilution effect of stock options. The as-if-converted method is
used to calculate the dilution effect of the 2005 Notes and the $550 million
4% Convertible Subordinated Notes due December 15, 2006 ("2006 Notes").

                                       7
<PAGE>

                               BEA SYSTEMS, INC.

       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


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

<TABLE>
<CAPTION>
                                                              Three months
                                                             ended April 30,
                                                            ------------------
                                                              2001      2000
                                                            --------  --------
<S>                                                         <C>       <C>
Numerator:
  Numerator for basic net income (loss) per share:
    Net income (loss)...................................... $ 20,624  $(12,383)
  Numerator for diluted net income (loss) per share:
    Interest and amortization charges for the 2005 Notes,
     net of taxes..........................................       76       --
                                                            --------  --------
    Net income (loss) available to common stockholders..... $ 20,700  $(12,383)
                                                            ========  ========
Denominator:
  Denominator for basic net income (loss) per share:
    Weighted average shares outstanding....................  391,809   369,017
    Weighted average shares subject to repurchase..........     (109)   (2,067)
                                                            --------  --------
  Denominator for basic net income (loss) per share,
   weighted average shares outstanding.....................  391,700   366,950
Weighted average dilutive potential common shares:
  Options and shares subject to repurchase.................   31,190       --
  Convertible shares on the 2005 Notes.....................    1,730       --
                                                            --------  --------
Denominator for diluted net income (loss) per share........  424,620   366,950
                                                            ========  ========
Basic and diluted net income (loss) per share.............. $   0.05  $  (0.03)
                                                            ========  ========
</TABLE>

   The computation of diluted net income per share for the three months ended
April 30, 2001 excludes the impact of options to purchase approximately 7.4
million shares of common stock and the conversion of the 2006 Notes, which are
convertible into approximately 15.9 million shares of common stock, as the
impact would be antidilutive.

   The computation of basic and diluted net loss per share for the three
months ended April 30, 2000 excludes the impact of options to purchase
approximately 49.9 million shares of common stock, the conversion of the 2006
Notes and the 2005 Notes, which are convertible into approximately 15.9
million and 2.2 million shares of common stock, respectively, as such impact
would be antidilutive for the period presented.

Note 4. Financial Instruments

   Derivative financial instruments are utilized by the Company to reduce
foreign currency exchange risks. The Company has established policies and
procedures for risk assessment as well as the approval, reporting and
monitoring of derivative financial instrument activities. The Company does not
hold any derivative financial instruments for trading or speculative purposes.
Derivative transactions are restricted to those intended for hedging purposes.

 Change in Accounting Principle

   Effective February 1, 2001, the Company adopted the Financial Accounting
Standards Board Statement No. 133, Accounting for Derivative Instruments and
Hedging Activities ("SFAS 133"), as amended, which establishes accounting and
reporting standards for derivative instruments, including certain derivative

                                       8
<PAGE>

                               BEA SYSTEMS, INC.

       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

instruments embedded in other contracts and for hedging activities. All
derivatives, whether designated in hedging relationships or not, are required
to be recorded on the balance sheet at fair value. If the derivative is
designated as a fair value hedge, the changes in the fair value of the
derivative and of the hedged item attributable to the hedged risk are
recognized in earnings. If the derivative is designated as a cash flow hedge,
the effective portions of changes in the fair value of the derivative are
recorded in accumulated other comprehensive income (loss). Derivatives or
portions of derivatives that are not designated as hedging instruments are
adjusted to fair values through earnings and are recognized as an asset or
liability on the balance sheet. There was no material impact on the Company's
financial position or results of operations upon the adoption of FAS 133.

 Foreign currency contracts

   The Company operates internationally and has a foreign exchange hedging
program designed to mitigate the potential for future adverse impact on
foreign currency denominated assets and liabilities due to changes in foreign
currency exchange rates. The program uses forward foreign exchange contracts
as the vehicle for hedging such significant exposures. The Company uses a
multinational bank for all of these contracts. In general, these contracts
have terms of 3 months or less. The Company has not designated the derivatives
used in the foreign exchange hedging program as cash flow or fair value hedges
under SFAS 133. Accordingly, these contracts continue to be marked-to-market
on a monthly basis and the changes in the fair values of these contracts are
included in interest income and other, net. During the three months ended
April 30, 2001 and April 30, 2000 the Company recorded net gains (losses) of
approximately $(5,000) and $60,000, respectively, from these contracts and
underlying foreign currency exposures.

   The Company's forward foreign currency contract notional amounts
outstanding at April 30, 2001 and January 31, 2001 were as follows (in
thousands):

<TABLE>
<CAPTION>
                                                         April 30, January 31,
                                                           2001       2001
                                                         --------- -----------
<S>                                                      <C>       <C>
Contracts to sell foreign currency (purchase U.S.
 dollars) during the following year:
  Japanese yen..........................................  $15,300    $14,000
  Canadian dollars......................................    8,000      4,900
  Swedish krona.........................................   14,400        --
  Korean won............................................    7,100      5,400
  Australian dollars....................................    2,000      2,700
  Israeli shekels.......................................    1,100        --
                                                          -------    -------
                                                          $47,900    $27,000
                                                          =======    =======

Contracts to purchase foreign currency (sell U.S.
 dollars) during the following year:
  Euros.................................................  $ 8,100    $11,500
  British pounds........................................    5,900      6,900
  Swiss francs..........................................      800        100
                                                          -------    -------
                                                          $14,800    $18,500
                                                          =======    =======

Contracts to sell foreign currency (purchase Euros)
 during the following year:
  Swiss francs..........................................  $ 5,700    $ 4,000
  British pounds........................................    3,000      6,600
  Swedish krona.........................................    2,400      1,300
  Israeli shekels.......................................    1,400        --
                                                          -------    -------
                                                          $12,500    $11,900
                                                          =======    =======

Contracts to purchase foreign currency (sell Euros)
 during the following year:
  U.S. dollars..........................................  $33,900    $35,300
  British pounds........................................    3,400        --
  Swedish krona.........................................      200        --
                                                          -------    -------
                                                          $37,500    $35,300
                                                          =======    =======
</TABLE>

                                       9
<PAGE>

                               BEA SYSTEMS, INC.

       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


 Concentration of credit risk

   Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of investments in debt
securities and trade receivables. The Company invests its cash, cash
equivalents and short-term investments in commercial paper rated A-1/P-1 or
higher and money market instruments with financial institutions with high
credit standing and, by policy, limits the amounts invested with any one
institution, type of security and issuer.

   The Company sells its products to customers, typically large corporations,
in a variety of industries in the Americas, Europe and the Asia/Pacific
region. The Company performs ongoing credit evaluations of its customers'
financial condition and limits the amount of credit extended as deemed
appropriate, but generally requires no collateral. The Company maintains
reserves for estimated credit losses and, to date, such losses have been
within management's expectations. Future credit losses may differ from the
Company's estimates and could have a material impact on the Company's future
results of operations. There were no customers that accounted for more than 10
percent of accounts receivable as of April 30, 2001 or January 31, 2001.

 Fair value of financial instruments

   The carrying values and estimated fair values of the Company's financial
instruments were as follows (in thousands):

<TABLE>
<CAPTION>
                                         April 30, 2001    January 31, 2001
                                        ----------------- --------------------
                                        Carrying   Fair   Carrying
                                         value    value    value    Fair value
                                        -------- -------- --------  ----------
<S>                                     <C>      <C>      <C>       <C>
Financial assets:
  Cash and cash equivalents............ $700,091 $700,091 $907,635  $  907,635
  Restricted cash......................  342,911  342,911    4,998       4,998
  Short-term investments...............    9,884    9,884   33,294      33,294
  Long-term investments (expected
   realization 1 year).................      --       --    14,908      14,908
Financial liabilities:
  Notes payable, capital lease
   obligations and other long-term
   obligations (including current
   portion)............................   12,516   12,516   15,982      15,982
  Convertible subordinated 2006 Notes..  550,000  648,412  550,000   1,046,626
  Convertible subordinated 2005 Notes..   11,421   70,672   11,421     114,075
  Forward foreign currency contracts...      198      198     (924)       (924)
</TABLE>

   The estimated fair value amounts have been determined by the Company using
available market information and appropriate valuation methodologies. However,
judgment is required in interpreting market data to develop the estimates of
fair value. Accordingly, the estimates presented above are not necessarily
indicative of the amounts that the Company could realize in a current market
exchange. The fair value of the 2005 Notes and 2006 Notes significantly
exceeds the carrying value at April 30, 2001, however, the Company's
obligation to settle the notes will at no time be greater than their face or
carrying value unless a discretionary debt conversion premium is negotiated
with the holders of the notes.

