BEA SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Significant Accounting Policies
Description of business
BEA Systems, Inc. (referred herein as we, us, BEA or the
Company) is a provider of application infrastructure software and related services that help companies of all sizes build distributed systems that extend investments in existing computer systems and provide the foundation for running an
integrated business. BEAs customers use BEA products as a deployment platform for Internet-based applications, including packaged applications, and as a means for robust enterprise application integration among mainframe, client/server and
Internet-based applications. Our revenues are derived from a single group of similar and related products and services.
Principles of
consolidation
The consolidated financial statements include the accounts of the Company and all subsidiaries. Intercompany accounts and
transactions have been eliminated. The operating results of businesses acquired and accounted for as a purchase are included from the date of their acquisition.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year
presentation.
Use of estimates
The preparation of the financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the
accompanying notes. Actual results could differ materially from those estimates.
Foreign currencies
We transact business in various foreign currencies. Generally, the functional currency of a foreign operation is the local countrys currency.
Accordingly, the assets and liabilities of foreign subsidiaries are translated from their respective functional currencies at the rates in effect at the end of each reporting period while revenue and expense accounts are translated at weighted
average rates during the period and equity is translated at historical rates. Foreign currency translation adjustments are reflected as a separate component of accumulated other comprehensive income.
We have an accounting exposure to foreign exchange rate volatility primarily from intercompany accounts between our parent company in the United States
and our foreign subsidiaries. The remaining accounting exposure is a result of certain assets and liabilities denominated in foreign currencies other than their functional currency that require remeasurement. The intercompany accounts are typically
denominated in the functional currency of the foreign subsidiary in order to centralize foreign exchange risk. The income statement exposure to currency fluctuations arises principally from revaluing our intercompany balances into U.S. dollars, with
the resulting gains or losses recorded in other income and expense. The Company hedges its exposure to these profit and loss fluctuations by entering into forward exchange contracts, which are recorded at fair value based on current exchange rates
each month. Gains and losses resulting from exchange rate fluctuations on forward foreign exchange contracts are recorded in interest income and other, net and generally offset the corresponding foreign exchange gains and losses from the foreign
currency denominated assets and liabilities. These foreign
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currency transactions resulted in a net gain of $0.7 million for the year ended January 31, 2008 and $0.2 million and $1.4 million net loss in the
fiscal years ended January 31, 2007 and 2006, respectively.
Fair value of financial instruments
The following methods are used to estimate the fair value of the Companys financial instruments:
a) the carrying value of cash and cash equivalents, accounts receivables, accounts payable and accrued liabilities approximates their fair
value due to the short-term nature of these instruments;
b) available for sale securities and forward foreign exchange
contracts are recorded based on quoted market prices;
c) notes payable and other long term obligations are recorded at
their fair value which approximates their carrying value at the balance sheet date.
Cash equivalents and investments
Cash equivalents consist of highly liquid investments, including corporate debt securities and money market funds with maturities of 90 days or less from
the date of purchase.
Short-term and long-term investments consist principally of U.S. agency securities, U.S. treasury securities,
corporate notes and asset-backed securities with remaining time to maturity of 37 months or less. The Company considers investments with remaining time to maturity greater than one year and in a loss position at the balance sheet date to be
classified as long-term as it expects to hold them to recovery which may be at maturity. The Company considers all other investments with remaining time to maturity greater than one year to be short-term investments. The short-term investments are
classified in the balance sheet as current assets because they can be readily converted into cash or into securities with a shorter remaining time to maturity and because the Company is not committed to holding the investments until maturity. The
Company determines the appropriate classification of its investments at the time of purchase and re-evaluates such designations as of each balance sheet date. All investments and cash equivalents in the portfolio are classified as
available-for-sale and are stated at fair market value, with all the associated unrealized gains and losses, net of deferred taxes, reported as a component of accumulated other comprehensive income. The amortized cost of debt securities
is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization and accretion are included in interest income and other, net.
Realized gains and losses and declines in value judged to be other-than-temporary on available-for-sale securities are included in interest income and other, net. The cost of securities sold is based on the specific
identification method.
Accounts Receivable and the Allowance for Doubtful Accounts
Accounts receivable are stated at cost, net of allowances for doubtful accounts. The Company makes judgments as to its ability to collect outstanding
receivables and records allowances when collection becomes doubtful due to liquidity and non-liquidity concerns. The allowance includes both (1) an estimate for uncollectible receivables due to customers liquidity concerns and (2) an
estimate for uncollectible receivables due to non-liquidity types of concerns. The allowance charges associated with non-liquidity concerns are recorded as reductions to revenue, and the allowance charges associated with liquidity concerns are
recorded as general and administrative expenses. These estimates are based on multiple sources of information including: assessing the credit worthiness of the Companys customers, the Companys historical collection experience, collection
experience within the Companys industry, industry and geographic concentrations of credit risk, and current economic trends.
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The accounts receivable aging is reviewed on a regular basis and write-offs occur on a case by case basis
net of any amounts that may be collected.
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. In accordance with the Companys Investment Policy, we invest the cash, cash equivalents and short and long-term investments in corporate bonds rated A- or higher and money market instruments rated A-1/P-1. In
addition, the Company limits the amount invested with any one 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 Asia/Pacific. The Company performs credit evaluations of its customers financial condition on a case by case basis and limits the amount of credit extended as
deemed appropriate; generally no collateral is required. The Company maintains allowances for estimated credit losses and, to date, such losses have been within managements expectations. Future credit losses may differ from the Companys
estimates, particularly if the financial conditions of its customers were to deteriorate, and could have a material impact on the Companys future results of operations.
No customer accounted for more than 10 percent of total revenues in fiscal 2008, fiscal 2007 or fiscal 2006. There were no customers that accounted for
more than 10 percent of accounts receivable as of January 31, 2008, or 2007. The only individual country outside of the United States with revenues greater than 10 percent of total revenues in fiscal 2008 and fiscal 2006 was the United Kingdom
with 10.2 percent or $156.4 million and 10.8 percent or $130.0 million, respectively. No individual country outside of the United States had revenues greater than 10 percent of total revenues in fiscal 2007.
Property and equipment
Property and
equipment are stated at cost. Land includes development costs to prepare the property for use. Depreciation on property and equipment is computed using the straight-line method over the following estimated useful lives of the assets:
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Computer hardware and software
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2-5 years
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Furniture and equipment
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2-5 years
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Land is not depreciated as it is considered to have an indefinite useful life. Leasehold
improvements are amortized over the shorter of 5 years, the useful lives of the assets, or the remaining lease term. Furniture and equipment under capital lease are amortized consistent with the policy outlined above.
The San Jose building was not placed in service at January 31, 2008 and therefore no depreciation was recorded for the year ended January 31,
2008. Once the building is placed in service it will be amortized over 40 years.
Acquired intangible assets
Acquired intangible assets consist of purchased technology, patents and trademarks, non-compete agreements, distribution rights and customer base related
to the Companys acquisitions accounted for using the purchase method. Amortization of these acquired intangible assets is calculated on a straight-line basis over the following estimated useful lives of the assets:
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Purchased technology
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2-5 years
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Non-compete agreements
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1-2 years
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Customer base
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1-6 years
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Amortization of purchased technology, patents and trademarks, non-compete agreements, distribution rights
and customer base is included as a component of cost of license fees and costs of services.
Impairment of Long Lived Assets
The Company periodically assesses, in accordance with the provisions of Statement of Financial Accounting Standards No. 144
(FAS 144),
Accounting for the Impairment and Disposal of Long-Lived Assets,
potential impairment of its long-lived assets with estimable useful lives. An impairment review is performed whenever events or changes in circumstances
indicate that the carrying value may not be recoverable.
Factors the Company considers important that could trigger an impairment review
include, but are not limited to, significant under-performance relative to historical or projected future operating results, significant changes in the manner of use of the assets or the strategy for the Companys overall business, and
significant industry or economic trends. If the Company determines that the carrying value of the long-lived assets may not be recoverable based upon the existence of one or more of the above indicators, the Company determines the recoverability by
comparing the carrying amount of the asset to net future undiscounted cash flows that the asset is expected to generate. The impairment recognized is the amount by which the carrying amount exceeds the fair market value of the asset.
Goodwill
Goodwill represents the
excess of the purchase price over the fair value of net tangible and identified intangible assets acquired in business combinations. Goodwill is not amortized but is evaluated at least annually for impairment or when a change in facts and
circumstances indicate that the fair value of the goodwill may be below its carrying value.
The Company tests goodwill for impairment in
accordance with Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets
(FAS 142)
.
Under FAS 142, goodwill is tested for impairment in a two-step process. First, the Company determines
if the carrying amount of its Reporting Unit exceeds the fair value of the Reporting Unit, which may initially indicate that goodwill could be impaired. If the Company determines that such impairment could have occurred, it would compare
the implied fair value of the goodwill as defined by FAS 142 to its carrying amount to determine the impairment loss, if any. The Company completed the first step under FAS 142 in the fourth quarters of fiscal 2008, 2007 and 2006 and
determined goodwill was not impaired.
Software development costs
Statement of Financial Accounting Standards No. 86,
Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed
,
requires the capitalization of certain software development costs subsequent to the establishment of technological feasibility. Based on the Companys product development process, technological feasibility is established upon the completion of
a working model. Costs incurred by the Company between the completion of the working model and the point at which the product is ready for general release have been insignificant. Accordingly, the Company has charged all such costs to research and
development expense in the period incurred.
Revenue recognition
The Company recognizes revenues in accordance with the American Institute of Certified Public Accountants (AICPA) Statement of Position 97-2,
Software Revenue Recognition, as amended.
Revenue from software license agreements is recognized when the basic criteria of software
revenue recognition have been met: (1) persuasive evidence of an agreement exists, (2) delivery of the product has
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occurred, (3) the fee is fixed or determinable, and (4) collection is probable. The Company uses the residual method to recognize revenue when a
license agreement includes one or more elements to be delivered at a future date and vendor specific objective evidence of the fair value of all undelivered elements exists. Under the residual method, the fair value of the undelivered elements is
deferred and the remaining portion of the arrangement fee is recognized as license revenue. If evidence of the fair value of one or more undelivered elements does not exist, all revenue is deferred and recognized when delivery of those elements has
occurred or when fair value is established.
Vendor specific objective evidence of the fair value of maintenance is determined by the price
paid by the Companys customers when maintenance is sold separately (i.e., the prices paid by the customers in connection with renewals). Vendor specific objective evidence of fair value of consulting services and education is based on the
price when sold separately.
When licenses are sold together with consulting services, license fees are recognized upon delivery, provided
that (1) the basic criteria of software revenue recognition have been met, (2) payment of the license fees is not dependent upon the performance of the consulting services, and (3) the consulting services do not provide significant
customization of the software products and are not essential to the functionality of the software that was delivered. The Company does not normally provide significant customization of its software products.
Revenue arrangements with extended payment terms are generally considered not to be fixed or determinable and, the Company generally does not recognize
revenue on these arrangements until the customer payments become due and all other revenue recognition criteria have been met. In certain countries where collection risk is considered to be high, such as certain Latin American, Asian and Eastern
European countries, revenue is generally recognized upon receipt of cash, and in some cases, evidence of delivery to the end user when the sale is made through a distributor.
In addition to our direct sales force, the Company has a number of partnerships that represent an indirect channel for license revenues, including system
platform companies, packaged application software developers, application service providers, system integrators and independent consultants and distributors. Fundamentally, partners who resell our products either embed or do not embed (i.e.,
bundle) our software into their own software products. Partners who embed our software are referred to as embedded Independent Software Vendors (ISVs), and revenue is recognized upon delivery of our software to the partner
assuming all other revenue recognition criteria have been met. Partners who do not embed our software are generally referred to as Resellers. Due to the risk of concessions regarding transactions with Resellers, the Company recognizes revenue once
persuasive evidence of sell through to an end user is received and all other revenue recognition criteria have been met. The Companys partner license agreements do not provide for rights of return.
Services revenue includes revenues for consulting services, education and customer support and maintenance. Consulting services revenue and the related
cost of services are generally recognized on a time and materials basis. BEAs consulting arrangements do not include significant customization of the software since the software is essentially a pre-packaged off the shelf platform
that applications are built on or attached to. Customer support and maintenance agreements provide technical support and the right to unspecified future upgrades on an if-and-when available basis. Customer support and maintenance revenues are
recognized ratably over the term of the support period (generally one year). Education services revenue are recognized as the related training services are delivered.
The Company occasionally purchases software products from vendors who are also customers. These transactions have not been frequent. In such transactions involving the exchange of software products, fair value of the
software sold and purchased generally cannot be reasonably estimated. As a result, in most cases the Company records such transactions at carryover (i.e. net) basis.
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Deferred revenue
The following table sets forth the components of deferred revenue (in thousands):
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January 31
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2008
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2007
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License fees
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$
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4,878
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$
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13,797
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Services
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472,107
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435,485
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Total deferred revenue
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$
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476,985
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$
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449,282
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Deferred services revenue includes customer support, consulting and education. The balance of
deferred services revenue is predominantly comprised of deferred customer support revenues. Deferred customer support revenues are recognized ratably over the term of the contract. Deferred license and consulting revenues are normally a result of
revenue recognition requirements and are recognized upon satisfaction of the revenue recognition criteria.
Cost of revenues
Cost of licenses primarily includes amortization of acquired intangible assets, costs associated with our customer license compliance
program, third party royalties, physical media and documentation, product packaging and shipping, and other production costs. Cost of services consists primarily of salaries and benefits and allocated overhead costs for our consulting, education and
support personnel as well as the cost of third party delivered consulting and education arrangements and amortization associated with acquired intangibles.
Stock-based compensation
The Company adopted Statement of Financial Accounting Standards
No. 123 (revised 2004),
Share-Based Payment
, (FAS 123(R)) using the modified prospective transition method, which requires the application of the accounting standard as of February 1, 2006, the first day of the
Companys fiscal year 2007. The Companys Consolidated Financial Statements as of and for the year ended January 31, 2008 and 2007 reflect the impact of FAS 123(R). In accordance with the modified prospective transition method, the
Companys consolidated financial statements for fiscal 2006 have not been restated to reflect, and do not include, the impact of FAS 123(R).
FAS 123(R) requires companies to estimate the fair value of stock-based awards on the date of grant using an option-pricing model. The Company uses the Black-Scholes-Merton option pricing model to determine the fair value of stock options
under FAS 123(R), consistent with that used for pro forma disclosures under FAS 123. The fair value of a restricted stock unit award is equivalent to the market price of the Companys common stock on the grant date. The value of the portion of
the stock-based award that is ultimately expected to vest is recognized as expense over the requisite service periods, or in the period of grant if the requisite service period has been provided, in the Companys consolidated statement of
income.
Stock-based compensation expense recognized in the Companys consolidated statement of income for the year ended
January 31, 2008 included (i) compensation expense for stock-based awards granted prior to, but not yet vested as of, January 31, 2006 based on the grant date fair value estimated in accordance with the provisions of FAS 123 and
(ii) compensation expense for the stock-based awards granted subsequent to January 31, 2006 based on the grant date fair value estimated in accordance with the provisions of FAS 123(R). The straight-line single option approach is the
Companys accounting policy for amortizing the fair value of stock-based compensation. Compensation expense for all expected-to-vest stock-based awards is recognized on a straight-line basis provided that the amount of compensation cost
recognized at any date is no less than the portion of the grant-date value of the award that is vested at that date. FAS 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual
forfeitures differ from those estimates. In
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the Companys stock-based compensation expense required under APB 25 and the pro forma information required under FAS 123 for fiscal 2006, the Company
accounted for forfeitures as they occurred.