   For certain of the Company's financial instruments, including cash and cash
equivalents, restricted cash, short-term investments, and notes payable, the
carrying values approximate fair value due to their short maturities. The fair
value of forward foreign currency contracts was based on the estimated amount
at which they could be settled based on quoted exchange rates. The fair values
of the convertible subordinated notes are estimated using quoted market
prices.

                                      10
<PAGE>

                               BEA SYSTEMS, INC.

       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


 Available-for-sale securities

   The following is a summary of available-for-sale securities at April 30,
2001 and January 31, 2001 (in thousands):

<TABLE>
<CAPTION>
                           April 30, 2001               January 31, 2001
                    ----------------------------- -----------------------------
                                Gross                         Gross
                    Amortized unrealized   Fair   Amortized unrealized   Fair
                      cost      losses    value     cost      losses    value
                    --------- ---------- -------- --------- ---------- --------
<S>                 <C>       <C>        <C>      <C>       <C>        <C>
Commercial paper... $368,848    $(454)   $368,394 $367,069    $(494)   $366,575
Money market.......  238,763      --      238,763  502,838      --      502,838
Treasury bills.....  335,679       82     335,761      --       --          --
                    --------    -----    -------- --------    -----    --------
                    $943,290    $(372)   $942,918 $869,907    $(494)   $869,413
                    ========    =====    ======== ========    =====    ========
</TABLE>

   Included in the above table are securities with fair values totaling $590.1
million and $816.2 million at April 30, 2001 and January 31, 2001,
respectively, which are classified as cash and cash equivalents; $9.9 million
and $33.3 million at April 30, 2001 and January 31, 2001, respectively, which
are classified as short-term investments; $342.9 million and $5.0 million at
April 30, 2001 and January 31, 2001, which are classified as short-term or
long-term restricted cash; and $14.9 million at January 31, 2001 which is
classified as a long-term asset in the accompanying consolidated balance
sheets. All short-term investments mature within six months.

Note 5. Convertible Subordinated Notes

   The 2005 Notes and 2006 Notes are subordinated to all existing and future
senior indebtedness of the Company. The principal amounts of the Notes are
convertible at the option of the holder at any time into common stock of the
Company at their respective conversion rates.

Note 6. Restricted Cash

   During the first quarter of fiscal 2002, the Company entered into a lease
agreement for the lease of approximately 40 acres of land adjacent to the
Company's San Jose, California headquarters to construct additional corporate
offices and research and development facilities. The lease has an initial term
of five years with renewal options. Rent obligations commence at the beginning
of the third year. The total approximate minimum lease payments for the next
five years are currently estimated to be approximately $0 in fiscal 2002 and
2003 and $14.5 million in fiscal 2004, 2005 and 2006, respectively. The
minimum lease payments will fluctuate from time to time depending on short-
term interest rates. The Company has an option to purchase the land at the end
of the term of the lease for the lesser of $331 million, the outstanding lease
balance, or prior to the end of the lease, to arrange for the sale of the
property to a third party with the Company retaining an obligation to the
owner for the difference between the sales price and the guaranteed residual
value up to $328.7 million if the sales price is less than this amount,
subject to certain provisions of the lease. As part of the lease agreement,
the Company must maintain a minimum restricted cash balance consisting of
United States government securities equal to 111 percent of the aggregate
outstanding advances under the lease, which was approximately $330 million as
of April 30, 2001. The cash is restricted as to withdrawal and is managed by a
third party subject to certain limitations. As of April 30, 2001, the Company
has restricted $335.8 million of its cash as collateral for specified
obligations to the lessor under the lease of which $140.4 million is
classified as long-term. In May 2001, the Company refinanced the lease and
received commitments from banks that allow the Company to unrestrict
approximately $210.0 million, which has been classified as short-term and
long-term restricted cash. The Company must maintain certain covenants, as
defined in the lease.

                                      11
<PAGE>

                               BEA SYSTEMS, INC.

       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Note 7. Accumulated Other Comprehensive Loss

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

<TABLE>
<CAPTION>
                                                         April 30, January 31,
                                                           2001       2001
                                                         --------- -----------
   <S>                                                   <C>       <C>
   Foreign currency translation adjustment..............  $(2,830)   $(1,175)
   Unrealized loss on available-for-sale investments,
    net of tax..........................................     (261)      (346)
                                                          -------    -------
   Total accumulated other comprehensive loss...........  $(3,091)   $(1,521)
                                                          =======    =======
</TABLE>

Note 8. Common Stock

   During the first quarter of fiscal 2002, the Company received $12.9 million
in proceeds resulting from the exercise of employee stock options and recorded
a tax benefit on stock options of $12.3 million.

Note 9. Commitments and Contingencies

 Litigation

   The Company is subject to legal proceedings and claims that arise 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 financial position, results of operations, or liquidity
of the Company, the ultimate outcome of any litigation is uncertain, and the
impact of an unfavorable outcome could be material to the Company.

 Employer payroll taxes

   The Company is subject to employer payroll taxes when employees exercise
stock options. The payroll taxes are assessed on the stock option gain, which
is the difference between the common stock price on the date of exercise and
the exercise price. The tax rate varies depending upon the employees' taxing
jurisdiction. The timing and amount of employer payroll taxes is directly
related to the timing and number of options exercised by employees, the gain
thereon and the tax rate in the applicable jurisdiction. For the three months
ended April 30, 2001 and 2000, the Company recorded employer payroll taxes
related to stock option exercises of approximately $1.1 million and $2.2
million, respectively. Because the Company is unable to predict these employer
payroll taxes, the Company is unable to predict what, if any, expense will be
recorded in a future period.

                                      12
<PAGE>

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. ("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, 2001. 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," "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 statements regarding future operating results, the
extension of computer systems to the Internet, opportunity for expansion of
our business, additional acquisitions or licensing of technology, seasonality
of orders, continuation of certain products and services accounting for a
majority of revenues, continued investment in product development, product
releases, growth in markets, consolidation among companies, investing in sales
channels and marketing programs, increases in sales and marketing expenses and
research and development expenses, devoting substantial resources to product
development, continued hiring, expected amortization of goodwill, continuing
to make additional acquisitions, satisfaction of cash requirements, the
effects of the adoption of new accounting pronouncements, the establishment of
product distribution arrangements, the improvement in financial reporting and
controls, the fluctuation of lease payments, the commencement of construction
and the obtaining of financing and the evaluation of realizability of deferred
tax assets. These forward-looking statements involve risks and uncertainties
and actual results could differ materially from those discussed in the
forward-looking statements. These risks and uncertainties include, but are not
limited to, those described under the headings "Effect of New Accounting
Pronouncements" and "Factors That May Impact Future Operating Results", 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 BEA
as of the date thereof, and BEA assumes no obligation to update any forward-
looking statement or risk factors.

Overview

   BEA Systems, Inc. ("BEA" or the "Company") is a leading provider of e-
business infrastructure software that helps companies of all sizes build e-
business systems that extend investments in existing computer systems and
provide the foundation for running a successful integrated e-business. BEA's
products are marketed and sold worldwide primarily through BEA's direct sales
force, and also through systems integrators ("SIs"), independent software
vendors ("ISVs") and hardware vendors that are BEA allies and distributors.
BEA's products have been adopted in a wide variety of industries, including
commercial and investment banking, securities trading, telecommunications,
airlines, services, retail, manufacturing, package delivery, insurance and
government. The BEA WebLogic E-Business Platform(TM) provides infrastructure
for building an integrated e-business, allowing customers to integrate private
client/server networks, the Internet, intranets, extranets, and mainframe and
legacy systems as system components. BEA's products serve as a platform or
integration tool for applications such as billing, provisioning, customer
service, electronic funds transfers, ATM networks, securities trading, Web-
based banking, Internet sales, supply chain management, scheduling and
logistics, and hotel, airline and rental car reservations. Licenses for BEA
products are typically priced on a per-central processing unit basis, but BEA
also offers licenses priced on a per-user basis.

   The Company's core business has been providing infrastructure for e-
business systems and high-volume transaction systems, such as Web-based retail
sites, inventory systems, telecommunications billing applications, commercial
bank ATM networks and account management systems, credit card billing systems
and securities trading account management systems. These Web-based and
distributed systems must be highly available, scale to process high
transaction volumes and accommodate large numbers of users. As the Internet
and e-commerce continue to develop and become more richly integrated, systems
that historically had been strictly internal are

                                      13
<PAGE>

now being extended to the Internet, such as enterprise resource planning,
inventory, and sales force automation systems.

   BEA provides an e-business platform that is designed to address this demand
and help companies quickly develop and integrate e-business initiatives and
reliably deliver a wider range of dynamic, personalized services. In addition,
BEA provides a personalization engine and components used to build common e-
commerce functionality, such as online catalog, dynamic pricing, shopping cart
and order processing.

   Seasonality. As is common in the software industry, we believe that our
fourth quarter orders are favorably impacted by a variety of factors including
year-end capital purchases by larger corporate customers and the commission
structure for our sales force. This increase typically results in first
quarter customer orders being lower than orders received in the immediately
preceding fourth quarter. BEA anticipates that this seasonal impact is likely
to continue.