Prior to the adoption of FAS 123(R), stock-based compensation expense was recognized in the
Companys consolidated statement of income under the provisions of APB 25. In accordance with APB 25, no compensation expense was required for the employee stock purchases under the Companys Employee Stock Purchase Plan. Pre-tax
stock-based compensation expense of $20.7
million for the fiscal year ended 2006, was related to employee stock-based awards and stock options assumed from acquisitions.
In accordance with FAS 123(R), the Company has presented as financing cash flows the tax benefits resulting from tax deductions in excess of the
compensation cost recognized for those options for fiscal 2008 and 2007. Tax benefits from employee stock plans of $12.8 million and $106.0 million, which related to tax deductions in excess of the compensation cost recognized, were presented
as financing cash flows for fiscal 2008 and 2007, respectively. In fiscal 2006, prior to the adoption of FAS 123(R), tax benefits from employee stock plans were presented as operating cash flows. Additionally, In accordance with FAS 123(R), FAS
No. 109,
Accounting for Income Taxes
(FAS 109), and EITF Topic D-32,
Intra-period Tax Allocation of the Effect of Pretax Income from Continuing Operations,
the Company has elected to recognize
excess income tax benefits from stock option exercises in additional paid-in capital only if an incremental income tax benefit would be realized after considering all other tax attributes presently available to the Company.
The following table summarizes the fiscal 2006 pro forma net income and earnings per share, net of related tax effect, had the Company applied the fair
value recognition provisions of FAS 123 to employee stock benefits (in thousands, except per share amounts):
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As of
January 31,
2006
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Net income
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Net income, as reported
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$
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143,170
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Add: Share-based employee compensation expense included in reported net income, net of income taxes
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15,833
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Deduct: Total share-based employee compensation expense determined under fair value method for all awards, net of income taxes
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(85,881
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)
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Net income, including share-based employee compensation
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$
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73,122
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Pro forma net income per share
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Basicnet income per share as reported
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$
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0.37
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Dilutednet income per share as reported
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$
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0.36
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Pro forma basis net income per share
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$
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0.19
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Pro forma diluted net income per share
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$
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0.18
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Segment information
The Company has aggregated two operating segments to form our application infrastructure software and related services reportable segment. The
Companys chief executive officer and chief financial officer evaluate the performance of the Company based upon total revenues by geographic region as disclosed in Note 16Geographic Information and Revenue by Type of Product or Service,
as well as, based on our consolidated statement of income which includes revenues and gross margins for license and services revenue and operating expenses by functional area.
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Advertising costs
The Company expenses advertising costs as incurred. Total advertising expenses were approximately $1.2 million, $4.7 million and $2.2 million in fiscal 2008, 2007 and 2006, respectively.
Facilities Consolidation Charges
In
fiscal 2002 and fiscal 2005, we recorded a facilities consolidation charge for our estimated future lease commitments on excess facilities, net of estimated future sublease income. The estimates used in calculating the charge are reviewed on a
quarterly basis and will be revised if estimated future vacancy rates and sublease rates vary from our original estimates. To the extent that our new estimates vary adversely from our original estimates, we may incur additional losses that are not
included in the accrued balance at January 31, 2008. Conversely, unanticipated improvements in vacancy rates or sublease rates, or termination settlements for less than our accrued amounts, may result in a reversal of a portion of the accrued
balance and a benefit on our statement of income in a future period. The maximum future cost associated with these excess facilities, assuming that no future sublease income is realized on these properties, other than for subleases that have been
executed prior to January 31, 2008, and assuming that the landlords are unwilling to negotiate early lease termination arrangements, is estimated to be $7.8 million, which exceeds the accrued balance at January 31, 2008 by
$1.0 million.
Income taxes
Realization of our deferred tax assets is primarily dependent on future U.S. taxable income. FAS 109 provides for the recognition of deferred tax assets if realization of such assets is more likely than not. As a
result of recent U.S. operating results, as well as U.S. jurisdictional forecasts of taxable income, we believe that net deferred tax assets in the amount of $211.6 million are realizable based on the more likely than not standard
required for recognition. The amount of deferred tax assets considered realizable is subject to adjustment in future periods if estimates of future taxable income are reduced.
BEA is a U.S. based multinational company subject to tax in multiple U.S. and foreign tax jurisdictions. The Companys provision for income taxes is
based on jurisdictional mix of earnings, statutory rates, and enacted tax rules, including transfer pricing. Significant judgment is required in determining the Companys provision for income taxes and in evaluating its tax positions on a
worldwide basis. The Company believes its tax positions, including intercompany transfer pricing policies, are consistent with the tax laws in the jurisdictions in which it conducts its business. It is possible that these positions may be
challenged, which may have a significant impact on the Companys effective tax rate.
The Company accounts for uncertain tax positions
in accordance with FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes
(FIN 48). Accordingly, the Company reports liabilities for unrecognized tax benefits resulting from uncertain tax positions
taken or expected to be taken into account on a tax return. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense.
Projects funded by third parties
The
Company has entered into product development agreements with third parties to develop ports and integration tools and to co-develop products. The Company has one agreement with a third party that provides us with partial reimbursement for research
and development and marketing expenses associated with a product of mutual interest. The funding we receive is intended to offset certain of our research and development costs and is non-refundable. Such amounts are recorded as a reduction in
BEAs operating expenses. During fiscal 2008 and 2007, BEA received approximately $1.3 million and $4.4 million of third party funding which was used to offset research and development expense. During fiscal 2006, BEA received approximately
$10.3 million of third party
84
funding, which was used to offset $9.7 million of research and development expenses and $0.6 million of marketing expenses.
Business Combinations
We are
required to allocate the purchase price of acquired companies to the tangible and intangible assets acquired, liabilities assumed, as well as in-process research and development (IPR&D) based on their estimated fair values. We engage
independent third party appraisal firms to assist us in determining the fair values of certain assets acquired and liabilities assumed for significant acquisitions. This valuation requires management to make significant estimates and assumptions,
especially with respect to long-lived and intangible assets. Intangible assets are amortized using the straight-line method.
Critical
estimates in valuing certain of the intangible assets include but are not limited to: future expected cash flows from license sales, maintenance agreements, consulting contracts, customer contracts and acquired developed technologies and patents;
expected costs to develop the IPR&D into commercially viable products and estimating cash flows from the projects when completed; the acquired companys brand awareness and market position, as well as assumptions about the period of time
the brand will continue to be used in the combined companys product portfolio; and discount rates. Managements estimates of fair value are based upon assumptions believed to be reasonable and based on historical experience and
information obtained from the management of the acquired companies; however, these assumptions are inherently uncertain and unpredictable. Assumptions may be incomplete or inaccurate, and unanticipated events and circumstances may occur.
The fair value of the deferred support obligation is based, in part, on a valuation completed by a third party appraiser using estimates and
assumptions provided by management. The estimated fair value of the support obligation is determined utilizing a cost build-up approach. The cost build-up approach determines fair value by estimating the costs relating to fulfilling the obligation
plus a normal profit margin. The sum of the costs and operating profit approximates, in theory, the amount that the Company would be required to pay a third party to assume the support obligation. The estimated costs to fulfill the support
obligation were based on the historical direct costs related to providing the support services and to correct any errors in the acquired companys software products. We do not include any costs associated with selling efforts or research and
development or the related fulfillment margins on these costs. Profit associated with selling effort is excluded because acquired companies conclude the selling effort on the support contracts prior to the acquisition date. The estimated research
and development costs are not included in the fair value determination, as these costs are not deemed to represent a legal obligation at the time of acquisition.
IPR&D represents incomplete research and development projects that had not reached technological feasibility and had no alternative future use when a company is acquired. Technological feasibility is established
when an enterprise has completed all planning, design, coding and testing activities that are necessary to establish that a product can be produced to meet its design specifications including functions, features and technical performance
requirements.
The value assigned to IPR&D is determined by considering the importance of the project to the overall development plan,
estimating cost to develop the acquisition related IPR&D into commercially viable products, estimating the resulting net cash flows from the project when completed and discounting the net cash flows to their present value based on the percentage
of completion of the IPR&D project.
In addition, other estimates associated with the accounting for these acquisitions may change as
additional information becomes available regarding the assets acquired and liabilities assumed. In particular, deferred compensation and liabilities to restructure the pre-acquisition organization, including workforce reductions are subject to
change as management completes its assessment of the pre-merger operations and begins to execute the approved plan. These assumptions may be incomplete or inaccurate, and unanticipated events and circumstances may occur.
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Effect of new accounting pronouncements
In December 2007, the Financial Accounting Standards Board (FASB) issued SFAS No. 141 (revised 2007),
Business Combinations
(SFAS No. 141(R)). SFAS No. 141(R) establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling
interest in the acquiree and the goodwill acquired. SFAS No. 141(R) also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. SFAS No. 141(R) is effective for fiscal
years beginning after December 15, 2008, and will be adopted by us in the first quarter of fiscal 2010. We are currently evaluating the potential impact, if any, of the adoption of SFAS No. 141(R) on our consolidated results of operations
and financial condition.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statementsan amendment of Accounting Research Bulletin No. 51
(SFAS No. 160). SFAS No. 160 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the
parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parents ownership interest, and the valuation of retained noncontrolling equity investments when a subsidiary is
deconsolidated. SFAS No. 160 also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS No. 160 is effective for fiscal years
beginning after December 15, 2008, and will be adopted by us in the first quarter of fiscal 2010. We are currently evaluating the potential impact, if any, of the adoption of SFAS No. 160 on our consolidated results of operations and
financial condition.
In September 2006, the FASB issued FAS No. 157
, Fair Value Measurements.
This Statement
defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements, the
Financial Accounting Standards Board having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this Statement does not require any new fair value measurements. However, for
some entities, the application of this Statement will change current practice. This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. We are
currently evaluating the potential impact, if any, of the adoption of SFAS No. 157 on our consolidated results of operations and financial condition.
In February 2007, the FASB issued FAS No. 159,
The Fair Value Option for Financial Assets and Financial LiabilitiesIncluding an amendment of FASB Statement No. 115
(FAS
159). FAS 159 is expected to expand the use of fair value accounting but does not affect existing standards which require certain assets or liabilities to be carried at fair value. The objective of FAS 159 is to improve financial reporting by
providing companies with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. Under FAS 159, a company may choose, at
specified election dates, to measure eligible items at fair value and report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. FAS 159 is effective for financial
statements issued for fiscal 2009. We are currently assessing the impact that FAS 159 may have on our results of operations and financial position.
In June 2007, the Financial Accounting Standards Board (FASB) ratified EITF 07-3,
Accounting for Non-Refundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities
,
(EITF 07-3). EITF 07-3 requires that nonrefundable advance payments for goods or services that will be used or rendered for future research and development activities be deferred and capitalized and recognized as an expense as the goods
are delivered or the related services are performed. EITF 07-3 is effective, on a prospective basis, for fiscal years beginning after December 15, 2007 and will be adopted by the Company in the first quarter of fiscal 2009. The Company does not
expect EITF 07-3 to have a material impact on its consolidated results of operations and financial condition.
86
2. Merger with Oracle Corporation
On January 16, 2008, the Company entered into an Agreement and Plan of Merger (the Merger Agreement) with Oracle Corporation (Oracle) and Bronco Acquisition Corporation, a wholly-owned
subsidiary of Oracle (Merger Sub). The Merger Agreement provides that, subject to the terms and conditions of the Merger Agreement, Merger Sub will merge with and into the Company (the Merger) and, as a result of the Merger,
the separate corporate existence of Merger Sub will cease and the Company will continue as the surviving corporation and become a wholly-owned subsidiary of Oracle. Upon the closing of the Merger, each share of common stock of the Company issued and
outstanding immediately prior to consummation of the Merger (other than shares owned by the Company, Oracle or Merger Sub) will be converted into the right to receive $19.375 in cash, without interest. In addition, options to acquire Company common
stock, restricted stock unit awards, restricted stock awards and other equity-based awards denominated in shares of Company common stock outstanding immediately prior to the consummation of the Merger will be converted into options, restricted stock
unit awards, restricted stock awards or other equity-based awards, as the case may be, denominated in shares of Oracle common stock based on formulas contained in the Merger Agreement, except for equity-based awards held by a person who is not an
employee of, or a consultant to, the Company or any of its subsidiaries at the time of the consummation of the Merger, which equity-based awards shall be converted into the right to receive cash based on formulas contained in the Merger Agreement.
The Merger is subject to the approval of the Companys stockholders representing a majority of the outstanding shares of Company
common stock. A special meeting of the Companys stockholders to consider and vote on the proposal to adopt the Merger Agreement will be held on April 4, 2008. Stockholders of record as of the close of business on February 28, 2008
will be entitled to vote at the special meeting. In addition, the Merger is subject to antitrust clearance or approvals in both the United States and the European Union, as well as other customary closing conditions. On February 27, 2008, the
U.S. Department of Justice and the Federal Trade Commission granted early termination of the Hart-Scott-Rodino (HSR) review period. BEA and Oracle are working toward obtaining all required clearances as soon as possible.
Under the terms of the Merger Agreement, the Company is required to pay Oracle a termination fee in the amount of $250 million in cash in the following
circumstances:
|
|
|
the Merger Agreement is terminated by Oracle because either (1) the Companys Board of Directors fails to make or withdraws (or has publicly proposes to
do either) its recommendation to the Companys stockholders to adopt and approve the Merger Agreement or modifies or publicly proposes to modify its recommendation in a manner adverse to Oracle or Merger Sub, (2) the Company enters into,
or publicly announces its intention to enter into, a written agreement relating to an acquisition proposal from a third party, or (3) the Company or any of its representatives willfully and materially breach any of it obligations under the
non-solicitation provisions in the Merger Agreement;
|
|
|
|
the Merger Agreement is terminated by the Company because, prior to the receipt of the approval of the Companys stockholders to adopt the Merger Agreement,
the Companys Board of Directors authorizes the Company to enter into, and the Company substantially concurrently enters into, a binding definitive agreement with a third party for a transaction constituting a superior proposal; or
|
|
|
|
the Merger Agreement is terminated by either the Company or Oracle because (A) either (1) the Merger is not consummated before October 16, 2008 (the
End Date) (the End Date may be extended to July 16, 2009 in order to obtain all necessary antitrust approvals), unless the failure to complete the Merger by such date is due to the actions of the party seeking to terminate the
Merger Agreement, or (2) the Companys stockholders fail to adopt the Merger Agreement, (B) prior to either the termination of the Merger Agreement or the date of the special meeting of the Companys stockholders, as the case may
be, an acquisition proposal by a third party has been publicly announced and not publicly withdrawn, and (C) within 12 months following the date of such termination, the Company either enters into a definitive agreement with respect to, or
consummates, an acquisition proposal from a third party.
|
87
In addition, if the Company has not breached its non-solicitation and antitrust obligations under the
Merger Agreement (except for such breaches that are unintentional and immaterial), Oracle is required to pay the Company a termination fee in the amount of $500 million in cash in the following circumstances:
|
|
|
the Merger Agreement is terminated by either the Company or Oracle because the Merger is not consummated before the End Date and either (A) the antitrust
closing conditions have not been satisfied or waived, or (B) a governmental entity has issued an order, rule or regulation relating to antitrust matters that restrains, enjoins or prohibits the consummation of the Merger; or
|
|
|
|
the Merger Agreement is terminated by either the Company or Oracle because either (A) a governmental entity of competent jurisdiction has issued a final and
non-appealable order, decree, ruling or other action permanently enjoining, restraining or otherwise prohibiting the consummation of the Merger or (B) any law or regulation is adopted that makes the consummation of the Merger illegal or
otherwise prohibited, and, in either instance, all other closing conditions of Oracle and Merger Sub have been met or waived.
|
Furthermore, if either the Company or Oracle terminates the Merger Agreement because of a failure to obtain the requisite approval of the Companys stockholders upon a final vote taken at a special meeting of the Companys
stockholders (or any adjournment or postponement thereof), BEA is required to reimburse Oracle for all of its documented reasonable out-of-pocket fees and expenses (including reasonable legal and other third party advisors fees and expenses)
actually incurred by Oracle and its affiliates on or prior to the termination of the Merger Agreement in an amount not to exceed $25 million. Any such required payments will be credited against any obligation that the Company may have to pay the
termination fee described above.