   Investment in Distribution Channels. BEA is currently expanding its direct
sales capacity by aggressively hiring sales and technical sales support
personnel. In addition, in August 2000, BEA announced a major planned
investment in expansion of its indirect distribution network through stronger
relationships with SIs, ISVs, application service providers ("ASPs"), system
platform companies, independent consultants, and distributors. These
investments have resulted in, and should continue to result in, an immediate
increase in expenses, especially in cost of service revenue and sales and
marketing.

   Service Revenues as a Percentage of Total Revenues. For the quarter ended
April 30, 2000, service revenues increased significantly as a percentage of
total revenues. BEA believes that its customer base has been in the process of
transitioning to mission-critical applications based on Java, Enterprise Java
Beans ("EJB"), and, in some cases, CORBA programming models, but that
customers and consultants typically did not have sufficient numbers of system
architects and application developers experienced in building large, reliable
systems on these programming models. BEA believes that by providing its
customers with additional services, especially in architecting, building and
deploying Java, EJB and CORBA systems, and training system architects and
customers' application developers to develop these systems, BEA can help
facilitate customers' deployment of systems based on our platform products. An
important element of our strategy of investing in an indirect distribution
channel is to supplement BEA's service offerings through relationships with
SIs and other strategic partners, allowing BEA to focus on architecture
services and increase the number of projects available for licensing BEA's
products through SIs' application development efforts. As a result, in part,
of this strategy, service revenues as a percentage of total revenues have
decreased each quarter since the April 30, 2000 quarter. BEA intends to
continue investing in these indirect distribution channel programs. Investment
in these efforts results in an immediate increase in expenses, although the
return on such investment, if any, is not anticipated to occur until future
periods. These expenses adversely affect BEA's operating results in the short-
term, and also in the long-term if the anticipated benefits of such
investments do not materialize.

   Product Development. In fiscal 2001 and the first quarter of fiscal 2002,
BEA continued to invest in product development, including in the areas of
integration and Web services, and new releases of BEA WebLogic Server(TM).
BEA's planned investment in product development and enhancements may affect
BEA's anticipated overall financial results, particularly research and
development expense as a percentage of total revenues, and may create product
transition concerns in BEA's customer base. In addition, investment in these
projects results in an immediate increase in expenses, especially in research
and development, although the return on such investment, if any, is not
anticipated to occur until future periods. These expenses adversely affect
BEA's operating results in the short-term, and also in the long-term if the
anticipated benefits of such investments do not materialize.

   Acquisitions. Since its inception, BEA has acquired several companies and
products, as well as distribution rights to products. Through these
acquisitions, BEA has added additional product lines, additional functionality
to its existing products, additional direct distribution capacity and
additional service capacity. These acquisitions have resulted in significant
charges to BEA's operating results in the periods in which the

                                      14
<PAGE>

acquisitions were completed and have added intangible assets to BEA's balance
sheet, the values of which are being amortized and charged to BEA's operating
results over periods ranging from two to five years after completion of the
acquisitions. BEA's management views the markets for its products as growing
and evolving, and that companies serving those markets are consolidating. This
presents an opportunity for BEA to further expand its products and
functionality, distribution capacity and service offerings and to add new
products. BEA anticipates that it may make additional, perhaps material,
acquisitions in the future. The timing of any such acquisition is impossible
to predict and the charges associated with any such acquisition could
materially adversely affect BEA's results of operations, beginning in the
periods in which any such acquisition is completed.

   Employer Payroll Taxes. The Company is subject to employer payroll taxes
when employees exercise stock options. These payroll taxes are assessed on the
stock option gain, which is the difference between the common stock price on
the date of exercise and the exercise price. The tax rate varies depending
upon the employees' taxing jurisdiction. Employer payroll tax expense incurred
by the Company resulting from employee exercises of stock options totaled $2.2
million in the first quarter of fiscal 2001 and $1.1 million in the first
quarter of fiscal 2002. Because we are unable to predict how many stock
options will be exercised, at what price and in which country, we are unable
to predict what, if any, expense will be recorded in a future period.

Results of Operations

 Three months ended April 30, 2001 and 2000

  Revenues

   BEA's revenues are derived from fees for software licenses, and services,
which includes customer support, education and consulting. Total revenues
increased 67.3 percent to $257.2 million in the quarter ended April 30, 2001
from $153.7 million in the same quarter of the prior fiscal year. This
increase reflects the continued adoption of our software solutions.

   License Revenues. License revenues increased 89.1 percent to $161.2 million
in the quarter ended April 30, 2001 from $85.2 million in the same quarter of
the prior fiscal year. This increase was mainly due to the continued adoption
of BEA WebLogic Server(TM) as well as the adoption of other products in our
WebLogic E-Business Platform(TM), expansion of our direct sales force,
introduction of new products and new versions of existing products. License
revenues as a percentage of total revenues increased from 55.5 percent in the
first quarter of fiscal 2001 to 62.7 percent in the first quarter of fiscal
2002. This percentage increase was attributable to increased sales of software
licenses, offset by a decline in consulting service revenues as the Company
executed its strategy to leverage the consulting services offered by our
indirect channel partners.

   Service Revenues. Service revenues increased 40.2 percent to $96.0 million
in the quarter ended April 30, 2001 from $68.4 million in the same quarter of
the prior fiscal year. The increase in revenues was mainly attributable to the
growth in the customer support portion of the Company's service business.
Customer support revenues increased to $52.6 million for the quarter ended
April 30, 2001 from $23.1 million in the same quarter of the prior fiscal
year. This was driven by maintenance renewals on our existing installed base
of software licenses as well as new maintenance contracts sold together with
our increased sales of software licenses. Service revenues as a percentage of
total revenues decreased from 44.5 percent in the first quarter of fiscal 2001
to 37.3 percent in the first quarter of fiscal 2002, as we executed our
strategy to increase our focus on using strategic partners to provide services
related to the deployment and use of our software solutions. Accordingly, we
experienced a slowdown in the growth rate of our service revenues,
particularly revenue derived from our lower-margin consulting services.
Consulting and education revenues decreased to $43.3 million for the quarter
ended April 30, 2001 from $45.3 million in the same quarter of the prior
fiscal year.

   International Revenues. International revenues accounted for $110.4 million
or 42.9 percent of total revenue in the quarter ended April 30, 2001 compared
with $64.7 million or 42.1 percent in the same quarter of the prior fiscal
year. Revenues from the European, Middle East and Africa region ("EMEA") and
Asia/Pacific region ("APAC") increased in the first quarter of fiscal 2002 to
$75.1 million and $30.3 million, respectively,

                                      15
<PAGE>

from $48.3 million and $15.4 million in the same quarter of the prior fiscal
year. Revenues from EMEA represented 29.2 percent of total revenues in the
first quarter of fiscal 2002, compared with 31.5 percent in the same quarter
of the prior fiscal year. Revenues from APAC represented 11.8 percent of total
revenues in the first quarter of fiscal 2002, compared with 10.0 percent in
the same quarter of the prior fiscal year. The overall increases in
international revenues were the result of expansion of the Company's
international sales force and expansion into new territories.

  Cost of Revenues

   Total cost of revenues increased 15.9 percent to $62.8 million in the
quarter ended April 30, 2001 from $54.2 million in the same quarter of the
prior fiscal year. Total cost of revenues as a percentage of total revenues
decreased from 35.2 percent in the first quarter of fiscal 2001 to 24.4
percent in the first quarter of fiscal 2002. This decrease was primarily due
to our transition to leveraging the consulting services of our indirect
channel partners. A decrease in amortization charges included in cost of
revenues also contributed to the decrease in cost of revenues as a percentage
of total revenues.

   Cost of Licenses. Cost of licenses includes royalties and license fees paid
to third parties, expenses related to the purchase of compact discs, costs
associated with transferring the Company's software to electronic media, the
printing of user manuals, packaging and distribution costs and localization
costs. Cost of licenses increased 49.7 percent to $5.7 million in the quarter
ended April 30, 2001 from $3.8 million in the same quarter of the prior fiscal
year. Cost of licenses represented 3.5 percent and 4.4 percent of license
revenues in the first quarters of fiscal 2002 and 2001, respectively. This
percent decrease is primarily due to a decline in third party royalties and
license fees.

   Cost of Services. Cost of services consists primarily of salaries and
benefits for consulting, education and product support personnel. Cost of
services increased 25.6 percent to $50.7 million in the quarter ended
April 30, 2001 from $40.4 million in the same quarter of the prior fiscal
year. Cost of services represented 52.9 percent and 59.0 percent of service
revenues in the first quarters of fiscal 2002 and 2001, respectively. Cost of
services as a percentage of service revenues decreased in the first quarter of
fiscal 2002 compared to first quarter of fiscal 2001 due to spreading costs
over a higher mix of higher margin support revenues versus lower margin
consulting and education revenues. Consulting and education revenues were 45.2
percent of total service revenues for the quarter ended April 30, 2001, down
from 66.2 percent in the same quarter of the prior fiscal year.