In addition, on November 7, 2007, the Board adopted the Change in Control Severance Plan, which
covers substantially all regular, full-time employees and part-time employees who are scheduled to work at least twenty hours per week, and who are not covered by individual change in control employment agreements. Under the terms of the plan, if,
during the one year period following a change in control of the Company, a participants employment is terminated by the Company without cause or by the participant for good reason, the participant will receive
(i) lump sum severance benefits, (ii) continued payment of the cost of the participants premiums for health continuation coverage under COBRA for a period equal to the number of months of severance pay, and (iii) immediate
vesting of fifty percent of the unvested portion of each grant of the participants stock options, restricted stock, restricted stock units that is outstanding and unvested as of the date of termination.
88
3. Financial Instruments
The carrying amounts and estimated fair value of cash and cash equivalents, restricted cash, and short and long-term investments consisted of the following as of January 31, 2008 and 2007 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2008
|
|
January 31, 2007
|
|
|
Amortized
cost
|
|
Unrealized
gains (losses)
|
|
|
Carrying
value and
fair value
|
|
Amortized
cost
|
|
Unrealized
gains (losses)
|
|
|
Carrying
value and
fair value
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
372,688
|
|
$
|
|
|
|
$
|
372,688
|
|
$
|
293,572
|
|
$
|
|
|
|
$
|
293,572
|
Money market funds
|
|
|
402,285
|
|
|
|
|
|
|
402,285
|
|
|
405,281
|
|
|
|
|
|
|
405,281
|
Corporate notes
|
|
|
179,087
|
|
|
6
|
|
|
|
179,093
|
|
|
164,976
|
|
|
|
|
|
|
164,976
|
U.S. agency securities
|
|
|
39,594
|
|
|
25
|
|
|
|
39,619
|
|
|
3,465
|
|
|
|
|
|
|
3,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
993,654
|
|
$
|
31
|
|
|
$
|
993,685
|
|
$
|
867,294
|
|
$
|
|
|
|
$
|
867,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short term
|
|
$
|
837
|
|
$
|
|
|
|
$
|
837
|
|
$
|
1,413
|
|
$
|
|
|
|
$
|
1,413
|
Long term
|
|
|
2,597
|
|
|
|
|
|
|
2,597
|
|
|
2,372
|
|
|
|
|
|
|
2,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,434
|
|
$
|
|
|
|
$
|
3,434
|
|
$
|
3,785
|
|
$
|
|
|
|
$
|
3,785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. agency securities
|
|
$
|
164,585
|
|
$
|
3,996
|
|
|
$
|
168,581
|
|
$
|
71,123
|
|
$
|
(65
|
)
|
|
$
|
71,058
|
U.S. treasury securities
|
|
|
26,291
|
|
|
577
|
|
|
|
26,868
|
|
|
12,794
|
|
|
(22
|
)
|
|
|
12,772
|
Corporate notes
|
|
|
239,543
|
|
|
1,355
|
|
|
|
240,898
|
|
|
205,026
|
|
|
(101
|
)
|
|
|
204,925
|
Asset-backed securities
|
|
|
70,327
|
|
|
1,396
|
|
|
|
71,723
|
|
|
25,154
|
|
|
32
|
|
|
|
25,186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
500,746
|
|
$
|
7,324
|
|
|
$
|
508,070
|
|
$
|
314,097
|
|
$
|
(156
|
)
|
|
$
|
313,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. agency securities
|
|
$
|
1,048
|
|
$
|
|
|
|
$
|
1,048
|
|
$
|
19,287
|
|
$
|
(35
|
)
|
|
$
|
19,252
|
U.S. treasury securities
|
|
|
1,018
|
|
|
(1
|
)
|
|
|
1,017
|
|
|
|
|
|
|
|
|
|
|
Corporate notes
|
|
|
7,749
|
|
|
(45
|
)
|
|
|
7,704
|
|
|
64,289
|
|
|
(178
|
)
|
|
|
64,111
|
Asset-backed securities
|
|
|
7,835
|
|
|
(129
|
)
|
|
|
7,706
|
|
|
10,169
|
|
|
(4
|
)
|
|
|
10,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
17,650
|
|
$
|
(175
|
)
|
|
$
|
17,475
|
|
$
|
93,745
|
|
$
|
(217
|
)
|
|
$
|
93,528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2008
|
|
January 31, 2007
|
|
|
Carrying
Value
|
|
Fair
Value
|
|
Carrying
Value
|
|
Fair
Value
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable and other long-term obligations (including current portion)
|
|
$
|
22,965
|
|
$
|
22,965
|
|
$
|
230,092
|
|
$
|
230,092
|
(1)
|
Restricted cash represents collateral for our letters of credit. Short term restricted cash represents letters of credit that expire within one year.
|
The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies.
For certain of the Companys financial instruments, including cash and cash equivalents, restricted cash, short and long-term
investments, and notes payable, the carrying amounts approximate fair value due to their short maturities. The fair value of forward foreign currency contracts is based on the estimated amount at which these contracts could be settled based on
quoted exchange rates. The fair value of notes payable and other long-term obligations are determined based on the interest rate accompanying the obligations.
89
The following table shows the gross unrealized losses and fair value of the Companys investments,
aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of January 31, 2008 (in thousands, except number of securities):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than twelve months
|
|
|
Greater than twelve months
|
|
Total
|
|
|
|
Fair value
|
|
Unrealized
losses
|
|
|
Fair value
|
|
Unrealized
losses
|
|
Fair value
|
|
Unrealized
losses
|
|
U.S. agency securities
|
|
$
|
1,054
|
|
$
|
|
|
|
$
|
|
|
$
|
|
|
$
|
1,054
|
|
$
|
|
|
U.S. treasury securities
|
|
|
1,023
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
1,023
|
|
|
(1
|
)
|
Corporate notes
|
|
|
27,009
|
|
|
(368
|
)
|
|
|
2,579
|
|
|
|
|
|
29,588
|
|
|
(368
|
)
|
Asset-backed securities
|
|
|
7,965
|
|
|
(162
|
)
|
|
|
|
|
|
|
|
|
7,965
|
|
|
(162
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
37,051
|
|
$
|
(531
|
)
|
|
$
|
2,579
|
|
$
|
|
|
$
|
39,630
|
|
$
|
(531
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of securities with an unrealized loss
|
|
|
|
|
|
29
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
Each of the securities in the above table have investment grade ratings and are in an unrealized
loss position due solely to interest rate changes, sector credit rating changes or company-specific rating changes. The Company expects to receive the full principal and interest on these securities. The Company considers investments with a
remaining time to maturity greater than one year and in a loss position at the balance sheet date to be classified as long-term as the Company expects and has the ability to hold them to recovery, which may be at maturity.
The following is a summary of the maturities of short-term investments as of January 31, 2008 (in thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
Expected maturity date
|
|
|
|
2008
|
|
|
2009-2013
|
|
U.S. agency securities
|
|
$
|
37,473
|
|
|
$
|
131,108
|
|
Weighted average yield
|
|
|
4.75
|
%
|
|
|
4.39
|
%
|
U.S. treasury securities
|
|
$
|
1,020
|
|
|
$
|
25,848
|
|
Weighted average yield
|
|
|
3.08
|
%
|
|
|
3.43
|
%
|
Corporate notes
|
|
$
|
174,018
|
|
|
$
|
66,880
|
|
Weighted average yield
|
|
|
4.70
|
%
|
|
|
4.74
|
%
|
Asset-backed securities
|
|
$
|
13,856
|
|
|
$
|
57,867
|
|
Weighted average yield
|
|
|
4.68
|
%
|
|
|
4.86
|
%
|
The following is a summary of the maturities of long-term investments as of January 31, 2008
(in thousands, except percentages):
|
|
|
|
|
|
|
Expected
maturity date
2009-2013
|
|
U.S. agency securities
|
|
$
|
1,048
|
|
Weighted average yield
|
|
|
2.99
|
%
|
U.S. treasury securities
|
|
$
|
1,017
|
|
Weighted average yield
|
|
|
2.12
|
%
|
Corporate notes
|
|
$
|
7,704
|
|
Weighted average yield
|
|
|
4.12
|
%
|
Asset-backed securities
|
|
$
|
7,706
|
|
Weighted average yield
|
|
|
5.17
|
%
|
90
In the above table we have reflected asset backed securities according to their effective maturities
(given expected principal pre-payments). These securities may have final legal maturities of greater than 5 years.
The Company reviewed
its investments to identify and evaluate investments that have indications of possible impairment. At January 31, 2008, the Company held approximately $79 million in AAA rated Asset-backed securities that were valued at reported market prices
and classified as current assets. The underlying assets of the Asset-backed securities are auto and equipment loans and credit card assets. We do not believe the carrying values of these Asset-backed securities are impaired. In addition, we believe
that we will be able to liquidate these investments without significant loss.
Foreign Currency Contracts
The Company enters into forward foreign currency contracts to reduce its exposure to the effect of foreign currency fluctuations on certain foreign
currency denominated monetary assets and liabilities that are not recorded in the functional currency of the entity that has the foreign currency exposure. The contracts are marked-to-market on a monthly basis and are not used for trading or
speculative purposes. At January 31, 2008, these contracts are recorded as part of other assets and liabilities on the balance sheet. At January 31, 2008 and 2007, the Company had outstanding forward foreign currency contracts with
notional amounts of approximately $223.6 million and $458.3 million, respectively. All of the Companys forward foreign currency contracts have original maturities of 60 days or less.
91
Our outstanding forward contracts as of January 31, 2008 are presented in the table below. All
forward contracts amounts are representative of the expected payments to be made under these instruments. All of these forward contracts mature within 60 days or less as of January 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Local
currency
contract
amount
|
|
|
|
|
Contract
amount
|
|
|
|
Fair market
value at
January 31,
2008 (USD)
|
|
|
|
(in thousands)
|
|
|
|
|
(in thousands)
|
|
|
|
(in thousands)
|
|
Contract to Buy US $
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brazilian reals
|
|
(12,800
|
)
|
|
BRL
|
|
7,302
|
|
USD
|
|
|
91
|
|
British pounds
|
|
(1,210
|
)
|
|
GBP
|
|
2,375
|
|
USD
|
|
|
269
|
|
Chinese yuan
|
|
(10,200
|
)
|
|
CNY
|
|
1,422
|
|
USD
|
|
|
(10
|
)
|
Euros
|
|
(40,000
|
)
|
|
EUR
|
|
59,478
|
|
USD
|
|
|
56
|
|
Indian rupee
|
|
(165,000
|
)
|
|
INR
|
|
4,188
|
|
USD
|
|
|
8
|
|
Israeli shekel
|
|
(2,000
|
)
|
|
ILS
|
|
540
|
|
USD
|
|
|
(13
|
)
|
Japanese yen
|
|
(1,330,000
|
)
|
|
JPY
|
|
12,369
|
|
USD
|
|
|
(191
|
)
|
Korean won
|
|
(29,800,000
|
)
|
|
KRW
|
|
31,818
|
|
USD
|
|
|
218
|
|
Mexican peso
|
|
(84,500
|
)
|
|
MXN
|
|
7,700
|
|
USD
|
|
|
(64
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract to Sell US $
|
|
|
|
|
|
|
|
|
|
|
|
|
|
British Pounds
|
|
9,200
|
|
|
GBP
|
|
17,972
|
|
USD
|
|
|
(22
|
)
|
Canadian dollar
|
|
6,900
|
|
|
CAD
|
|
6,767
|
|
USD
|
|
|
113
|
|
Chinese yuan
|
|
42,200
|
|
|
CNY
|
|
5,921
|
|
USD
|
|
|
34
|
|
Danish kroner
|
|
23,100
|
|
|
DKK
|
|
4,616
|
|
USD
|
|
|
(12
|
)
|
Euro
|
|
8,938
|
|
|
EUR
|
|
13,291
|
|
USD
|
|
|
(11
|
)
|
Singapore dollar
|
|
4,100
|
|
|
SGD
|
|
2,880
|
|
USD
|
|
|
25
|
|
Swedish krona
|
|
33,500
|
|
|
SEK
|
|
5,306
|
|
USD
|
|
|
(48
|
)
|
Swiss franc
|
|
2,300
|
|
|
CHF
|
|
2,112
|
|
USD
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract to Buy Euro
|
|
|
|
|
|
|
|
|
|
|
|
|
|
British pounds
|
|
(13,400
|
)
|
|
GBP
|
|
26,170
|
|
USD
|
|
|
(398
|
)
|
Danish kroner
|
|
(23,000
|
)
|
|
DKK
|
|
4,590
|
|
USD
|
|
|
5
|
|
Norwegian krone
|
|
(6,500
|
)
|
|
NOK
|
|
1,230
|
|
USD
|
|
|
31
|
|
Swiss franc
|
|
(3,000
|
)
|
|
CHF
|
|
2,750
|
|
USD
|
|
|
(31
|
)
|
Swedish krona
|
|
(18,000
|
)
|
|
SEK
|
|
2,850
|
|
USD
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(370
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
$
|
94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
92
4. Property and Equipment
Property and equipment consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
January 31,
|
|
|
|
2008
|
|
|
2007
|
|
Land
|
|
$
|
8,034
|
|
|
$
|
105,016
|
|
Building
|
|
$
|
133,254
|
|
|
|
|
|
Computer hardware and software
|
|
|
114,252
|
|
|
|
108,655
|
|
Furniture and equipment
|
|
|
43,233
|
|
|
|
39,404
|
|
Leasehold improvements
|
|
|
65,837
|
|
|
|
53,158
|
|
Furniture and equipment under capital leases
|
|
|
3,153
|
|
|
|
3,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
367,763
|
|
|
|
309,386
|
|
Accumulated depreciation and amortization
|
|
|
(172,896
|
)
|
|
|
(164,915
|
)
|
|
|
|
|
|
|
|
|
|
Total property and equipment, net
|
|
$
|
194,867
|
|
|
$
|
144,471
|
|
|
|
|
|
|
|
|
|
|
An equipment capital lease for $1.6 million was entered into in fiscal 2005 and accumulated
amortization was $1.6 million and $1.2 million at January 31, 2008 and January 31, 2007, respectively.
In the first quarter of
fiscal 2008, the Company entered into a Land Purchase and Sale Agreement (the Land Agreement) with Tishman Speyer Development Corporation (Tishman), pursuant to which the Company agreed to sell the San Jose Land to Tishman
for $108.0 million. After closing costs, the Company recorded a net gain of $0.8 million on the sale of the San Jose Land in the first quarter of fiscal 2008.
Also in the first quarter of fiscal 2008, the Company entered into a Purchase and Sale Agreement (the Building Agreement) with the The Sobrato Family Foundation and Sobrato-Sobrato Investments
(collectively, Sobrato), pursuant to which the Company agreed to purchase a 17-story building and parking facilities located at 488 Almaden Boulevard, San Jose, California from Sobrato for $135.3 million. That facility is intended to be
our new corporate headquarters. The Company delivered a $10.0 million deposit to Sobrato on March 1, 2007 and paid the $125.3 million balance of the purchase price on April 2, 2007. We have allocated the purchase price to the land and
building based on managements judgment which included review of comparable transactions as well as property tax assessments. The building will be depreciated over 40 years once the build-out occurs and the building is occupied. In March 2008,
we suspended efforts to ready the building for occupancy in contemplation of the Oracle acquisition. As of January 31, 2008, BEA had capitalized approximately $6.2 million of improvements to ready the building for occupancy in mid 2008.