   Amortization of Certain Acquired Intangible Assets included in Cost of
Revenues. The amortization of certain acquired intangible assets, consisting
primarily of developed technology, non-compete agreements, distribution
rights, trademarks and tradenames, totaled $6.4 million and $10.0 million in
the first quarter of fiscal 2002 and 2001, respectively. This decrease was
primarily due to a portion of the Company's acquired intangible assets
becoming fully amortized in fiscal 2001. In the future, amortization expense
associated with intangible assets recorded prior to April 30, 2001 is
currently expected to total approximately $6.0 million, $5.8 million and $5.0
million for the second, third and fourth quarters of fiscal 2002,
respectively, $16.1 million, $8.6 million and $129,000 for the fiscal years
ending January 31, 2003, 2004 and thereafter, respectively.

  Operating Expenses

   Sales and Marketing. Sales and marketing expenses include salaries,
benefits, sales commissions, travel, information technology and facility costs
for the Company's sales and marketing personnel. These expenses also include
programs aimed at increasing revenues, such as advertising, public relations,
trade shows and user conferences. Sales and marketing expenses increased 57.4
percent to $108.2 million in the first quarter of fiscal 2002 from $68.7
million in the same quarter of the prior fiscal year. This increase was due to
the expansion of the Company's direct sales force, increased commissions on
the Company's increased revenue base, and an increase in marketing personnel
and advertising campaigns to build brand awareness. Sales and marketing
expenses decreased as a percentage of total revenues to 42.1 percent in the
first quarter of fiscal 2002 from 44.7 percent in the first quarter of fiscal
2001. The Company expects to continue to invest in the expansion of

                                      16
<PAGE>

the direct and indirect sales channels, as well as marketing programs to
promote the Company's products and brand. Accordingly, the Company expects
sales and marketing expenses to continue to increase in absolute dollars.

   Research and Development. Research and development expenses consist
primarily of salaries and benefits for software engineers, contract
development fees, costs of computer equipment used in software development,
information technology and facilities expenses. Total expenditures for
research and development increased 56.4 percent to $29.5 million in the first
quarter of fiscal 2002 from $18.9 million in the same quarter of the prior
fiscal year. This increase was due to an increase in product development
personnel and expenses associated with the development and release of several
new products and product versions. Research and development expenses
represented 11.5 percent and 12.3 percent of total revenues in the first
quarter of fiscal 2002 and 2001, respectively. The Company believes that a
significant level of research and development is required to remain
competitive and expects to continue to commit substantial resources to product
development and engineering in future periods. As a result, the Company
expects research and development expenses to continue to increase in absolute
dollars in future periods. Additionally, management intends to continue
recruiting and hiring experienced software development personnel and to
consider the licensing and acquisition of technologies complementary to the
Company's business.

   General and Administrative. General and administrative expenses include
costs for the Company's human resources, finance, legal, information
technology, facilities and general management functions. General and
administrative expenses increased 67.4 percent to $18.2 million in the first
quarter of fiscal 2002 from $10.9 million in the same quarter of the prior
fiscal year. This increase was due to the expansion of the Company's support
infrastructure, including information systems and associated expenses
necessary to manage the Company's growth. We expect general and administrative
expenses to continue to increase in absolute dollars, as we expand our
operations.

   Amortization of Goodwill. Amortization of goodwill increased in the first
quarter of fiscal 2002 compared to the first quarter of fiscal 2001, due to
goodwill resulting from various acquisitions completed in fiscal 2001.
Amortization of goodwill totaled $16.0 million and $12.2 million in the first
quarters of fiscal 2002 and 2001, respectively. In the future, amortization of
goodwill recorded prior to April 30, 2001 is currently expected to total
approximately $15.1 million, $12.2 million and $12.2 million for the second,
third and fourth quarters of fiscal 2002, respectively, and approximately
$46.6 million, $35.5 million, and $1.0 million for the fiscal years ending
January 31, 2003, 2004 and thereafter, respectively.

   Acquisition related charges. In connection with The Workflow Automatic
Corporation acquisition, the Company acquired and expensed the cost of a
number of research projects and products that were in process on the
acquisition dates, in accordance with generally accepted accounting
principles. In the first quarter of fiscal 2001, acquisition related charges
were related to the write-off associated with the acquired in-process research
and development of approximately $2.2 million relating to this acquisition.

   Interest Income and Other, Net. Interest income and other, net increased
230.8 percent to $13.7 million in the first quarter of fiscal 2002 from $4.1
in the same quarter of the prior fiscal year. For the first quarter of fiscal
2002, interest income and other, net includes interest income of $12.6 million
and net other income of $6.7 million, less interest expense of $5.6 million.
For the first quarter of fiscal 2001, interest income and other, net includes
interest income of $8.5 million and net other income of $1.6 million, less
interest expense of $6.0 million. The increase in interest income was due to
the investment of higher average cash, cash equivalents and short-term
investment balances. Net other income in the first quarter of fiscal 2002
related primarily to an additional net gain of $17.4 million recorded by the
Company in accordance with agreements regarding the sale of the Company's
investment in WebGain, Inc. to WP Equity Partners, Inc., a related party. This
net gain was offset by the write-down of approximately $10.7 million of
certain investments in equity securities which were determined to be other
than temporarily impaired.

   Provision for Income Taxes. The Company has provided for income taxes of
$15.6 million and $3.2 million for the first quarter of fiscal 2002 and 2001,
respectively. The income tax expense provided in the

                                      17
<PAGE>

first quarter of fiscal 2002 consists primarily of domestic minimum taxes,
foreign withholding taxes and foreign income tax expense incurred as a result
of local country profits. The increases in income taxes for the first quarter
of fiscal 2002 relative to the first quarter of fiscal 2001 are primarily due
to an overall increase in foreign corporate income taxes and an increase in
domestic state current taxes due to book/tax differences in the amortization
of acquired intangibles.

   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. FAS 109
provides for the recognition of deferred tax assets if realization of such
assets is more likely than not. Based upon the available evidence, which
includes BEA's historical operating performance and the reported cumulative
net losses from prior years, the Company has provided a valuation allowance
against its net deferred tax assets to the extent that they are dependent upon
future taxable income for realization. The Company intends to evaluate the
realizability of the deferred tax assets on a quarterly basis.

Liquidity and Capital Resources

   As of April 30, 2001, the Company's overall cash, cash equivalents and
short-term investments position, including all restricted cash (short-term and
long-term), has increased to $1,052.9 million at April 30, 2001 from $945.9
million at January 31, 2001. Cash, cash equivalents (excluding all restricted
cash) and short-term investments totaled $710.0 million, which is a decrease
from $940.9 million at January 31, 2001. The decrease in cash, cash
equivalents and short-term investments was primarily due to the
reclassification of $335.8 million as restricted cash which is pledged as
collateral for the lease of approximately 40 acres of land adjacent to the
Company's San Jose, California headquarters (the "land lease"). In May 2001,
the Company refinanced the land lease, which allowed the Company to unrestrict
$210.0 million of cash.

   Cash generated from operating activities rose to $87.9 million in the first
quarter of fiscal 2002, compared with $28.3 million in the same quarter of the
prior fiscal year. The increase was primarily due to increased operating
profitability and increases in deferred revenues and accrued liabilities.

   Investing activities generated $22.8 million of cash during the first
quarter of fiscal 2002, compared with $26.6 million of cash invested in the
same quarter of the prior fiscal year. Cash generated from investing
activities in the first quarter of fiscal 2002 was primarily from maturities
of short and long-term investments totaling $48.5 million, offset by purchases
of short-term investments of $10.1 million. Cash used for investing activities
in the first quarter of fiscal 2001 was primarily for a strategic acquisition
and equity investments in privately-held companies amounting to an aggregate
of $55.3 million and capital expenditures of $7.6 million, offset by
maturities of short-term investments of $38.8 million.

   The Company used $313.6 million of cash in financing activities in the
first quarter of fiscal 2002, compared with $11.7 million of cash generated in
the same quarter in the prior fiscal year. Cash used in financing activities
in the first quarter of fiscal 2002 primarily related to the increase of
restricted cash of $335.8 million, which was offset by proceeds received from
employee stock purchases and the issuance of common stock by BEA pursuant to
stock option exercises of $22.6 million. The primary source of cash from
financing activities in the first quarter of fiscal 2001 was proceeds received
from employee stock purchases and the issuance of common stock by BEA pursuant
to stock option exercises of $18.6 million.

   As of April 30, 2001, the Company's outstanding short and long-term
obligations were $573.9 million, down from $577.4 million at January 31, 2001.
At April 30, 2001, the Company's outstanding obligations consisted of $561.4
million of convertible notes and $12.5 million of other short-term and long-
term obligations. At January 31, 2001, the Company's outstanding obligations
consisted of $561.4 million of convertible notes and $16.0 million of other
short-term and long-term obligations.


                                      18
<PAGE>

   During the first quarter of fiscal 2002, the Company entered into a lease
agreement for the lease of approximately 40 acres of land adjacent to the
Company's San Jose, California headquarters to construct additional corporate
offices and research and development facilities. The lease has an initial term
of five years with renewal options. Rent obligations commence at the beginning
of the third year. The total approximate minimum lease payments for the next
five years are currently estimated to be approximately $0 in fiscal 2002 and
2003 and $14.5 million in fiscal 2004, 2005 and 2006, respectively. The
minimum lease payments will fluctuate from time to time depending on short-
term interest rates. The Company has an option to purchase the land at the end
of the term of the lease for the lesser of $331 million, the outstanding lease
balance, or prior to the end of the lease, to arrange for the sale of the
property to a third party with the Company retaining an obligation to the
owner for the difference between the sales price and the guaranteed residual
value up to $328.7 million if the sales price is less than this amount,
subject to certain provisions of the lease. As part of the lease agreement,
the Company must maintain a minimum restricted cash balance consisting of
United States government securities equal to 111 percent of the aggregate
outstanding advances under the lease which was approximately $330 million as
of April 30, 2001. The cash is restricted as to withdrawal and is managed by a
third party subject to certain limitations. As of April 30, 2001, the Company
has restricted $335.8 million of its cash as collateral for specified
obligations to the lessor under the lease of which $140.4 million is
classified as long-term. In May 2001, the Company refinanced the lease and
received commitments from banks that allow the Company to unrestrict
approximately $210.0 million, which has been classified as short-term and
long-term restricted cash. The Company must maintain certain covenants, as
defined in the lease. The Company plans to commence construction on the land
during the remainder of fiscal 2002 and plans to obtain similar financing to
the land lease, which may require the Company to commit additional cash
resources. There can be no assurance that additional financing for the
construction will be available, at all, or on terms favorable to the Company.

   In addition to normal operating expenses, cash requirements are anticipated
for financing anticipated growth, payment of outstanding debt obligations and
the acquisition or licensing of products and technologies complementary to the
Company's business. The Company believes that its existing cash, cash
equivalents, short-term investments and cash generated from operations, if
any, will be sufficient to satisfy its currently anticipated cash requirements
through April 31, 2002. However, the Company may make additional acquisitions
and may need to raise additional capital through future debt or equity
financings to the extent necessary to fund any such acquisitions. There can be
no assurance that additional financing will be available, at all, or on terms
favorable to the Company.

Effect of New Accounting Pronouncements

   In June 1998, the Financial Accounting Standards Board ("FASB") released
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities ("FAS 133"). FAS 133 establishes the
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts (collectively
referred to as derivatives) and for hedging activities. It requires that an
entity recognizes all derivatives as either assets or liabilities in the
statement of financial position and measures those instruments at fair value.
In July 1999, Statement of Financial Accounting Standards No. 137, Accounting
for Derivative Instruments and Hedging Activities--Deferral of the Effective
Date of FASB Statement 133 ("FAS 137") was issued. FAS 137 deferred the
effective date of FAS 133 until the first fiscal quarter of fiscal years
beginning after June 15, 2000. The Company was required to adopt the
provisions of FAS 133 effective February 1, 2001. The adoption of FAS 133 did
not have a material impact on the Company's financial position or results of
operations.

Factors That May Impact Future Operating Results

   BEA operates in a rapidly changing environment that involves numerous risks
and uncertainties. The following section lists some, but not all, of these
risks and uncertainties which may have a material adverse effect on the
Company's business, financial condition or results of operations.


                                      19
<PAGE>

 Significant unanticipated fluctuations in our actual or anticipated quarterly
 revenues and operating results may cause us not to meet securities analysts'
 or investors' expectations and may result in a decline in our stock price

   Although we have had significant revenue growth in recent quarters, our
growth rates may not be sustainable. 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. Our stock price is
also subject to the volatility generally associated with Internet, software
and technology stocks and may also be affected by broader market trends
unrelated to our performance, such as the declines in the prices of many such
stocks from March 2000 to March 2001.

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

  . recent adverse economic conditions, which may increase the likelihood
    that customers will unexpectedly delay or cancel orders resulting in
    revenue shortfalls

  . difficulty predicting the size and timing of customer orders,
    particularly as a greater percentage of our revenues has shifted from
    service revenues to license revenues

  . the mix of our products and services sold

  . mix of distribution channels

  . whether our strategy to further establish and expand our relationships
    with distributors is successful

  . introduction or enhancement of our products or our competitors' products

  . changes in our competitors' product offerings and pricing policies, and
    customer order deferrals in anticipation of new products and product
    enhancements from BEA or competitors

  . whether we are able to develop, introduce and market new products on a
    timely basis and whether any new products are accepted in the market

  . any slowdown in use of the Internet for commerce

  . recent hiring may prove excessive if growth rates are not maintained

  . the structure, timing and integration of acquisitions of businesses,
    products and technologies

  . the terms and timing of financing activities

  . potential fluctuations in demand or prices of our products and services

  . the lengthy sales cycle for our products

  . technological changes in computer systems and environments

  . whether we are able to successfully expand our sales and marketing
    programs

  . whether we are able to meet our customers' service requirements

  . costs associated with acquisitions, including expenses charged for any
    impaired acquired intangible assets and goodwill

  . loss of key personnel

  . fluctuations in foreign currency exchange rates

   As a result of all of these factors, we believe that quarterly revenues and
operating results are difficult to forecast and period-to-period comparisons
of our results of operations are not necessarily meaningful and should not be
relied upon as indications of trends or future performance.


                                      20
<PAGE>

   A material portion of our revenues has been derived from large orders, as
major customers deployed our products. Increases in the dollar size of some
individual license transactions would also increase the risk of fluctuation in
future quarterly results. The majority of our revenue originates from a large
number of small development orders with the potential to turn into large
deployments. If we cannot generate large customer orders, turn development
orders into large deployments or 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. Moreover, we typically receive and fulfill most of our orders within
the quarter, with the substantial majority of our orders typically received in
the last month of each fiscal quarter. As a result, we may not learn of
revenue shortfalls until late in a fiscal quarter, after it is too late to
adjust expenses for that quarter. Moreover, recent adverse economic conditions
in the United States, particularly those related to the technology industry,
may increase the likelihood that customers will unexpectedly delay or cancel
orders and result in revenue shortfalls. This risk is particularly relevant
with respect to large customer orders which are more likely to be cancelled or
delayed and also have a greater financial impact on our operating results. A
number of technology companies, particularly software companies that, like
BEA, sell enterprise-wide software solutions, have recently announced that
these conditions have adversely affected their financial results.
Additionally, our operating expenses are based in part on our expectations for
future revenues and are difficult to adjust in the short term. Any revenue
shortfall below our expectations could have an immediate and significant
adverse effect on our results of operations.

   We are subject to employer payroll taxes when our employees exercise their
stock options. The employer payroll taxes are assessed on each employee's
gain, which is the difference between the price of our common stock on the
date of exercise and the exercise price. During a particular period, these
payroll taxes could be material. These employer payroll taxes are recorded as
an expense and are assessed at tax rates that vary depending upon the
employee's taxing jurisdiction in the period such options are exercised based
on actual gains realized by employees. However, because we are unable to
predict how many stock options will be exercised, at what price and in which
country during any particular period, we cannot predict the amount, if any, of
employer payroll expense that will be recorded in a future period or the
impact on our future financial results.

   As is common in the software industry, we believe that our fourth quarter
orders are favorably impacted by a variety of factors including year-end
capital purchases by larger corporate customers and the commission structure
for our sales force. This increase typically results in first quarter customer
orders being lower than orders received in the immediately preceding fourth
quarter. BEA anticipates that this seasonal impact is likely to continue.

   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, ("SOP 97-2") 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. In addition, the Securities
and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101,
Revenue Recognition in Financial Statements ("SAB 101"). BEA adopted the
provisions of SAB 101 in its fourth fiscal quarter of 2001. 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.