As of January 31, 2007, we determined that there was a more likely than not chance that the San Jose Land would be disposed of within
the next 12 months. We completed an impairment review in accordance with Statement of Financial Accounting Standards No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets
, and we concluded that a $201.6 million
write-down of the San Jose Land was required, reducing the value of the San Jose land to a new carrying value of $105.0 million. The fair value of $105.0 million was determined based on quoted market prices for a similar asset.
93
5. Business Combinations
Fiscal 2007 acquisitions
Flashline, Inc.
On August 22, 2006, the Company paid cash consideration to acquire all the outstanding shares of Flashline, Inc., a privately held software company headquartered in Cleveland, Ohio. Flashline is a metadata
repository that provides enterprise-wide visibility into an organizations software assets to help reduce IT costs and improve business agility. Flashline has been accounted for as a business combination using the purchase method of accounting.
Assets acquired and liabilities assumed have been recorded at their fair values as of August 22, 2006 and adjusted as necessary for changes in estimates through August 22, 2007 (one year from acquisition date) with the exception of
goodwill and deferred tax assets which have been adjusted through January 31, 2008. The total purchase price was $43.6 million, including the acquisition related transaction costs, and is comprised of (in thousands):
|
|
|
|
|
|
Purchase Price
|
Acquisition of the outstanding common stock
|
|
$
|
43,014
|
Estimated acquisition related transaction costs
|
|
|
606
|
|
|
|
|
Total purchase price
|
|
$
|
43,620
|
|
|
|
|
Purchase price allocation
The total purchase price has been allocated to Flashlines net tangible and identifiable intangible assets based on their estimated fair values as of
August 22, 2006, and has been adjusted through August 22, 2007 (one year from acquisition date) with the exception of goodwill and deferred tax asset which were adjusted through January 31, 2008. The excess of the purchase price over
the net tangible and identifiable assets was recorded as goodwill. The following is the purchase price allocation (in thousands):
|
|
|
|
|
|
|
As of January 31,
2008
|
|
Cash and short-term investments
|
|
$
|
176
|
|
Accounts receivable
|
|
|
262
|
|
Deferred Tax Asset
|
|
|
7,599
|
|
Intangible assets
|
|
|
7,100
|
|
Goodwill
|
|
|
27,686
|
|
Accounts payable and other accrued liabilities
|
|
|
(528
|
)
|
Notes Payable and other long-term liabilities
|
|
|
(120
|
)
|
Deferred revenue
|
|
|
(255
|
)
|
In-process research and development
|
|
|
1,700
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
43,620
|
|
|
|
|
|
|
The acquisition related in-process research and development (IPR&D), which was valued at $1.7
million, related primarily to the Flashline enhancement projects that had not yet reached technological feasibility and had no alternative future use upon acquisition. Consequently, the valuation of IPR&D was written off to the consolidated
statement of income on August 22, 2006.
94
Intangible assets
The following table sets forth the components and fair values of the intangible assets associated with the Flashline acquisition (in thousands):
|
|
|
|
|
|
|
|
Preliminary
Fair Value
|
|
Estimated
Useful Life
|
Purchased technology
|
|
$
|
5,500
|
|
3 years
|
Non-compete agreements
|
|
|
700
|
|
1 year
|
Customer base
|
|
|
900
|
|
4 years
|
|
|
|
|
|
|
Total intangible assets
|
|
$
|
7,100
|
|
|
|
|
|
|
|
|
Purchased technology is comprised of Flashline products that have reached technological
feasibility and the patents affiliated with these products. Non-compete agreements represent the value of such agreements with key Flashline personnel. Customer base represents the underlying customer support contracts and related relationships with
Flashlines existing customers.
Deferred revenue
In allocating the acquisition purchase price, the Company recorded an adjustment to reduce the carrying value of Flashlines August 22, 2006 deferred support revenue by $0.3 million to reflect an ending
balance of $0.3 million, which represents the estimate of the fair value of the support obligation assumed. As a result of the adjustments to record Flashlines support and services obligations assumed at fair value, $0.3 million of customer
support revenues and services revenue that would have been otherwise recorded by Flashline as an independent entity was not recognized in the Companys consolidated results of operations. As former Flashline customers renewed these support
contracts, the Company recognized the full value of the support contracts over the renewal period, the majority of which was one year.
Fuego, Inc.
On February 28, 2006, the Company paid cash consideration to acquire all the outstanding shares of Fuego, Inc. (Fuego), a
privately held software company headquartered in Plano, Texas. Fuego specializes in providing Service Oriented Architecture software to help companies manage business processes. The Fuego acquisition (the Fuego Acquisition) has been
accounted for as a business combination using the purchase method of accounting. Assets acquired and liabilities assumed have been recorded at their fair values as of February 28, 2006, and adjusted as necessary for changes in estimates through
February 28, 2007 (one year from acquisition date) with the exception of goodwill and deferred tax assets which have been adjusted through January 31, 2008.
The total purchase price was $88.4 million, including the acquisition related transaction costs, and comprised of (in thousands):
|
|
|
|
|
|
Purchase Price
|
Acquisition consideration for Fuego
|
|
$
|
86,036
|
Acquisition related transaction costs
|
|
|
2,383
|
|
|
|
|
Total purchase price
|
|
$
|
88,419
|
|
|
|
|
95
Purchase price allocation
The total purchase price was allocated to Fuegos net tangible and identifiable intangible assets based on their estimated fair values as of
February 28, 2006, and adjusted as necessary for changes in estimates through February 28, 2007, (one year from acquisition date) with the exception of goodwill and deferred tax assets which have been adjusted through January 31,
2008. The excess of the purchase price over the net tangible and identifiable assets was recorded as goodwill. The following is the purchase price allocation (in thousands):
|
|
|
|
|
|
|
As of January 31,
2008
|
|
Cash and short-term investments
|
|
$
|
5,821
|
|
Accounts receivable, net
|
|
|
3,481
|
|
Prepaids and other current assets
|
|
|
212
|
|
Fixed assets
|
|
|
44
|
|
Deferred tax asset
|
|
|
10,712
|
|
Intangible assets
|
|
|
18,300
|
|
Goodwill
|
|
|
51,442
|
|
Accounts payable and other accrued liabilities
|
|
|
(2,400
|
)
|
Deferred revenue
|
|
|
(1,893
|
)
|
In-process research and development
|
|
|
2,700
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
88,419
|
|
|
|
|
|
|
The acquisition related IPR&D, which was valued at $2.7 million, related primarily to the
Fuego enhancement projects and had not yet reached technological feasibility and has no alternative future use upon acquisition. Consequently, the valuation of IPR&D was written off to the consolidated statement of income on February 28,
2006.
Intangible assets
The following table sets forth the components and fair values of the intangible assets associated with the Fuego Acquisition (in thousands):
|
|
|
|
|
|
|
|
Preliminary
Fair Value
|
|
Estimated
Useful Life
|
Purchased technology
|
|
$
|
12,800
|
|
3 years
|
Customer base
|
|
|
5,500
|
|
4 years
|
|
|
|
|
|
|
Total intangible assets
|
|
$
|
18,300
|
|
|
|
|
|
|
|
|
Purchased technology is comprised of Fuego products that have reached technological feasibility
and the associated patents related to these products. Customer base represents the underlying customer support contracts and related relationships with Fuegos existing customers.
Deferred revenue
In allocating the
acquisition purchase price, the Company recorded an adjustment to reduce the carrying value of Fuegos February 28, 2006 deferred support revenue by $0.5 million to reflect an ending balance of $1.6 million, which represents the estimate
of the fair value of the support obligation assumed. As a result of the adjustments to record Fuegos support obligations assumed at fair value, $0.5 million of customer support revenues that would have been otherwise recorded by Fuego as an
independent entity was not recognized in the Companys consolidated results of operations. As former Fuego customers renewed these support contracts, the Company recognized the full value of the support contracts over the renewal period, the
majority of which was one year. The Company also recorded deferred consulting revenues of approximately $0.3 million.
96
6. Goodwill and Acquired Intangible Assets
On February 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible
Assets
and as a result will no longer amortize goodwill. Instead, the Company will test for impairment at least annually or more frequently whenever events or changes in circumstances suggest that the carrying amount may not be
recoverable.
The following table provides a summary of the carrying amount of goodwill which includes amounts originally allocated to
assembled workforce (in thousands):
|
|
|
|
|
|
|
|
|
|
|
January 31,
2008
|
|
|
January 31,
2007
|
|
Gross carrying amount of goodwill
|
|
$
|
360,880
|
|
|
$
|
367,342
|
|
Accumulated amortization of goodwill
|
|
|
(133,344
|
)
|
|
|
(133,344
|
)
|
|
|
|
|
|
|
|
|
|
Net carrying amount of goodwill
|
|
$
|
227,536
|
|
|
$
|
233,998
|
|
|
|
|
|
|
|
|
|
|
The decrease in goodwill in fiscal 2008 is primarily due to purchase accounting adjustments
related to income taxes.
The following tables provide a summary of the carrying amounts of acquired intangible assets that will continue
to be amortized (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2008
|
|
|
Gross
carrying
amount
|
|
Accumulated
amortization
|
|
|
Net
carrying
amount
|
Purchased technology
|
|
$
|
189,212
|
|
$
|
(163,360
|
)
|
|
$
|
25,852
|
Non-compete agreements
|
|
|
30,946
|
|
|
(30,946
|
)
|
|
|
|
Patents and trademarks
|
|
|
13,275
|
|
|
(13,275
|
)
|
|
|
|
Other intangible assets (distribution rights, purchased software, customer base)
|
|
|
54,409
|
|
|
(42,088
|
)
|
|
|
12,321
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
287,842
|
|
$
|
(249,669
|
)
|
|
$
|
38,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2007
|
|
|
Gross
carrying
amount
|
|
Accumulated
amortization
|
|
|
Net
carrying
amount
|
Purchased technology
|
|
$
|
201,349
|
|
$
|
(151,237
|
)
|
|
$
|
50,112
|
Non-compete agreements
|
|
|
32,146
|
|
|
(30,588
|
)
|
|
|
1,558
|
Patents and trademarks
|
|
|
13,275
|
|
|
(13,275
|
)
|
|
|
|
Other intangible assets (distribution rights, purchased software, customer base)
|
|
|
54,409
|
|
|
(38,120
|
)
|
|
|
16,289
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
301,179
|
|
$
|
(233,220
|
)
|
|
$
|
67,959
|
|
|
|
|
|
|
|
|
|
|
|
97
The total amortization expense related to acquired intangible assets is provided in the table below (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Year ended January 31,
|
|
|
2008
|
|
2007
|
|
2006
|
Purchased technology
|
|
$
|
24,666
|
|
$
|
31,446
|
|
$
|
10,796
|
Non-compete agreements
|
|
|
1,558
|
|
|
3,184
|
|
|
1,855
|
Patents, Licenses, Trademarks
|
|
|
|
|
|
|
|
|
|
Other intangible assets
|
|
|
3,967
|
|
|
3,720
|
|
|
976
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
30,191
|
|
$
|
38,350
|
|
$
|
13,627
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2008 amortization declined compared to fiscal 2007 because some of the small acquisitions
made in fiscal 2006 reached full amortization in fiscal 2008.
Based on our annual 2008 impairment assessment, in accordance with FAS
No. 144, total amortization expense of $30.2 million includes $3.4 million of impairment charges related to acquired intangibles. The total amortization expense of $38.4 million as of January 31, 2007 does not include any impairment
charges related to acquired intangibles.
The total expected future amortization related to acquired intangible assets is provided in the
table below (in thousands):
|
|
|
|
|
|
Future
amortization
|
2009
|
|
$
|
16,774
|
2010
|
|
|
12,032
|
2011
|
|
|
7,593
|
2012
|
|
|
1,774
|
Thereafter
|
|
|
|
|
|
|
|
Total
|
|
$
|
38,173
|
|
|
|
|
The approximate weighted average estimated life of intangible assets acquired during fiscal 2008
and 2007 is provided in the table below:
|
|
|
|
|
Year ended
January 31,
2007
|
Purchased technology
|
|
36 months
|
Non-compete agreements
|
|
12 months
|
Other intangible assets
|
|
48 months
|
7. Prepaids and Other Current Assets
Prepaids and other current assets consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
January 31,
|
|
|
2008
|
|
2007
|
Prepaids
|
|
$
|
23,354
|
|
$
|
18,460
|
Other current assets
|
|
|
27,741
|
|
|
9,973
|
Other receivables
|
|
|
21,453
|
|
|
17,693
|
|
|
|
|
|
|
|
|
|
$
|
72,548
|
|
$
|
46,126
|
|
|
|
|
|
|
|
98
In fiscal 2008 other current assets increased due to refundable income taxes. The Company has a current
year taxable loss due to the San Jose Land sale. The Company intends to carry the federal loss back, which will result in a refund of $6.2 million. Additionally, the Company has tax return overpayments of $10.3 million.
8. Related Party Transactions
The Company
occasionally sells software products or services to companies that have board members or executive officers who are also on the Companys Board of Directors. The total revenues recognized by the Company from such customers in fiscal 2008,
fiscal 2007 and fiscal 2006 were insignificant.
9. Facilities Consolidation
During fiscal 2002, the Company approved a plan to consolidate certain facilities in regions including the United States, Canada, and Germany. A
facilities consolidation charge of $20.0 million was calculated using managements best estimates and was based upon the remaining future lease commitments and brokerage fees for vacant facilities from the date of facility consolidation, net of
estimated future sublease income. In fiscal 2008, a reduction of $0.7 million and in fiscal 2007 and 2006, an additional $0.5 million and $0.8 million, respectively, were accrued due to a reassessment of original estimates of costs of abandoning the
leased facilities compared to the actual results and future estimates.
During fiscal 2005, due to a decline in employee and contractor
hiring and headcount, the Company identified the opportunity to reduce its facilities requirements. The Company approved a plan to consolidate six sites in the United States and Canada. A facilities consolidation charge of $7.7 million was recorded
and was comprised of $6.9 million related to future lease commitments and $0.8 million of leasehold improvement write-offs. The $6.9 million of future lease commitments was calculated based on managements best estimates and the present value
of the remaining future lease commitments for vacant facilities, net of present value of the estimated future sublease income.
In the
second quarter of fiscal 2008, the Company occupied new office space in San Francisco and vacated the three existing San Francisco office locations. Two of the three existing office leases expired in fiscal 2008 and the remaining one expires in
fiscal 2009. In the second quarter of fiscal 2008, the Company incurred a facilities consolidation charge of $2.5 million related to future lease commitments. The Company moved into the new office space in San Francisco in the second quarter of
fiscal 2008. The $2.5 million of future lease commitments was calculated based on managements estimates and the present value of the future lease commitments for the vacant facilities.
The estimated costs of abandoning the leased facilities identified above, including estimated costs to sublease, were based on market information and
trend analyses, including information obtained from third party real estate industry sources at the time the facilities consolidation was recorded. As of January 31, 2008, $6.8 million of lease termination costs, net of anticipated sublease
income, remains accrued and is expected to be fully utilized by fiscal 2012. If actual circumstances prove to be materially different than the amounts management has estimated, the Companys total charges for these vacant facilities could be
significantly higher. Adjustments to the facilities consolidation charge will be made in future periods, if necessary, based upon then current actual events and circumstances. If the Company was unable to receive any of its estimated but uncommitted
sublease income in the future, the total additional charge would be approximately $1.0 million.