 If we do not develop and enhance new and existing products to keep pace with
 technological, market and industry changes, our revenues may decline

   The market for our products is highly fragmented, competitive with
alternative computing architectures, and characterized by continuing
technological developments, evolving and competing industry standards and
changing customer requirements. The introduction of products embodying new
technologies, the emergence of

                                      21
<PAGE>

new industry standards or changes in customer requirements could render our
existing products obsolete and unmarketable. As a result, our success depends
upon our ability to timely and effectively enhance existing products (such as
our WebLogic Server product), respond to changing customer requirements and
develop and introduce in a timely manner new products (such as our WebLogic
Collaborate product) that keep pace with technological and market developments
and emerging industry standards. We are also developing products designed to
provide components for applications (such as our WebLogic Commerce Server(TM),
WebLogic Personalization Server(TM) and Campaign Manager products) in an
effort to further build out and increase the value of the e-business software
infrastructure platform we provide. It is possible that our products will not
adequately address the changing needs of the marketplace and that we will not
be successful in developing and marketing enhancements to our existing
products or products incorporating new technology on a timely basis. Failure
to develop and introduce new products, or enhancements to existing products,
in a timely manner in response to changing market conditions or customer
requirements, will materially and adversely affect our business, results of
operations and financial condition. In addition, our success is dependent on
our strategic partners' ability to successfully develop and integrate their
software with the BEA products with which it interoperates or is bundled,
integrated or marketed. If their software performs poorly, contains errors or
defects or is otherwise unreliable, or does not provide the features and
benefits expected or required, it could lower the demand for our solutions,
result in negative publicity or loss of reputation regarding us and our
products and services and adversely affect our revenues and other operating
results.

 Our revenues are derived primarily from two main products and related
 services, and a decline in demand or prices for either products or services
 could substantially adversely affect our operating results

   We currently derive the majority of our license and service revenues from
BEA WebLogic(TM), BEA TUXEDO(TM) and from related products and services. We
expect these products and services to continue to account for the majority of
our revenues in the immediate future. As a result, factors adversely affecting
the pricing of or demand for BEA WebLogic(TM), BEA TUXEDO(TM) or related
services, such as a general economic slowdown, competition, product
performance or technological change, could have a material adverse effect on
our business and consolidated results of operations and financial condition.
As we have increased our focus on using strategic partners to provide services
related to the deployment and use of our software solutions, we have recently
experienced a slowdown in the growth rate of our services revenue,
particularly revenue derived from our lower-margin consulting services. This
trend may continue or even worsen, particularly if the recent industry-wide
oversupply in software infrastructure consultants further increases the
willingness and ability of our strategic partners to provide such services or
if the current economic slowdown continues or worsens. In addition, as we
introduce new versions of our two main products, such as BEA Tuxedo 8.0 and
WebLogic Enterprise 6.0, any delay or failure of such new versions to gain
market acceptance among new and existing customers would have an adverse
affect on our revenues and other operating results.

 Any failure to maintain ongoing sales through distribution channels could
 result in lower 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, ISVs, SIs and independent
consultants, independent software tool vendors and distributors. Our ability
to achieve revenue growth in the future will depend in large part on our
success in expanding our direct sales force and in further establishing and
expanding relationships with distributors, ISVs, original equipment
manufacturers ("OEMs") and SIs. In particular, in August 2000, we announced a
significant initiative to further establish and expand relationships with our
distributors through these sales channels, 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 our ISV customers offer. We intend to seek distribution arrangements
with additional ISVs to embed our Web application servers in their products.
It is possible that we will not be able to successfully expand our direct
sales force or other distribution channels, secure agreements with additional
SIs and ISVs on commercially reasonable terms or at all, and otherwise
adequately develop our relationships with indirect sales channels. Moreover,
even if we

                                      22
<PAGE>

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 complement our direct channels. 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 informal relationships with a number of
consulting and systems integration 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. We will need to expand our relationships with third parties in order
to support license revenue growth. 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, that we will not be able
to maintain an effective, long term relationship with these third parties, and
that these third parties will not successfully meet the needs of our
customers.

 It is difficult to predict our future results for a variety of reasons
 including our limited operating history and need to continue to integrate our
 acquisitions

   We were incorporated in January 1995 and therefore have a relatively
limited operating history. We have generated revenues to date primarily from
sales of BEA WebLogic(TM), a software product which we acquired in September
1998, and from BEA TUXEDO(TM), a software product to which we acquired
worldwide distribution rights in February 1996, and fees for software products
and services related to WebLogic(TM) and TUXEDO(TM). We have also acquired a
number of additional businesses, technologies and products. Our limited
operating history and the need to integrate a number of separate and
independent business operations subject our business to numerous risks. At
April 30, 2001, we had an accumulated deficit of approximately $165.2 million.
In addition, in connection with certain acquisitions completed prior to April
30, 2001, we recorded approximately $505.7 million as intangible assets and
goodwill. Under current generally accepted accounting principles, intangible
assets and goodwill are required to be amortized in future periods.
Approximately $341.5 million of these assets have been amortized as of April
30, 2001, and we expect to amortize the remaining amount of approximately
$164.2 million in future periods through our fiscal year ending January 31,
2005. If we acquire additional businesses, products and technologies in the
future, we may report additional, potentially significant expenses. If future
events cause the impairment of any intangible assets acquired in our past or
future acquisitions, we may have to expense such assets sooner than we expect.
We first reported an operating profit under generally accepted accounting
principles in the second quarter of fiscal 2001. Because of our limited
operating history and ongoing expenses associated with our prior acquisitions,
there can be no assurance that we will continue to be profitable in any future
period, and recent operating results should not be considered indicative of
future financial performance.

 The price of our common stock may fluctuate significantly

   The market price for our common stock may be affected by a number of
factors, including developments in the Internet, software or technology
industry, general market conditions and other factors, including factors
unrelated to our operating performance or our competitors' operating
performance. In addition, stock prices for BEA and many other companies in the
Internet, technology and emerging growth sectors have experienced wide
fluctuations including recent rapid rises and declines in their stock prices
that often have not been directly related to the operating performance of such
companies, such as the declines in the stock prices of BEA and many such
companies from March 2000 to March 2001. Such factors and fluctuations, as
well as general economic, political and market conditions, such as recessions,
may materially adversely affect the market price of our common stock.

                                      23
<PAGE>

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

   From our inception in January 1995, we have made a number of strategic
acquisitions. Integration of acquired companies, divisions and products
involves the assimilation of potentially conflicting operations and products,
which divert the attention of our management team and may have a material
adverse effect on our operating results in future quarters. It is possible we
may not achieve any of the intended financial or strategic benefits of these
transactions. While we intend 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 we
will not successfully assimilate the acquired operations and products, or
retain key employees of the acquired operations. 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
the acquired entities have established. In addition, if we undertake future
acquisitions, we may issue dilutive securities, assume or incur additional
debt obligations, incur large one-time expenses, 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.

   Recently, the Financial Accounting Standards Board ("FASB") proposed to
eliminate pooling of interests accounting for acquisitions and the ability to
write-off in-process research and development has been limited by recent
pronouncements. The effect of these changes would be to increase the portion
of the purchase price for any future acquisitions that must be charged to
BEA's cost of revenues and operating expenses in the periods following any
such acquisitions. As a consequence, our results of operations in periods
following any such acquisitions could be materially adversely affected.
Although these changes would not directly affect the purchase price for any of
these acquisitions, they would have the effect of increasing the reported
expenses associated with any of these acquisitions. To that extent, these
changes may make it more difficult for us to acquire other companies, product
lines or technologies.

   Recently, FASB proposed that purchased goodwill should not be amortized,
but rather, it should be periodically reviewed for impairment. Such impairment
could be caused by internal factors as well as external factors beyond our
control. FASB proposed that at the time goodwill is considered impaired an
amount equal to the impairment loss should be charged as an operating expense
in the income statement. The timing of such an impairment (if any) of goodwill
acquired in past and future transactions is uncertain and difficult to
predict. If this proposal is adopted, our results of operations in periods
following any such impairment could be materially adversely affected. In
addition we would be required under the current proposal to assess within six
months of its adoption whether goodwill and any assets acquired in past
acquisitions have been impaired and, if so, charge such impairment as an
expense. We cannot predict whether we will be required to take a charge for
any such impairment for past acquisitions. We have net goodwill and net
acquired intangible assets of approximately $164.2 million, so if we are
required to take such an impairment charge, the amount could be material to
our results of operations.

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

   Our customers typically 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 distributed or Web-based computing
environment. Customers evaluating our software products face complex decisions
regarding alternative approaches to the integration of enterprise
applications, competitive product offerings, rapidly changing software
technologies and limited internal resources due to other information systems
requirements. For these and other reasons, the sales cycle for our products is
lengthy and is subject to delays or cancellation over which we have little or
no control. We have experienced an increase in the number of million and
multi-million dollar license transactions. In some cases, this has resulted in
more extended customer evaluation and procurement processes, which in turn
have lengthened the overall sales cycle for our products. The recent economic
downturn has also contributed to increasing our sales cycle, and there is a
risk this will worsen or

                                      24
<PAGE>

continue. This delay or failure 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.

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

   The market for application server and integration software, and related
software components and services, is highly competitive. BEA's competitors are
diverse and offer a variety of solutions directed at various segments of this
marketplace. These competitors include operating system vendors such as IBM,
Sun Microsystems and Hewlett-Packard and database vendors such as Oracle.
Microsoft has released products that include certain application server
functionality and has announced that it intends to include application server
and integration functionality in future versions of its operating systems,
including its .NET Web services initiative. In addition, there are other
companies offering and developing application server and integration software
products and related services that directly compete with products that the
Company offers. Further, software development tool vendors typically emphasize
the broad versatility of their tool sets and, in some cases, offer
complementary software that supports these tools and performs basic
application server and integration functions. Last, internal development
groups within prospective customers' organizations may develop software and
hardware systems that may substitute for those that the Company offers. A
number of BEA's competitors and potential competitors have longer operating
histories, significantly greater financial, technical, marketing and other
resources, greater name recognition and a larger installed base of customers
than us.

   Some of BEA's principal competitors currently are also hardware vendors who
bundle their own application server and integration software products, or
similar products, with their computer systems and database vendors that
advocate client/server networks driven by the database server. IBM, Sun
Microsystems and Hewlett-Packard are the primary hardware vendors who offer a
line of application server and integration solutions for their customers.
IBM's sale of application server and integration functionality along with its
IBM proprietary hardware systems requires BEA to compete with IBM in its
installed base, where IBM has certain inherent advantages due to its
significantly greater financial, technical, marketing and other resources,
greater name recognition and the integration of its enterprise application
server and integration functionality with its proprietary hardware and
database systems. These inherent advantages allow IBM to bundle, at a
discounted price, application functionality with computer hardware and
software sales. Due to these factors, if the Company does not differentiate
its products based on functionality, interoperability with non-IBM systems,
performance and reliability, and establish its products as more effective
solutions to customers' needs, its revenues and operating results will suffer.

   Microsoft has announced that it intends to include certain application
server and integration functionality in its .NET Web services initiative. The
bundling of competing functionality in versions of .NET servers requires BEA
to compete with Microsoft in the Web services marketplace, where Microsoft has
certain inherent advantages due to its much greater financial, technical,
marketing and other resources, its greater name recognition, very large
developer community, its substantial installed base and the integration of its
broad product line and features into a Web services environment. The Company
needs to differentiate its products from Microsoft's based on scalability,
functionality, interoperability with non-Microsoft platforms, performance and
reliability, and needs to establish its products as more effective solutions
to customers' needs. The Company may not be able to successfully differentiate
its products from those offered by Microsoft, and Microsoft's entry into the
application server and integration market could materially adversely affect
the Company's business, operating results and financial condition.

   In addition, current and potential competitors may make strategic
acquisitions or establish cooperative relationships among themselves or with
third parties, thereby increasing the ability of their products to address the
needs of its current and prospective customers. Accordingly, it is possible
that new competitors or alliances among current and new competitors may emerge
and rapidly gain significant market share. Such competition could materially
adversely affect the Company's ability to sell additional software licenses
and maintenance, consulting and support services on terms favorable to us.
Further, competitive pressures could require BEA to

                                      25
<PAGE>

reduce the price of its products and related services, which could materially
adversely affect the Company's business, operating results and financial
condition. The Company may not be able to compete successfully against current
and future competitors and any failure to do so would have a material adverse
effect upon its business, operating results and financial condition.

 If the market for application servers, application integration and
 application component software does not grow as quickly as we expect, our
 revenues will be harmed

   We sell our products and services in the application server, application
integration and application component markets. These markets are emerging and
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 a presence on the Web for
commerce, and developers of web-based commerce applications. Our future
financial performance will depend in large part on 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.
There can be no assurance that the markets for application server and
integration technology and related services will continue to grow. Even if
they do grow they may grow more slowly than we anticipate, particularly in
view of the recent economic downturn affecting the technology sector in the
United States. If these markets fail to grow or grow more slowly than we
currently anticipate, or if we experience increased competition in these
markets, our business, results of operations and financial condition will be
adversely affected.

 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 this source code
could materially adversely affect our business, operating results and
financial condition. It is difficult for us to police unauthorized use of our
products, and although we are unable to determine the extent to which piracy
of our software products exists, software piracy is a persistent problem.
Effective protection of intellectual property rights is unavailable or limited
in certain foreign countries. The protection of our proprietary rights may not
be adequate and our competitors could independently develop similar
technology, duplicate our products, or design around patents and other
intellectual property rights that we hold.

 Third parties could assert that our software products and services infringe
 their intellectual property rights, which could expose us to increased costs
 and litigation

   It is possible that third parties, including competitors, could claim our
current or future products infringe their rights including their patent
rights. Any such claims, with or without merit, could cause costly litigation
that could absorb significant management time, which could materially
adversely affect our business, operating results and financial condition.
These types of claims could cause us to pay substantial damages on settlement
amounts, cease offering any subject technology and require us to enter into
royalty or license agreements. 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.

                                      26
<PAGE>

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

   International revenues accounted for 42.9 percent and 42.1 percent of our
consolidated revenues for the fiscal quarters ended April 30, 2001 and 2000,
respectively. We sell our products and services through a network of branches
and subsidiaries located in 30 countries worldwide. In addition, we also
market 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 unexpected changes in
regulatory practices and tariffs, greater difficulties in staffing and
managing foreign operations, longer collection cycles, seasonality, potential
changes in tax laws, greater difficulty in protecting intellectual property
and the impact of fluctuating exchange rates between the U.S. dollar and
foreign currencies in markets where we do business.

   General economic and political conditions in these foreign markets may also
impact our international revenues. 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.

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

   We have continued to experience a period of rapid and substantial growth
that has placed, and if such growth continues would continue to place, a
strain on the Company's administrative and operational infrastructure. We have
increased the number of our employees from 120 employees in three offices in
the United States at January 31, 1996 to over 3,270 employees in 93 offices in
30 countries at April 30, 2001. Our ability to manage our staff and growth
effectively requires us to continue to improve our operational, financial and
management controls; reporting systems and procedures; and information
technology infrastructure. In this regard, we are currently updating our
management information systems to integrate financial and other reporting
among our multiple domestic and foreign offices. In addition, we intend to
continue to increase our staff worldwide and to 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 we will not be able to successfully implement improvements to our
management information, control 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. If we are unable to manage growth effectively, our business, results
of operations and financial condition will be materially adversely affected.

 If we lose key personnel or cannot hire enough qualified personnel, it will
 adversely affect our ability to manage our business, develop new products and
 increase revenue

   We believe our future success will depend upon our ability to attract and
retain highly skilled personnel including our founders, Messrs. William T.
Coleman III and Alfred S. Chuang, and other key members of management.
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. As we seek to expand our global organization, the hiring of
qualified sales, technical and support personnel will 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.

 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, or lack of market acceptance
of

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<PAGE>

our products. 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 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.

 Our strategy of investing in development-stage companies involves a number of
 risks and uncertainties

   We have invested, and expect to continue to invest, in development-stage
companies. Each of these investments involves risks and uncertainties,
including:

  . diversion of management attention from our core business;

  . failure to leverage our relationship with these companies to access new
    technologies and new markets;

  . inability to value investments appropriately or to predict changes to the
    future value of investments;

  . inability to manage investments effectively; and

  . loss of cash invested

 We have a high debt balance and large interest obligations

   At April 30, 2001, we had approximately $561.4 million of convertible notes
outstanding. As a result of this indebtedness, we have substantial principal
and interest payment obligations. The degree to which we are leveraged could
significantly harm our ability to obtain financing for working capital,
acquisitions or other purposes and could make us more vulnerable to industry
downturns and competitive pressures. Our ability to meet our debt service
obligations will be dependent upon our future performance, which will be
subject to financial, business and other factors affecting our operations,
many of which are beyond our control. In addition, our earnings are
insufficient to cover our fixed charges. Also, in connection with a lease
transaction for real estate in San Jose, California, we have restricted
approximately $335.8 million out of $1,052.9 million of our total cash, cash
equivalents, restricted cash and investment securities as collateral for
specified obligations to the lessor under the lease. The investment securities
are restricted as to withdrawal and are managed by a third party subject to a
number of limitations. The Company plans to commence construction on the 40
acres during the remainder of fiscal 2002 and plans to obtain financing
similar to the above lease transaction in order to facilitate this future
construction which may require additional collateralization of cash. We will
require substantial amounts of cash to fund scheduled payments of interest on
the convertible notes, payment of the principal amount of the convertible
notes, payment of principal and interest on our other indebtedness, future
capital expenditures, payments on our lease and any increased working capital
requirements. If we are unable to meet our cash requirements out of cash flow
from operations, there can be no assurance that we will be able to obtain
alternative financing. In the absence of such financing, our ability to
respond to changing business and economic conditions, to make future
acquisitions, to absorb adverse operating results or to fund capital
expenditures or increased

                                      28
<PAGE>

working capital requirements would be significantly reduced. If we do not
generate sufficient cash flow from operations to repay the notes at maturity,
we could attempt to refinance the notes; however, no assurance can be given
that such a refinancing would be available on terms acceptable to us, if at
all. Any failure by us to satisfy our obligations with respect to the notes at
maturity (with respect to payments of principal) or prior thereto (with respect
to payments of interest or required repurchases) would constitute a default
under the indenture and could cause a default under agreements governing our
other indebtedness.