99
The following table provides a summary of the accrued facilities consolidation (in thousands):
|
|
|
|
|
|
|
Facilities
consolidation
|
|
Accrued at January 31, 2006
|
|
$
|
9,681
|
|
Additional charges accrued during fiscal 2007 included in operating expenses
|
|
|
454
|
|
Cash payments during fiscal 2007
|
|
|
(2,011
|
)
|
|
|
|
|
|
Accrued at January 31, 2007
|
|
|
8,124
|
|
Additional charges accrued during fiscal 2008 included in operating expenses
|
|
|
2,518
|
|
Change in facility accrual assumptions during fiscal 2008
|
|
|
(748
|
)
|
Cash payments during fiscal 2008
|
|
|
(3,102
|
)
|
|
|
|
|
|
Accrued at January 31, 2008
|
|
$
|
6,792
|
|
|
|
|
|
|
10. Notes Payable and Other Long-Term Obligations
Notes payable and other long-term obligations consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
January 31,
|
|
|
2008
|
|
2007
|
Current portion of notes payable and other obligations
|
|
$
|
988
|
|
$
|
1,302
|
|
|
|
|
|
|
|
Other long-term obligations
|
|
|
21,036
|
|
|
12,678
|
Capital lease
|
|
|
941
|
|
|
1,112
|
Credit facility
|
|
|
|
|
|
215,000
|
|
|
|
|
|
|
|
Notes payable and other long-term obligations
|
|
$
|
21,977
|
|
$
|
228,790
|
|
|
|
|
|
|
|
Other long-term obligations include an accrual of $3.9 million and $5.0 million related to the
facilities consolidation for the period ended January 31, 2008 and 2007, respectively.
Notes payable and other obligations consists
of accrued rent and other long-term obligations. Scheduled maturities of current and long-term notes payable and other obligations and the capital lease are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
Capital
leases
|
|
|
Other
obligations
|
Year ending January 31,
|
|
|
|
|
|
|
|
2009
|
|
$
|
211
|
|
|
$
|
3,296
|
2010
|
|
|
211
|
|
|
|
4,130
|
2011
|
|
|
211
|
|
|
|
3,757
|
2012
|
|
|
211
|
|
|
|
3,029
|
2013
|
|
|
211
|
|
|
|
1,811
|
Thereafter
|
|
|
314
|
|
|
|
5,830
|
|
|
|
|
|
|
|
|
Total minimum lease payments and total other obligations
|
|
|
1,369
|
|
|
$
|
21,853
|
|
|
|
|
|
|
|
|
Amounts representing interest on capital lease
|
|
|
(257
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Present value of minimum lease payments
|
|
|
1,112
|
|
|
|
|
Less: capital lease obligation, current (reflected in other obligations)
|
|
|
(171
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease obligation, long term (reflected in other long-term obligations)
|
|
$
|
941
|
|
|
|
|
|
|
|
|
|
|
|
|
100
Convertible subordinated notes
In December 1999, the Company completed the sale of $550.0 million of Notes due December 15, 2006 (2006 Notes) in an offering to
Qualified Institutional Buyers. The 2006 Notes bore interest at a fixed rate of 4 percent and were subordinated to all existing and future senior indebtedness of the Company. The principal amount of the 2006 Notes was convertible at the option of
the holder at any time into common stock of the Company at a conversion rate of 28.86 shares per $1,000 principal amount of 2006 Notes (equivalent to an approximate conversion price of $34.65 per share). The 2006 Notes were redeemable at the option
of the Company in whole or in part at any time, in cash plus a premium of up to 2.3 percent plus accrued interest, if any, through the redemption date, subject to certain events. Interest was payable semi-annually.
In fiscal 2006, the Company retired $84.8 million in face value of the 2006 Notes. The Company retired the remaining $210.0 million in face value of the
2006 Notes in fiscal 2007. The Company recorded a net gain on the retirement of the 2006 Notes of $0.7 million and $0.7 million in fiscal 2006 and 2007, respectively.
On December 15, 2006, the 2006 Notes matured and the principal and the accrued interest were paid off.
Credit facility
During fiscal 2007, the Company entered into a five-year $500.0 million unsecured revolving credit facility
(the Credit Facility). At closing, the Company borrowed $215.0 million to repay in full and terminate existing debt.
Loans
under the Credit Facility accrue interest at the election of the Company at the prime rate or the London Interbank Offering Rate (LIBOR) plus a margin based on our leverage ratio, determined quarterly. The effective annual interest rate
was approximately 5.8 percent as of January 31, 2007. Interest payments are made in cash at intervals ranging from one to three months, as elected by the Company. Principal, together with accrued interest, is due on the maturity date of
July 31, 2011.
The Credit Facility permits prepayment of outstanding loans at any time without premium or penalty. On June 29,
2007, the Company repaid the entire $215.0 million outstanding balance under the credit facility. At January 31, 2008, the Credit Facility remains in effect and BEA is able to utilize it; however there is no outstanding balance.
On September 11, 2006, the Company provided notice to the Administrative Agent and the lenders under the Credit Facility that a default had occurred
because the Company had not timely furnished certified financial statements which was due to the Companys stock option investigation. The Company was granted various waivers in fiscal 2007 and 2008 for the delivery of financial statements and
compliance certificates. In addition the lenders under the Credit Facility had to determine that once the financial statements were filed the Companys creditworthiness was not negatively impacted.
In November 2007, the Company filed its restated version of the Companys financial statements for its fiscal year ended January 31, 2007 and
fiscal quarters ended July 31, 2006, October 31, 2006, January 31, 2007, April 30, 2007, July 31, 2007 and October 31, 2007. In January 2008 the lenders under the Credit Facility determined that the Company was no
longer in default.
101
11. Income Taxes
The components of the provisions for income taxes consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the fiscal year ended January 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Federal:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
14,623
|
|
|
$
|
46,048
|
|
|
$
|
71,339
|
|
Deferred
|
|
|
38,941
|
|
|
|
(53,092
|
)
|
|
|
(12,872
|
)
|
State:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
5,403
|
|
|
|
7,903
|
|
|
|
7,471
|
|
Deferred
|
|
|
(3,680
|
)
|
|
|
(12,020
|
)
|
|
|
(6,076
|
)
|
Foreign:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
25,293
|
|
|
|
18,155
|
|
|
|
16,183
|
|
Deferred
|
|
|
(278
|
)
|
|
|
(808
|
)
|
|
|
(1,028
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
80,302
|
|
|
$
|
6,186
|
|
|
$
|
75,017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax income from foreign operations was approximately $264.0 million, $183.6 million, and $166.0
million for fiscal 2008, 2007 and 2006, respectively.
The reconciliation of income tax attributable to continuing operations computed at
the U.S. federal statutory tax rate (35 percent) to income tax expense is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the fiscal year ended January 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Tax provision- at U.S. statutory rate
|
|
$
|
100,969
|
|
|
$
|
3,740
|
|
|
$
|
76,365
|
|
State income taxes, net of federal benefit
|
|
|
1,246
|
|
|
|
(4,346
|
)
|
|
|
5,823
|
|
Foreign income and withholding taxes
|
|
|
(24,624
|
)
|
|
|
(15,283
|
)
|
|
|
(10,578
|
)
|
Jobs Act repatriation, including state taxes
|
|
|
|
|
|
|
|
|
|
|
10,447
|
|
Change in Valuation Allowance
|
|
|
(387
|
)
|
|
|
18,723
|
|
|
|
(8,940
|
)
|
Benefits from resolution of certain tax audits and expiration of statute of limitations
|
|
|
(6,273
|
)
|
|
|
(919
|
)
|
|
|
(1,586
|
)
|
Purchased in-process product development
|
|
|
|
|
|
|
1,540
|
|
|
|
1,610
|
|
Stock-based compensation
|
|
|
6,766
|
|
|
|
5,851
|
|
|
|
712
|
|
Research and development credits
|
|
|
(2,526
|
)
|
|
|
(3,665
|
)
|
|
|
|
|
Other
|
|
|
5,131
|
|
|
|
545
|
|
|
|
1,164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
80,302
|
|
|
$
|
6,186
|
|
|
$
|
75,017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
102
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts
of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the deferred tax assets for federal and state income taxes are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
January 31,
|
|
|
|
2008
|
|
|
2007
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Deferred revenue
|
|
$
|
14,586
|
|
|
$
|
12,306
|
|
Accruals
|
|
|
37,574
|
|
|
|
30,012
|
|
Equity investment write-downs
|
|
|
8,049
|
|
|
|
8,231
|
|
Net operating loss carry forwards
|
|
|
52,836
|
|
|
|
42,530
|
|
Capital loss carry forwards
|
|
|
9,364
|
|
|
|
9,555
|
|
Credit carry forwards
|
|
|
31,405
|
|
|
|
7,357
|
|
Property and equipment
|
|
|
20,417
|
|
|
|
18,976
|
|
Stock-based compensation
|
|
|
31,503
|
|
|
|
28,613
|
|
Unrealized loss on land
|
|
|
|
|
|
|
79,437
|
|
U.S. deferred taxes for unremitted foreign earnings
|
|
|
20,870
|
|
|
|
4,798
|
|
Other
|
|
|
2,580
|
|
|
|
1,885
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
229,184
|
|
|
|
243,700
|
|
Valuation allowance
|
|
|
(17,573
|
)
|
|
|
(18,723
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
211,611
|
|
|
|
224,977
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
|
|
|
|
|
(6,971
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
211,611
|
|
|
$
|
218,006
|
|
|
|
|
|
|
|
|
|
|
Reported as:
|
|
|
|
|
|
|
|
|
Current deferred tax assets
|
|
$
|
81,991
|
|
|
$
|
56,767
|
|
Non-current deferred tax assets
|
|
|
129,620
|
|
|
|
166,027
|
|
Current deferred tax liabilities
|
|
|
|
|
|
|
(4,788
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred taxes
|
|
$
|
211,611
|
|
|
$
|
218,006
|
|
|
|
|
|
|
|
|
|
|
Realization of the Companys net deferred tax assets of $211.6 million is dependent upon the
Company generating future U.S. taxable income in appropriate tax jurisdictions to obtain benefit from the reversal of temporary differences, net operating loss carryforwards and tax credits. The amount of deferred tax assets considered realizable is
subject to adjustment in future periods if estimates of future taxable income are reduced.
As of January 31, 2008, we had federal net
operating loss carry forwards of approximately $118.3 million, which will expire in 2012 through 2026. Utilization of net operating loss carry forwards are subject to substantial limitations due to ownership change and other limitations
provided by the Internal Revenue Code and similar state provisions.
On October 22, 2004, the American Jobs Creation Act (the
Jobs Act) was signed into law. The Jobs Act includes a deduction of 85% for certain foreign earnings that are repatriated, as defined in the Jobs Act. During fiscal 2006, the Companys Chief Executive Officer and Board of Directors
approved a domestic reinvestment plan as required by the Jobs Act to repatriate $169.6 million in foreign earnings in fiscal 2006. The Company repatriated $169.6 million under the Jobs Act in fiscal 2006 and recorded tax expense in fiscal 2006
of $10.4 million related to this repatriation dividend.
We provide for United States income taxes on the earnings of foreign subsidiaries
unless they are considered indefinitely reinvested outside the United States. At January 31, 2008 the cumulative earnings upon which United States income taxes have not been provided for were approximately $193 million. Determination
103
of the amount of unrecognized deferred tax liabilities for temporary differences related to earnings of these foreign subsidiaries that are indefinitely
reinvested is not practical.
The Companys income taxes payable has been reduced by the tax benefits from employee stock options. The
Company receives an income tax benefit calculated as the difference between the fair market value of the stock issued at the time of the exercise and the option price, tax effected. The net tax benefits from employee stock option transactions were
$19.8 million, $94.3 million, and $71.2 million in fiscal 2008, 2007 and 2006, respectively, and were reflected as an increase to common stock in the consolidated statements of shareholders equity.
The Company adopted the provisions of FASB Interpretation Number 48,
Accounting for Uncertainty in Income Taxes,
on February 1, 2007. The
cumulative effect of adopting FIN 48 was a $9.9 million decrease to the opening balance of retained earnings.
The aggregate changes in the
balance of gross unrecognized tax benefits were as follows: (in thousands)
|
|
|
|
|
|
|
For the fiscal year end
January 31,
2008
|
|
Beginning balance as of February 1, 2007 (upon adoption)
|
|
$
|
139,786
|
|
Increases related to prior year tax positions
|
|
|
5,275
|
|
Decreases related to prior year tax positions
|
|
|
(1,029
|
)
|
Increases related to current year tax positions
|
|
|
15,723
|
|
Decreases related to settlements with taxing authorities
|
|
|
(4,439
|
)
|
Decreases related to lapse of statute of limitation.
|
|
|
(5,479
|
)
|
|
|
|
|
|
Ending balances at January 31, 2008
|
|
$
|
149,837
|
|
|
|
|
|
|
If the ending balance of $149.8 million of unrecognized tax benefits at January 31, 2008 were
recognized, approximately $75.0 million would affect the effective tax rate.
The Company is currently under audit by the Internal Revenue
Service and several states and foreign jurisdictions. It is possible that the amount of the liability for unrecognized tax benefits, including the unrecognized tax benefits related to the audits referenced above, may change within the next 12
months. However, an estimate of the range of possible changes cannot be made at this time. In addition, over the next twelve months, the Companys existing tax positions will continue to generate an increase in liabilities for unrecognized tax
benefits.
In accordance with the Companys accounting policy, it recognizes accrued interest and penalties related to unrecognized
tax benefits in the provision for income taxes. This policy did not change as a result of the adoption of FIN 48. The Company had accrued interest and penalties of $15.1 million at January 31, 2008, and $9.0 million as of the date of adoption
of FIN 48.
The Company files income tax returns in the U.S federal jurisdiction, in various states, and in various foreign jurisdictions.
With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before January 31, 2001.
104
12. Stockholders Equity
Share activity
The following table represents changes in outstanding shares of common stock (in
thousands):
|
|
|
|
|
|
Common
stock
|
|
Balance at January 31, 2005
|
|
398,091
|
|
Issuance of common stock and shares issued under stock option and stock purchase plans
|
|
10,380
|
|
Purchases of common stock
|
|
(22,528
|
)
|
|
|
|
|
Balance at January 31, 2006
|
|
385,943
|
|
Issuance of common stock and shares issued under stock option and stock purchase plans
|
|
12,352
|
|
|
|
|
|
Balance at January 31, 2007
|
|
398,295
|
|
Issuance of common stock and shares issued under stock option and stock purchase plans
|
|
14,737
|
|
|
|
|
|
Balance at January 31, 2008
|
|
413,032
|
|
|
|
|
|
Common stock
The Company has reserved or registered shares of common stock for future issuance at January 31, 2008, as follows (in thousands):
|
|
|
Shares reserved for Incentive Stock Option Plans
|
|
98,161
|
Shares reserved for Employee Stock Purchase Plan
|
|
23,214
|
|
|
|
Total common stock reserved or registered for future issuance
|
|
121,375
|
|
|
|
Share Repurchase Program
In September 2001, March 2003, May 2004, March 2005 and May 2007, the Board of Directors approved stock repurchases that in aggregate
equaled $1.1 billion of our common stock under a share repurchase program (the Share Repurchase Program). In fiscal 2006, 22.5 million shares were repurchased at a total cost of $193.7 million. In fiscal 2007 and fiscal 2008, there
were no repurchases, leaving approximately $621.7 million of the approval limit available for share repurchases under the Share Repurchase Program.
Preferred Stock Rights Plan
In September 2001, the Board of Directors approved a Preferred Stock Rights Plan, which has the
anti-takeover effect of causing substantial dilution to a person or group that attempts to acquire the Company on terms not approved by the Board of Directors. Immediately prior to the execution of the merger agreement with Oracle, on
January 16, 2008, BEA entered into a Second Amendment to the Preferred Stock Rights Plan, dated as of September 14, 2001, as amended as of January 15, 2003, between the Company and Computershare Trust Company, N.A. for the purpose of
amending the Rights Plant to render it inapplicable to the merger agreement and the contemplated merger with Oracle.
13. Employee Benefit Plans and
Stock-Based Compensation
Stock option plans
Under the Companys stock option plans, incentive and nonqualified stock options may be granted to eligible participants to purchase shares of the Companys common stock. Restricted stock awards, including
105
restricted stock units and restricted stock, may be granted under the Companys stock option plans as well. Options generally vest over a four-year
period and have a term of seven to ten years, while restricted stock awards generally vest over a two to four year period. In addition, commencing in July 2006, the stock plan requires that restricted stock have vesting conditions with at least a
3-year term. The exercise price of the stock options is determined by the administrator of the plan on the date of grant and is generally equal to the fair market value of the stock on the grant date. The Company also has employee stock purchase
plans that allow qualified employees to purchase Company shares at 85% of the fair market value on specified dates.
Originally, on an
annual basis through fiscal 2007, the number of shares available in the stock option plan was automatically increased by an amount of up to 6 percent of the outstanding shares of common stock on the last day of the immediately preceding fiscal year,
less the number of shares of common stock added to the Employee Stock Purchase Plan, based on a formula, but not to exceed 24 million shares per fiscal year. For fiscal 2007, the Company reduced the annual increase to 3%. Fiscal 2007 and 2008
also included an increase that was consistent with the 2006 Stock Option Plan documents which allows cancelled options from the 1997 Plan to increase the options and awards available for grant in the 2006 Stock Option Plan.
FAS 123(R) Overview
Prior to
February 1, 2006, we accounted for these stock-based employee compensation plans under the measurement and recognition provisions of Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees,
or APB 25, and related Interpretations, as permitted by Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation,
or FAS 123. Certain options assumed in
acquisitions, grants of restricted stock awards and discounted stock options granted primarily in fiscal 2003, and the situations identified through the stock option review resulted in recording stock-based compensation during periods prior to
February 1, 2006. All other stock-based grants had exercise prices equal to the fair market value of our common stock on the date of grant. We elected the straight-line attribution method as our accounting policy for recognizing stock-based
compensation expense for these grants. We also recorded no compensation expense in connection with our employee stock purchase plans as they qualified as non-compensatory plans following the guidance provided by APB 25. In accordance with FAS 123
and Statement of Financial Accounting Standards No. 148,
Accounting for Stock-Based CompensationTransition and Disclosure
, in footnote 1 we disclose our net income and net income per share for the year ended
January 31, 2006 as if we had applied the fair value-based method in measuring compensation expense for our stock-based compensation plans
.
Effective February 1, 2006, we adopted the fair value recognition provisions of Statement of Financial Accounting Standards No. 123(R),
Share-Based Payment
or FAS 123(R) using the modified
prospective transition method. Under that transition method, compensation expense that we recognized for the year ended January 31, 2007 included: (a) compensation expense for all share-based payments granted prior to but not yet vested as
of February 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of FAS 123, and (b) compensation expense for all share-based payments granted or modified on or after February 1, 2006, based
on the grant date fair value estimated in accordance with the provisions of FAS 123(R). Compensation expense is recognized only for those awards that are expected to vest, whereas prior to the adoption of FAS 123(R), we recognized forfeitures as
they occurred. In addition, we elected the straight-line attribution method as our accounting policy for recognizing stock-based compensation expense for all awards that are granted on or after February 1, 2006.
In accordance with FAS 123(R), FAS No. 109
, Accounting for Income Taxes
(FAS 109), and EITF Topic D-32,
Intra-Period Tax
Allocation of the Effect of Pretax Income from Continuing Operations
, the Company has elected to recognize excess income tax benefits from stock option exercises in additional paid-in capital only if an incremental income tax benefit would be
realized after considering all other tax attributes presently available to the Company.
106
During the third quarter of fiscal 2007, the Companys Audit Committee commenced an internal review
of the Companys historical stock option granting practices with the assistance of independent legal counsel. As a result, the filing of the Companys Form 10-Q for the second quarter of fiscal 2007 was indefinitely delayed. Because the
Company was not current in its reporting obligations under the Securities Exchange Act, the Companys Form S-8 was suspended and consequently the Company was unable to issue shares of its common stock. As a result, the Company incurred
additional stock based compensation expense due to modifying certain vested options that could not be exercised due to the suspended Form S-8. During the twelve months ended January 31, 2007, the Company recognized approximately $2.7 million of
additional stock based compensation expense due to (1) modifying the termination exercise period for vested options for employees who terminated prior to September 7, 2006 and employees who terminated subsequent to September 7, 2006
and (2) modifying the expiration date for two employees stock options that were set to expire during the suspension period. These two types of modifications were extended to any individual who met the aforementioned circumstances. Due to
the fact that we modified the termination exercise period for employees who terminated subsequent to September 7, 2006, a liability of $1.3 million was recorded on the balance sheet as of January 31, 2007, and was marked to market on a
quarterly basis until the earlier of the options being exercised or 30 days after the suspension being lifted, which was November 15, 2007, and we were able to issue shares of common stock. In fiscal 2008 we recognized an additional $1.4
million of expense in order to settle this modification.
Tender Offer
On November 15, 2007, after BEA became current with its reporting obligations under the Securities and Exchange Act of 1934, the Company filed a
Tender Offer Statement on Schedule TO with the SEC. The tender offer extended an offer by BEA to holders of certain outstanding stock options granted under the Companys Stock Plans to amend the exercise price on their outstanding options
impacted by the change in measurement date. The purpose of the tender offer was to amend the exercise price on options to have the same price as the fair market value on revised measurement dates that were identified during the Companys
independent review. As part of the tender offer, the Company paid cash of $10.8 million, including payroll taxes, in January 2008 to reimburse employees for any increase in the exercise price of their options resulting from the amendment. The impact
of this payment, which was recorded during the fourth quarter of fiscal 2008, resulted in a decrease to additional paid-in capital of $7.4 million, an increase in stock-based compensation expense of $2.4 million and an increase in payroll tax
expenses of $1.0 million.
Stock-based compensation
The following table summarizes the stock-based compensation expense for stock options, modifications to stock options, restricted stock awards, options assumed in acquisitions and our employee stock purchase plans
included in our results from continuing operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For fiscal year ended January 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Cost of license fees
|
|
$
|
145
|
|
|
$
|
213
|
|
|
$
|
29
|
|
Cost of services
|
|
|
5,723
|
|
|
|
9,829
|
|
|
|
2,652
|
|
Sales and marketing
|
|
|
14,669
|
|
|
|
24,597
|
|
|
|
7,192
|
|
Research and development
|
|
|
10,068
|
|
|
|
16,140
|
|
|
|
4,026
|
|
General and administrative
|
|
|
14,871
|
|
|
|
17,642
|
|
|
|
6,798
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation before income taxes(1)
|
|
|
45,476
|
|
|
|
68,421
|
|
|
|
20,697
|
|
Income tax benefit
|
|
|
(10,789
|
)
|
|
|
(15,463
|
)
|
|
|
(4,864
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense after taxes
|
|
$
|
34,687
|
|
|
$
|
52,958
|
|
|
$
|
15,833
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Amount includes $5.6 million, $8.3 million and $5.0 million of stock-based compensation expense related to restricted stock awards for the twelve months ended January 31,
2008, 2007 and 2006, respectively.
|
107
Valuation Assumptions for Stock Options
FAS 123(R) requires the use of a valuation model to calculate the fair value of stock-based awards. The Company has elected to use the
Black-Scholes-Merton option-pricing model, which incorporates various assumptions including volatility, expected life, and risk-free interest rates. The expected volatility is based on the implied volatility of market traded options on the
Companys common stock. The expected term of an award is based on historical experience of grants, exercises and post-vesting cancellations. Contractual term expirations have not been significant.
During fiscal 2007, the Company began granting stock option awards that have a contractual life of seven years from the date of grant. Prior to
mid-fiscal 2007, stock option awards generally had a ten year contractual life from the date of grant.
Valuation and Amortization
Method.
We estimated the fair value of stock options granted before and after the adoption of FAS 123(R) using the Black-Scholes-Merton option valuation model. For options granted prior and subsequent to adoption of FAS 123(R), we estimate
the fair value using a single option approach and amortize the fair value on a straight-line basis for options expected to vest. All options are amortized over the requisite service periods of the awards, which are generally the vesting periods.
Expected Term.
The expected term of options granted represents the period of time that they are expected to be outstanding. We
estimate the expected term of options granted based on our historical experience of grants, exercises and post-vesting cancellations in our option database. Contractual term expirations have not been significant.
Expected Volatility.
Effective May 1, 2006, we began estimating the volatility of our common stock based on the implied volatility of
our publicity traded options on our common stock consistent with FAS 123(R) and Securities and Exchange Commission Staff Accounting Bulletin No. 107. Prior to that date we estimated the volatility of our stock options using a combination of
historical and implied volatilities. We believe that the use of just the implied volatility of our publicity traded options on our common stock results in a better estimate of fair value of our stock options.
Risk-Free Interest Rate.
The risk-free interest rate that we use in the Black-Scholes-Merton option valuation model is the implied yield in
effect at the time of option grant based on U.S. Treasury zero-coupon issues with remaining terms equivalent to the expected term of our option grants.
Dividends.
We have never paid any cash dividends on our common stock and we do not anticipate paying any cash dividends in the foreseeable future. Consequently, we use an expected dividend yield of zero in
the Black-Scholes-Merton option valuation model.
Forfeitures.
We use historical data to estimate pre-vesting option
forfeitures. As required by FAS 123(R), we record stock-based compensation expense only for those awards that are expected to vest.
The
assumptions used and the resulting estimates of weighted-average fair value per share of options granted during those periods are summarized as follows:
|
|
|
|
|
|
|
|
|
For the fiscal year ended January 31,
|
Employee Stock Option
|
|
2008
|
|
2007
|
|
2006
|
Risk-free interest rate
|
|
2.7-4.5%
|
|
4.8-4.9%
|
|
4.35-5.05%
|
Expected volatility
|
|
19-33%
|
|
30-70%
|
|
41-54%
|
Expected term
|
|
3.7-4.6 years
|
|
3.6-4.4 years
|
|
4.0-5.0 years
|
Expected dividends
|
|
None
|
|
None
|
|
None
|
108
In anticipation of adopting FAS 123(R), the Company refined the variables used in the
Black-Scholes-Merton model during fiscal 2006. As a result, the Company refined its methodology of estimating the expected term to be more representative of future exercise patterns. The Company also refined its computation of expected volatility by
considering the volatility of publicly traded options to purchase its common stock. The weighted average estimated fair value of employee stock options granted during fiscal 2008, 2007 and 2006 was $3.86, $4.44 and $3.78 per option, respectively.
Stock Options
Information with respect to option activity under the Companys stock option plans are summarized as follows:
|
|
|
|
|
|
|
|
|
|
(Shares in thousands)
|
|
Options
outstanding
|
|
|
Exercise price
per share
|
|
Weighted average
exercise price per
share
|
Options outstanding at January 31, 2005
|
|
77,846
|
|
|
$
|
0.07-$85.56
|
|
$
|
12.92
|
Granted
|
|
13,639
|
|
|
$
|
4.16-$9.35
|
|
$
|
7.52
|
Exercised
|
|
(7,148
|
)
|
|
$
|
0.07-$10.14
|
|
$
|
5.09
|
Canceled
|
|
(15,607
|
)
|
|
$
|
0.07-$85.56
|
|
$
|
16.60
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at January 31, 2006
|
|
68,730
|
|
|
$
|
0.07-$85.56
|
|
$
|
11.82
|
Granted
|
|
11,769
|
|
|
$
|
8.58-$16.50
|
|
$
|
12.28
|
Exercised
|
|
(9,843
|
)
|
|
$
|
0.07-$13.81
|
|
$
|
7.67
|
Canceled
|
|
(4,845
|
)
|
|
$
|
0.07-$85.56
|
|
$
|
13.90
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at January 31, 2007
|
|
65,811
|
|
|
$
|
0.07-$85.56
|
|
$
|
12.37
|
Granted
|
|
9,580
|
|
|
$
|
10.95-$18.61
|
|
$
|
12.64
|
Exercised
|
|
(13,721
|
)
|
|
$
|
0.12-$18.04
|
|
$
|
8.83
|
Canceled
|
|
(4,683
|
)
|
|
$
|
1.50-$85.56
|
|
$
|
19.32
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at January 31, 2008
|
|
56,987
|
|
|
$
|
0.12-$85.56
|
|
$
|
13.27
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at January 31, 2008
|
|
40,346
|
|
|
$
|
0.12-$85.56
|
|
$
|
13.85
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at January 31, 2007
|
|
47,384
|
|
|
$
|
0.12-$85.56
|
|
$
|
13.14
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at January 31, 2006
|
|
46,569
|
|
|
$
|
0.07-$85.56
|
|
$
|
13.73
|
|
|
|
|
|
|
|
|
|
|
Options and awards available for grant at January 31, 2008
|
|
34,806
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average grant date fair value of stock options, as calculated using the
Black-Scholes-Merton model under FAS 123(R), was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2008
|
|
Fiscal
2007
|
|
Fiscal
2006
|
Stock options granted with an exercise price equal to the Companys stock price on date of grant
|
|
$
|
3.86
|
|
$
|
4.54
|
|
$
|
na
|
Stock options granted with an exercise price less than the Companys stock price on date of grant
|
|
$
|
na
|
|
$
|
4.48
|
|
$
|
4.02
|
Stock options granted with an exercise price greater than the Companys stock price on date of grant
|
|
$
|
na
|
|
$
|
3.88
|
|
$
|
3.30
|
109
The following table summarizes information about outstanding and exercisable stock options at
January 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
Exercisable
|
|
|
Number
of
shares
|
|
Weighted
average
remaining
contractual
life (in
years)
|
|
Weighted
average
exercise
price
|
|
Number
of
shares
|
|
Weighted
average
exercise
price
|
|
|
(Shares in thousands)
|
Range of per share exercise prices
|
|
|
|
|
|
|
|
|
|
|
|
|
$ 0.12$ 6.82
|
|
6,251
|
|
3.44
|
|
$
|
5.23
|
|
6,155
|
|
$
|
5.23
|
$ 6.83$ 7.98
|
|
6,487
|
|
5.99
|
|
$
|
7.48
|
|
4,797
|
|
$
|
7.43
|
$ 8.13$ 8.66
|
|
7,081
|
|
6.55
|
|
$
|
8.43
|
|
6,360
|
|
$
|
8.44
|
$ 8.67$ 11.29
|
|
6,060
|
|
6.22
|
|
$
|
10.05
|
|
4,535
|
|
$
|
10.05
|
$11.33$12.40
|
|
10,079
|
|
5.82
|
|
$
|
12.10
|
|
3,168
|
|
$
|
11.80
|
$12.45$12.96
|
|
6,491
|
|
6.74
|
|
$
|
12.80
|
|
4,312
|
|
$
|
12.76
|
$12.99$15.80
|
|
5,794
|
|
7.05
|
|
$
|
13.65
|
|
2,845
|
|
$
|
13.67
|
$15.85$33.18
|
|
6,186
|
|
3.50
|
|
$
|
23.45
|
|
5,616
|
|
$
|
24.05
|
$33.27$80.94
|
|
2,538
|
|
2.52
|
|
$
|
48.65
|
|
2,538
|
|
$
|
48.65
|
$85.56$85.56
|
|
20
|
|
2.73
|
|
$
|
85.56
|
|
20
|
|
$
|
85.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ 0.12$85.56
|
|
56,987
|
|
|
|
|
|
|
40,346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys vested or expected to vest stock options and exercisable stock options as of
January 31, 2008 are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
Weighted Average
Exercise Price
|
|
Weighted Average
Remaining Contractual Term
|
|
Aggregate Intrinsic
Value
|
|
|
(In thousands)
|
|
(In dollars)
|
|
(In years)
|
|
(In thousands)
|
Vested or expected-to-vest options
|
|
54,231
|
|
$
|
13.31
|
|
5.48
|
|
$
|
401,404
|
Exercisable options
|
|
40,346
|
|
$
|
13.85
|
|
4.99
|
|
$
|
305,294
|
Aggregate intrinsic value represents the difference between the Companys closing stock price
on the last trading day of the fiscal period, which was $18.69 as of January 31, 2008, and the exercise price multiplied by the number of related options. There were approximately 50.8 million shares that had exercise prices that were
lower than the market price of our common stock as of January 31, 2008.