 Power outages in California may adversely affect us.

   We have significant operations, including our headquarters, in the state of
California and are dependent on a continuous power supply. California's current
energy crisis could substantially disrupt our operations and increase our
expenses. California has recently implemented, and may in the future continue
to implement, rolling blackouts throughout the state. If blackouts interrupt
our power supply, we may be temporarily unable to continue operations at our
California facilities. Any such interruption in our ability to continue
operations at our facilities could delay the development and delivery of our
products and services and otherwise disrupt communications with our customers
or other third parties on whom we rely, such as SIs. Future interruptions could
damage our reputation and could result in lost revenue, either of which could
substantially harm our business and results of operations. Furthermore,
shortages in wholesale electricity supplies have caused power prices to
increase. If energy prices continue to increase, our operating expenses will
likely increase which could have a negative effect on our operating results.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS

Foreign Exchange

   BEA's revenues originating outside the United States were 42.9 percent and
42.1 percent of total revenues in the first quarter of fiscal 2002 and 2001,
respectively. International revenues from each geographic sub-region were less
than 10 percent of total revenues in the first quarter of fiscal 2002. The only
geographic sub-region outside of the United States with revenues greater than
10 percent of total revenues in the first quarter of fiscal 2001 was the United
Kingdom with 15.0 percent or $23.1 million. International sales were made
mostly from the Company's foreign sales subsidiaries in the local countries and
are typically denominated in the local currency of each country. These
subsidiaries also incur most of their expenses in the local currency.
Accordingly, foreign subsidiaries use the local currency as their functional
currency.

   The Company's 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, other
regulations and restrictions, and foreign exchange volatility. Accordingly, the
Company's future results could be materially adversely impacted by changes in
these or other factors.

   Effective February 1, 2001, the Company adopted the Financial Accounting
Standards Board Statement No. 133, "Accounting for Derivative Instruments and
Hedging Activities" ("SFAS 133"), which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts and for hedging activities. All derivatives,
whether designated in hedging relationships or not, are required to be recorded
on the balance sheet at fair value. If the derivative is designated as a fair
value hedge, the changes in the fair value of the derivative and of the hedged
item attributable to the hedged risk are recognized in earnings. If the
derivative is designated as a cash flow hedge, the effective portions of
changes in the fair value of the derivative are recorded in accumulated other
comprehensive loss.

   The Company uses derivative instruments to manage exposures to foreign
currency. The Company's objectives to holding derivatives are to minimize the
risks using the most effective methods to eliminate or reduce the impacts of
these exposures.

   The Company's exposure to foreign exchange rate fluctuations arises in part
from intercompany accounts between the parent company in the United States and
its foreign subsidiaries. These intercompany accounts are

                                       29
<PAGE>

typically denominated in the functional currency of the foreign subsidiary in
order to centralize foreign exchange risk with the parent company in the
United States. The Company is also exposed to foreign exchange rate
fluctuations as the financial results of foreign subsidiaries are translated
into U.S. dollars in consolidation. As exchange rates vary, these results,
when translated, may vary from expectations and adversely impact overall
financial results.

   The Company has a program to reduce the effect of foreign exchange
transaction gains and losses from recorded foreign currency-denominated assets
and liabilities. This program involves the use of forward foreign exchange
contracts in certain European and Asian currencies. A forward foreign exchange
contract obligates the Company 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. Under
this program, increases or decreases in the Company's foreign currency
transactions are partially offset by gains and losses on the forward
contracts, so as to mitigate the possibility of significant foreign currency
transaction gains and losses. The Company does not use foreign currency
contracts for trading purposes. All foreign currency transactions and all
outstanding forward contracts are marked-to-market on a monthly basis with
realized gains and losses included in interest income and other, net. Net
losses resulting from foreign currency transactions were approximately $5,000
for the first quarter in fiscal 2002.

   The Company's outstanding forward contracts as of April 30, 2001 are
presented in the table below. This table presents the notional amount in U.S.
dollars using the spot exchange rate in April 2001 and the weighted average
contractual foreign currency exchange rates. Notional weighted average
exchange rates are quoted using market conventions where the currency is
expressed in units per U.S. dollar. All of these forward contracts mature
within 30 days or less as of April 30, 2001.

<TABLE>
<CAPTION>
                                                                       Notional
                                                                       Weighted
                                                                        Average
                                                           Notional    Exchange
                                                            Amount       Rate
                                                        -------------- ---------
                                                        (in thousands)
   <S>                                                  <C>            <C>
   Functional Currency--U.S. Dollar
   Euros...............................................    $  8,100        1.124
   British pounds......................................       5,900        0.700
   Japanese yen........................................      15,300      121.878
   Swedish krona.......................................      14,400       10.200
   Canadian dollars....................................       8,000        1.569
   Korean won..........................................       7,100    1,327.207
   Australian dollars..................................       2,000        1.989
   Israeli shekels.....................................       1,100        4.186
   Swiss francs........................................         800        1.725
                                                           --------
     Total.............................................    $ 62,700
                                                           --------
   Functional Currency--EURO
   U.S. dollars........................................    $ 33,900        1.122
   British pounds......................................       6,400        0.698
   Swiss francs........................................       5,700        1.715
   Swedish krona.......................................       2,600       10.320
   Israeli shekels.....................................       1,400        4.175
                                                           --------
     Total.............................................    $ 50,000
                                                           --------
     Grand Total.......................................    $112,700
                                                           ========
</TABLE>


                                      30
<PAGE>

Interest Rates

   The Company invests its 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 invested in
short-term time deposits of the local operating bank.

   The Company accounts for its 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, 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, the Company's future investment income may fall short of expectations
due to changes in interest rates or the Company 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, the Company reduces its interest rate risk
by investing its cash in instruments with short maturities. The Company's
exposure, on its portfolio of marketable investments, to changes in short term
interest rates is insignificant as of April 30, 2001 because the average
holding period until maturity of the Company's cash equivalents and short-term
investments was approximately 21 days. The table below presents the principal
amount and related weighted average interest rates for the Company's
investment portfolio. Short-term investments are all in fixed-rate
instruments.

   Table of investment securities (in thousands) at April 30, 2001:

<TABLE>
<CAPTION>
                                                                        Average
                                                                 Fair   Interest
                                                                Value     Rate
                                                               -------- --------
   <S>                                                         <C>      <C>
   Cash equivalents........................................... $590,123   4.76%
   Short-term investments (0-1 year)..........................    9,884   4.68%
   Short-term restricted cash (0-1 year)......................  202,550   4.96%
   Long-term restricted cash (1-5 years)......................  140,361   4.54%
                                                               --------
   Total cash and investment securities....................... $942,918
                                                               ========
</TABLE>

   The Company is exposed to changes in short-term interest rates through a
lease that the Company entered into on February 13, 2001, which includes a
variable short-term interest rate based on LIBOR. The annual lease expense
will fluctuate from time to time depending on changes in LIBOR. A 1.0%
increase in LIBOR will generate an increase in annual lease expense of
approximately $3.3 million beginning in year 3 of the lease.

Investments in equity securities

   The Company has made net investments in several privately-held companies
totaling $39.8 million as of April 30, 2001, several of which can still be
considered in the start-up or development stages. These non-marketable
investments are accounted for under the cost method, as ownership is less than
20 percent and/or the Company does not have the ability to exercise
significant influence over the operations of the investee companies. These
investments are inherently risky as the market for the technologies or
products they have under development are typically in the early stages and may
never materialize. It is possible that the Company could lose its entire
initial investment in these companies. As a part of management's process of
regularly reviewing these investments for impairment, the Company recorded a
write-down of $10.7 million of certain investments which were determined to be
permanently impaired in the first quarter of fiscal 2002.

                                      31
<PAGE>

                          PART II. OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

    (a) Exhibits:

     (10.1) Form of Amended and Restated Master Lease with Appendix between
  the Registrant and ABN AMRO Leasing, Inc., dated May 15, 2001

    (b) Reports on Form 8-K:

   A report on Form 8-K was filed by the Registrant on February 26, 2001 for
the synthetic lease agreement entered into with ABN AMRO LEASING, INC.

                                      32
<PAGE>

                                  SIGNATURES

   Pursuant to the requirement of the Security 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/ William M. Klein

                                          William M. Klein
                                          Chief Financial Officer and
                                          Executive Vice President--
                                          Administration
                                          (Duly Authorized Officer and
                                           Principal Financial Officer)

Dated: June 13, 2001

                                      33