The total pre-tax intrinsic value of options exercised during
the twelve months ended January 31, 2008 was $105.1 million. The intrinsic value represents the difference between the fair market value of the Companys common stock on the date of exercise and the exercise price of each option.
Total fair value of options vested during fiscal 2008 was $33.9 million. As of January 31, 2008, approximately $74.9 million of total
unrecognized compensation cost related to stock options is expected to be recognized over a weighted-average period of 2.5 years, which excludes approximately $27.2 million of the total unrecognized compensation cost which is estimated to be
forfeited prior to the vesting of such awards and has been excluded from the preceding cost.
The total cash received from employees as a
result of stock option exercises during the year ended January 31, 2008 was $120.4 million, and a tax benefit of $19.7 million was realized by the Company for the year ended January 31, 2008. The Company settles employee stock option
exercises with newly issued common shares.
110
Extension of Stock Option Exercise Periods for Former Employees
The Company could not issue any securities under its registration statements on Form S-8 during the period it was not current in its SEC reporting
obligations for filing its periodic reports under the Securities Exchange Act of 1934. As a result, options vested and held by the Companys former employees could not be exercised until the completion of the Companys stock option review
and the Companys public filings obligations were met (the trading black-out period). During fiscal 2007, approximately 529,939 such options were due to expire. The Company extended the expiration date of these stock options to the
end of a 30-day period subsequent to the Companys filing of its required regulatory reports. As a result of the modification, the fair value of such stock options were reclassified to current liabilities subsequent to the modification and are
subject to mark-to-market provisions at the end of each reporting period until final settlement. The Company measured the fair value of these stock options using the Black-Scholes-Merton option valuation model and recorded an aggregate fair value of
approximately $1.3 million under current liabilities as of January 31, 2007. Changes to the fair values of these options was measured quarterly and reflected in the Companys consolidated statement of income and in the fourth quarter
of fiscal 2008, these options were settled. The Company recognized an additional $1.4 million of expense associated with modifications in fiscal 2008.
Restricted Stock Awards
The Company issues restricted stock units and restricted stock under its
1997 and 2006 Stock Incentive Plan. Restricted stock units are similar to restricted stock in that they are issued for no consideration; however, the holder generally is not entitled to the underlying shares of common stock until the restricted
stock unit vests. Restricted stock and restricted stock units are combined and disclosed as restricted stock awards (RSAs).
Information with respect to restricted stock award activity under the Companys stock option plans are summarized as follows:
|
|
|
|
|
|
|
(Shares in thousands)
|
|
Restricted
Stock Awards
outstanding
|
|
|
Weighted average
FMV at grant
per
share
|
Awards outstanding at January 31, 2005
|
|
1,085
|
|
|
$
|
8.17
|
Granted
|
|
641
|
|
|
$
|
8.15
|
Vested
|
|
(598
|
)
|
|
$
|
7.76
|
Cancelled
|
|
(229
|
)
|
|
$
|
8.63
|
|
|
|
|
|
|
|
Awards outstanding at January 31, 2006
|
|
899
|
|
|
$
|
8.30
|
Granted
|
|
1,022
|
|
|
$
|
12.24
|
Vested
|
|
(222
|
)
|
|
$
|
8.23
|
Cancelled
|
|
(90
|
)
|
|
$
|
9.27
|
|
|
|
|
|
|
|
Awards outstanding at January 31, 2007
|
|
1,609
|
|
|
$
|
10.76
|
Granted
|
|
1,763
|
|
|
$
|
16.33
|
Vested
|
|
(1,106
|
)
|
|
$
|
22.19
|
Cancelled
|
|
(88
|
)
|
|
$
|
11.02
|
|
|
|
|
|
|
|
Awards outstanding at January 31, 2008
|
|
2,178
|
|
|
$
|
9.45
|
|
|
|
|
|
|
|
In fiscal 2008, the Company issued 1,762,775 of restricted stock awards to certain employees. In
fiscal 2007, the Company issued a total of 1,021,667 restricted stock awards to certain employees. In fiscal 2006, the Company issued a total of 640,500 restricted stock awards to certain of its employees.
111
The Companys vested or expected to vest restricted stock awards as of January 31, 2008 are
summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
Weighted-
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual
Term
|
|
Aggregate
Intrinsic Value
|
|
|
(In thousands)
|
|
(In dollars)
|
|
(In years)
|
|
(In thousands)
|
Outstanding restricted stock awards
|
|
2,178
|
|
$
|
|
|
2.08
|
|
$
|
40,623
|
Vested and expected-to-vest restricted stock awards
|
|
1,583
|
|
$
|
|
|
1.86
|
|
$
|
29,513
|
None of the restricted stock awards were vested as of January 31, 2008. As of
January 31, 2008, approximately $31.5 million of total unrecognized compensation cost related to restricted stock awards is expected to be recognized over a weighted-average period of 3.4 years. Approximately $10.8 million of the
total unrecognized compensation cost is estimated to be forfeited prior to the vesting of such awards and has been excluded from the preceding cost.
Deferred Compensation
In accordance with the adoption of FAS123(R), the deferred compensation
balance of $19.8 million at January 31, 2006 was eliminated from the balance sheet, with the offset to additional paid in capital.
During fiscal 2006, the total amortization of deferred compensation was $20.7 million of which $9.9 million related to the discounted stock option grants identified as part of the stock option review, $1.5 million related to the discounted
stock options granted during fiscal 2003, $5.2 million was related to restricted stock awards granted in fiscal 2005 and fiscal 2006, $0.8 million related to stock granted in connection with acquisitions during fiscal 2002 and fiscal 2006, $2.5
million related to variable NIC tax expense and $0.8 million related to modifications for terminated and active employees.
Employee
stock purchase plan
In March 1997, the Companys stockholders approved an Employee Stock Purchase Plan (the ESPP Plan)
for all employees meeting certain eligibility criteria. Under the ESPP Plan, employees may purchase shares of the Companys common stock, subject to certain limitations, at 85 percent of the lower of the closing sale price of BEAs Common
Stock reported on the NASDAQ National Market (NASDAQ) at the beginning or the end of each six-month offering period. Additionally, the price paid by the employee will not exceed 85 percent of the closing sale price as reported on NASDAQ
at the beginning of a 24 month period that restarts in December or July of every second year, determined by the employees enrollment date in the plan. Eligible employees may purchase common stock through payroll deductions by electing to have
between one percent and 15 percent of their compensation withheld, subject to certain limitations. Originally, on an annual basis through fiscal 2007, the number of shares available in the ESPP Plan automatically increased by an amount equal to the
lesser of 24 million shares or six percent of the outstanding shares of common stock on the last day of the immediately preceding fiscal year less the number of shares of common stock added to the stock option plan. For fiscal 2008 and fiscal
2007 we reduced the annual increase to 3%. On January 18, 2006, the Board of Directors approved an amendment to the ESPP Plan to change the subscription period to 6 months from 24 months effective with the next offering period beginning
July 1, 2006.
112
ESPP awards were valued using the Black-Scholes-Merton option valuation model. During the twelve months
ended January 31, 2008, 2007 and 2006 ESPP awards were valued using the following weighted-average assumptions:
|
|
|
|
|
|
|
|
|
For the fiscal year ended January 31,
|
Employee Stock Purchase Plan
|
|
2008
|
|
2007
|
|
2006
|
Risk-free interest rate
|
|
2.3%
|
|
5.2%
|
|
2.97-5.10%
|
Expected volatility
|
|
35%
|
|
37%
|
|
29-40%
|
Expected term
|
|
6 months
|
|
6 months
|
|
0.5-2.0 years
|
Expected dividends
|
|
None
|
|
None
|
|
None
|
The weighted average estimated grant date fair value of the ESPP shares (calculated using the
Black-Scholes-Merton model) was $3.84, $3.37 and $2.91 in fiscal years 2008, 2007 and 2006, respectively.
Approximately 0.3 million,
2.6 million, and 3.4 million shares for total proceeds of approximately $3.2 million, $18.6 million and $23.9 million, respectively, were sold through the ESPP Plan in fiscal 2008, 2007 and 2006. At January 31, 2008, 32.8 million
shares had been issued under the ESPP Plan and 23.2 million shares were reserved for future issuance.
The Company could not issue any
securities under its registration statements on Form S-8 during the period it was not current in its SEC reporting obligations for filing its periodic reports under the Securities Exchange Act of 1934. As a result, a purchase for the ESPP period
commencing July 1, 2006 that was supposed to occur on December 15, 2006 was postponed. This resulted in a modification to the ESPP which resulted in additional compensation expense of $1.7 million and $0.5 million in fiscal 2008 and fiscal
2007.
401(k) Plan
The
Company sponsors the BEA Systems 401(k) Profit Sharing Plan (401(k) Plan). Most employees (Participants) are eligible to participate following the start of their employment, at the beginning of each calendar month. Participants may contribute
up to the lesser of 100% of their current compensation to the 401(k) Plan or an amount up to a statutorily prescribed annual limit. The Company pays the direct expenses of the 401(k) Plan and matches 50% of Participants contributions up to a
maximum of the lesser of $3,000 per year prior to fiscal 2007 and $5,000 for fiscal 2008. The Companys matching contribution vests over one year from employment commencement and was approximately $5.8 million, $6.0 million and $5.1 million for
the years ended January 31, 2008, 2007 and 2006, respectively. Employer contributions not vested upon employee termination are forfeited.
14. Accumulated Other Comprehensive Income
The components of accumulated other comprehensive income are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31,
|
|
|
|
2008
|
|
2007
|
|
|
2006
|
|
Foreign currency translation adjustment
|
|
$
|
22,844
|
|
$
|
12,534
|
|
|
$
|
5,430
|
|
Unrealized gain or loss on available-for-sale investments, net of income taxes of $0, $0 and $0 million in fiscal 2008, 2007, and 2006,
respectively
|
|
|
7,178
|
|
|
(372
|
)
|
|
|
(2,302
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive income
|
|
$
|
30,022
|
|
$
|
12,162
|
|
|
$
|
3,128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
113
15. Minority Interest in Equity Investments
In fiscal 2008 the Company recorded $1.1 million gain, related to disposals of minority investments. In fiscal 2007, the Company recognized $11.1 million
of net gains on the disposal of two minority interests in equity investments. The first disposal was of shares of a privately held company that went public in February 2006 and resulted in a $2.7 million gain. The second disposal of a minority
interest in equity investment was a privately held company acquired by a third party in March 2006, which resulted in an $8.4 million net gain.
16. Geographic Information and Revenue by Type of Product or Service
Geographic information
Information regarding the Companys operations by geographic area is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ended January 31,
|
|
|
2008
|
|
2007
|
|
2006
|
Total revenues:
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
756,834
|
|
$
|
752,082
|
|
$
|
622,624
|
Europe, Middle East and Africa (EMEA)
|
|
|
525,377
|
|
|
446,464
|
|
|
397,815
|
Asia/Pacific (APAC)
|
|
|
253,569
|
|
|
203,803
|
|
|
179,406
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,535,780
|
|
$
|
1,402,349
|
|
$
|
1,199,845
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets(1) (at end of fiscal year):
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
452,905
|
|
$
|
438,662
|
|
$
|
557,901
|
EMEA
|
|
|
3,918
|
|
|
3,710
|
|
|
3,278
|
APAC
|
|
|
13,112
|
|
|
14,203
|
|
|
8,282
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
469,935
|
|
$
|
456,575
|
|
$
|
569,461
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Long-lived assets include all long-term assets except those specifically excluded under the Statement of Financial Accounting Standard No. 131,
Disclosure about Segments of
an Enterprise and Related Information
, such as deferred income taxes.
|
The Company generally assigns revenues to
geographic areas based on the location from which the invoice is generated. Certain large revenue transactions with multi-national customers are allocated to multiple geographic areas based on the relative contribution of each geographic area to the
overall sales effort. Two individual countries accounted for more than 10 percent of total revenues in fiscal 2008: the United States with $675.6 million or 44.0 percent and the United Kingdom with $156.4 million or 10.2%. The only individual
country that accounted for more than 10 percent of total revenues in fiscal 2007 was the United States with $684.6 million or 48.9 percent. The only individual countries that accounted for more than 10 percent of total revenues in fiscal 2006 were
the United States with $570.6 million or 47.6 percent and the United Kingdom with $130.0 million or 10.8 percent. The only individual country that accounted for more than 10 percent of total long-lived assets at the end of fiscal 2008 was the United
States with $450.8 million or 95.9 percent. The only individual country that accounted for more than 10 percent of total long-lived assets at the end of fiscal 2007 was the United States with $438.7 million or 96.1 percent. The only individual
country that accounted for more than 10 percent of total long-lived assets at the end of fiscal 2006 was the United States with $557.9 million or 97.9 percent.
Revenue by type of product or service
The Company considers all license revenue derived from its
various software products to be revenue from a group of similar products.
114
The following table provides a breakdown of services revenue by similar type (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ended January 31,
|
|
|
2008
|
|
2007
|
|
2006
|
Consulting and education revenues
|
|
$
|
210,030
|
|
$
|
175,665
|
|
$
|
145,572
|
Customer support revenues
|
|
|
773,728
|
|
|
653,214
|
|
|
542,724
|
|
|
|
|
|
|
|
|
|
|
Total services revenue
|
|
$
|
983,758
|
|
$
|
828,879
|
|
$
|
688,296
|
|
|
|
|
|
|
|
|
|
|
17. Net Income Per Share
Basic net income per share is computed based on the weighted average number of shares of the Companys common stock less the weighted average number of shares subject to repurchase and held in escrow. Diluted net
income per share is computed based on the weighted average number of shares of the Companys common stock and common equivalent shares (using the treasury stock method for stock options and using the if-converted method for convertible notes),
if dilutive.
The following is a reconciliation of the numerators and denominators of the basic and diluted net income per share
computations (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ended January 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
208,181
|
|
|
$
|
4,500
|
|
|
$
|
143,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
400,362
|
|
|
|
394,416
|
|
|
|
389,056
|
|
Weighted average shares subject to repurchase and shares held in escrow
|
|
|
(22
|
)
|
|
|
(316
|
)
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic net income per share, weighted average shares outstanding
|
|
|
400,340
|
|
|
|
394,100
|
|
|
|
389,050
|
|
Weighted average dilutive potential common shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
Options and shares subject to repurchase and shares held in escrow
|
|
|
16,200
|
|
|
|
16,020
|
|
|
|
8,340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted net income per share
|
|
|
416,540
|
|
|
|
410,120
|
|
|
|
397,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share
|
|
$
|
0.52
|
|
|
$
|
0.01
|
|
|
$
|
0.37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share
|
|
$
|
0.50
|
|
|
$
|
0.01
|
|
|
$
|
0.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The computation of diluted net income per share for the fiscal year ended January 31, 2008,
2007, and 2006 excludes the impact of options to purchase 10.1 million, 16.3 million, and 36.3 million shares of common stock, respectively, as such an impact would be anti-dilutive. The computation of diluted net income per share for
the fiscal year ended January 31, 2006, also excludes the conversion of the $465 million 4% Convertible Subordinated Notes due December 15, 2006 (2006 Notes) which were convertible into 13.4 million shares of common stock,
as such impact would be anti-dilutive.
18. Supplemental Cash Flow Disclosures
Cash payments for interest were $5.1 million, $23.1 million, and $32.6 million in fiscal 2008, fiscal 2007 and fiscal 2006, respectively. Cash payments
for income taxes were approximately $42.1 million, $40.8 million
115
and $18.6 million for fiscal 2008, fiscal 2007 and fiscal 2006, respectively. The Company recorded net increases in deferred compensation, excluding
amortization during fiscal 2006, of approximately $16.0 million for discounted stock options identified as part of the stock option review, restricted stock awards, stock options granted with an exercise price lower than the fair market value of the
Companys stock on the date of grant, and stock options granted in connection with acquisition. The Company recorded a tax benefit from stock options of $10.8 million, $94.3 million, and $71.2 million in fiscal 2008, fiscal 2007 and fiscal
2006, respectively.
19. Commitments and Contingencies
Merger with Oracle Corporation
On January 16, 2008, the Company entered into an Agreement and
Plan of Merger (the Merger Agreement) with Oracle Corporation (Oracle) and Bronco Acquisition Corporation, a wholly-owned subsidiary of Oracle (Merger Sub). The Merger Agreement provides that, subject to the terms
and conditions of the Merger Agreement, Merger Sub will merge with and into the Company (the Merger) and, as a result of the Merger, the separate corporate existence of Merger Sub will cease and the Company will continue as the surviving
corporation and become a wholly-owned subsidiary of Oracle. Upon the closing of the Merger, each share of common stock of the Company issued and outstanding immediately prior to consummation of the Merger (other than shares owned by the Company,
Oracle or Merger Sub) will be converted into the right to receive $19.375 in cash, without interest. In addition, options to acquire Company common stock, restricted stock unit awards, restricted stock awards and other equity-based awards
denominated in shares of Company common stock outstanding immediately prior to the consummation of the Merger will be converted into options, restricted stock unit awards, restricted stock awards or other equity-based awards, as the case may be,
denominated in shares of Oracle common stock based on formulas contained in the Merger Agreement, except for equity-based awards held by a person who is not an employee of, or a consultant to, the Company or any of its subsidiaries at the time of
the consummation of the Merger, which equity-based awards shall be converted into the right to receive cash based on formulas contained in the Merger Agreement.
The Merger is subject to the approval of the Companys stockholders representing a majority of the outstanding shares of Company common stock. A special meeting of the Companys stockholders to consider and
vote on the proposal to adopt the Merger Agreement will be held on April 4, 2008. Stockholders of record as of the close of business on February 28, 2008 will be entitled to vote at the special meeting. In addition, the Merger is subject
to antitrust clearance or approvals in both the United States and the European Union, as well as other customary closing conditions. On February 27, 2008, the U.S. Department of Justice and the Federal Trade Commission granted early termination
of the Hart-Scott-Rodino (HSR) review period. BEA and Oracle are working toward obtaining all required clearances as soon as possible.
Under the terms of the Merger Agreement, the Company is required to pay Oracle a termination fee in the amount of $250 million in cash in the following circumstances:
|
|
|
the Merger Agreement is terminated by Oracle because either (1) the Companys Board of Directors fails to make or withdraws (or has publicly proposes to
do either) its recommendation to the Companys stockholders to adopt and approve the Merger Agreement or modifies or publicly proposes to modify its recommendation in a manner adverse to Oracle or Merger Sub, (2) the Company enters into,
or publicly announces its intention to enter into, a written agreement relating to an acquisition proposal from a third party, or (3) the Company or any of its representatives willfully and materially breach any of it obligations under the
non-solicitation provisions in the Merger Agreement;
|
|
|
|
the Merger Agreement is terminated by the Company because, prior to the receipt of the approval of the Companys stockholders to adopt the Merger Agreement,
the Companys Board of Directors authorizes the Company to enter into, and the Company substantially concurrently enters into, a binding definitive agreement with a third party for a transaction constituting a superior proposal; or
|
116
|
|
|
the Merger Agreement is terminated by either the Company or Oracle because (A) either (1) the Merger is not consummated before October 16, 2008 (the
End Date) (the End Date may be extended to July 16, 2009 in order to obtain all necessary antitrust approvals), unless the failure to complete the Merger by such date is due to the actions of the party seeking to terminate the
Merger Agreement, or (2) the Companys stockholders fail to adopt the Merger Agreement, (B) prior to either the termination of the Merger Agreement or the date of the special meeting of the Companys stockholders, as the case may
be, an acquisition proposal by a third party has been publicly announced and not publicly withdrawn, and (C) within 12 months following the date of such termination, the Company either enters into a definitive agreement with respect to, or
consummates, an acquisition proposal from a third party.
|
In addition, if the Company has not breached its
non-solicitation and antitrust obligations under the Merger Agreement (except for such breaches that are unintentional and immaterial), Oracle is required to pay the Company a termination fee in the amount of $500 million in cash in the following
circumstances:
|
|
|
the Merger Agreement is terminated by either the Company or Oracle because the Merger is not consummated before the End Date and either (A) the antitrust
closing conditions have not been satisfied or waived, or (B) a governmental entity has issued an order, rule or regulation relating to antitrust matters that restrains, enjoins or prohibits the consummation of the Merger; or
|
|
|
|
the Merger Agreement is terminated by either the Company or Oracle because either (A) a governmental entity of competent jurisdiction has issued a final and
non-appealable order, decree, ruling or other action permanently enjoining, restraining or otherwise prohibiting the consummation of the Merger or (B) any law or regulation is adopted that makes the consummation of the Merger illegal or
otherwise prohibited, and, in either instance, all other closing conditions of Oracle and Merger Sub have been met or waived.
|
Furthermore, if either the Company or Oracle terminates the Merger Agreement because of a failure to obtain the requisite approval of the Companys stockholders upon a final vote taken at a special meeting of the Companys
stockholders (or any adjournment or postponement thereof), BEA is required to reimburse Oracle for all of its documented reasonable out-of-pocket fees and expenses (including reasonable legal and other third party advisors fees and expenses)
actually incurred by Oracle and its affiliates on or prior to the termination of the Merger Agreement in an amount not to exceed $25 million. Any such required payments will be credited against any obligation that the Company may have to pay the
termination fee described above.
Operating Leases
The Company leases its facilities under operating lease arrangements with remaining terms ranging from less than one year up to eight years. Certain of the leases provide for specified annual rent increases as well as
options to extend the lease beyond the initial term for additional terms ranging from one to fifteen years. The Company has entered into agreements to sublease portions of its leased facilities, the rental income from which is not significant, and,
therefore, is not included as a reduction in the amounts shown in the following table.
Approximate annual minimum operating lease
commitments (in thousands):
|
|
|
|
January 31,
|
|
Commitments
As of January 31,
2008
|
Fiscal 2009
|
|
$
|
54,187
|
Fiscal 2010
|
|
|
42,101
|
Fiscal 2011
|
|
|
31,801
|
Fiscal 2012
|
|
|
24,159
|
Fiscal 2013
|
|
|
13,598
|
Thereafter
|
|
|
25,891
|
|
|
|
|
Total minimum lease payments
|
|
$
|
191,737
|
|
|
|
|
117
As of January 31, 2008, the Companys expected future sublease rental income was $9.4 million
to be recognized over the next six years.
Total rent expense charged to operations for fiscal 2008, fiscal 2007 and fiscal 2006 was
approximately $45.2 million, $44.8 million and $40.4 million, respectively.
Litigation and Other Claims
The Company and its subsidiary Plumtree Software, Inc. (Plumtree) are involved in a patent infringement lawsuit against Datamize, LLC
(Datamize) in the U.S. District Court for the Northern District of California. In July 2004, Plumtree sued Datamize for declaratory judgment that certain U.S. patents are invalid and not infringed. In January 2007, Datamize answered
Plumtrees complaint and counterclaimed for infringement. In July 2007 the parties were realigned so that Datamize is the plaintiff, and BEA was added to the case as a defendant. The Court issued its claim construction order on August 7,
2007. On February 5, 2008 the Court granted Plumtrees and BEAs motion to disqualify Datamizes lead counsel based on a conflict. In response, Datamize filed on March 6, 2008 a petition for a writ of mandamus in
the Federal Circuit Court of Appeals seeking review of the disqualification order. On March 10, 2008, the district court entered the parties stipulation to vacate the current schedule and stay the case while Datamizes petition
for a writ of mandamus is considered. Plumtree and the Company intend to vigorously defend against Datamizes allegations of infringement and vigorously pursue their claim for declaratory relief. It is not known when or on what basis
this action will be resolved.
On August 23, 2005, a class action lawsuit titled Globis Partners, L.P. v. Plumtree Software, Inc. et
al. was filed in the Court of Chancery in the State of Delaware in and for New Castle County (the Globis Action). The complaint names Plumtree, all members of Plumtrees board of directors and the Company as defendants. The suit
alleges, among other claims, that the consideration to be paid in the proposed acquisition of Plumtree by the Company is unfair and inadequate. The complaint seeks an injunction barring consummation of the merger and, in the event that the merger is
consummated, a rescission of the merger and an unspecified amount of damages. The Company is defending the case vigorously. There can be no assurance, however, that we will be successful in our defense of this action. On November 30, 2007 the
court dismissed this lawsuit.
In addition, on August 24, 2005, a class action lawsuit titled Keitel v. Plumtree Software, Inc., et
al. was filed in the Superior Court of the State of California for the County of San Francisco (the Keitel Action). The complaint names Plumtree and all member of Plumtrees board of directors as defendants alleging similar
complaints and seeking similar damages as the class action brought by Globis Partners, L.P. The Keitel Action has been stayed pending the outcome of the Globis Action. The Company is defending the case vigorously. There can be no assurance, however,
that we will be successful in our defense of this action. It is not known when or on what basis this action will be resolved. On March 26, 2008, the plaintiffs filed for dismissal of the lawsuit with the court.
In the Keitel Action, plaintiffs sought an injunction against completion of the merger. That motion was denied and the case has now been stayed. In the
Globis Action, plaintiff filed an amended complaint on October 22, 2005, which the Company moved to dismiss on October 6, 2006. Plumtree and the individual defendants moved to dismiss the amended complaint on the same date. On
December 8, 2006, plaintiff moved for leave to file a second amended complaint. On January 4, 2007, parties stipulated to permit plaintiff to file the second amended complaint. It was filed on January 16, 2007. Defendants moved to
dismiss the second amended complaint on February 5, 2007. The briefing on the motions has been completed. Currently, the parties are waiting for the Court to set a date for the hearing. There can be no assurance that we will be able to achieve
a favorable resolution. An unfavorable resolution of the pending litigation could result in the payment of substantial damages which could have a material adverse effect on our business, financial condition and results of operations. In addition, as
a result of the merger, we have assumed all liabilities of Plumtree resulting from the litigation. On March 26, 2008, the plaintiffs filed for dismissal of the lawsuit with the court.
118
On July 20, 2006, the first of several derivative lawsuits was filed by a purported Company
shareholder in the United States District Court for the Northern District of California. The cases were subsequently consolidated and plaintiffs current complaint names certain of the Companys present and former officers and directors as
defendants and names the Company as a nominal defendant. The complaint alleges that the individual defendants violated the federal securities laws and breached their duties to the Company in connection with our historical stock option grant
activities. In addition, the current complaint includes a claim purportedly on behalf of a class of BEA shareholders arising out of Oracles October 10, 2007 unsolicited acquisition proposal, claiming that members of our Board of Directors
breached their fiduciary duties in response to the proposal. It is not known when or on what basis the action will be resolved.
In
addition, on August 25, 2006, another shareholder derivative action was filed in the Superior Court for the County of Santa Clara. The court granted a motion to stay that action in deference to the actions filed previously in federal court. It
is not known when or on what basis the action will be resolved.
On July 20, 2006, the first of several derivative lawsuits was filed
by a purported Company shareholder in the United States District Court for the Northern District of California. The cases were subsequently consolidated and plaintiffs current complaint names certain of the Companys present and former
officers and directors as defendants and names the Company as a nominal defendant. The complaint alleges that the individual defendants violated the federal securities laws and breached their duties to the Company in connection with our historical
stock option grant activities. On October 25, 2007, the complaint was amended to assert a purported class action claim alleging that the Companys directors breached their fiduciary duties by failing to fully inform themselves of the
Companys true value prior to rejecting Oracles October 10, 2007 unsolicited proposal to acquire the Company for $17.00 per share. Plaintiffs seek an order requiring the director defendants to implement a procedure or process to
determine the Companys true value and obtain the highest possible price for shareholders. The Company is defending the case vigorously. There can be no assurance, however, that we will be successful in our defense of this action. It is not
known when or on what basis this action will be resolved.
On October 12, 2007, two putative class action lawsuits, titled Freedman v.
BEA Systems, Inc. et al. (the Freedman Action) and Blaz v. BEA Systems, Inc. et al. (the Blaz Action) were filed in the Court of Chancery of the State of Delaware. Both complaints named the Company and its directors as
defendants, asserting that the directors breached their fiduciary duties by failing to give proper consideration to Oracles October 10, 2007 unsolicited proposal to acquire the Company for $17.00 per share. The complaints sought
injunctive relief, including the implementation of a process or procedure to obtain the highest possible price for the Companys shareholders through negotiations with Oracle or other means. By order dated October 29, 2007, the Court of
Chancery ordered the Freedman Action and the Blaz Action, and any new case arising out of the same subject matter filed in or transferred to the Court of Chancery, consolidated under the caption In re BEA Systems, Inc. Shareholders Litigation (the
Consolidated Delaware Action). On October 31, 2007, a purported class action lawsuit titled Fonte v. BEA Systems, Inc. et al. was filed in the Court of Chancery (the Fonte Action). The Fonte Action named the same
parties, contained substantially similar allegations, and sought substantially similar relief as the Freedman Action and the Blaz Action, and was subsequently consolidated into the Consolidated Delaware Action. It is not known when or on what basis
this action will be resolved.
On February 20, 2008, plaintiffs in the Consolidated Delaware Action filed a Verified Consolidated
Class Action Complaint (the Consolidated Complaint). The Consolidated Complaint alleges that the directors breached their fiduciary duty of disclosure by including purportedly misleading and incomplete disclosures in BEAs
preliminary proxy statement regarding the Companys proposed merger with Oracle. The Consolidated Complaint also alleges that the directors breached their fiduciary duties of loyalty, care, and good faith by purportedly failing to obtain the
highest merger price reasonably available and purportedly delegating their duty to negotiate the merger consideration to Carl Icahn. The Consolidated Complaint further alleges that in addition to its annual meeting on March 18, 2008, the
Company is required to hold a second annual meeting on or before June 23, 2008. The Consolidated Complaint seeks injunctive relief and damages. On February 29, 2008, plaintiffs in the Consolidated Delaware Action moved for expedited
proceedings and for a preliminary injunction
119
enjoining a stockholder vote on, or consummation of, the merger with Oracle. On March 5, 2008, the Court of Chancery granted plaintiffs motion for
expedited proceedings and scheduled a preliminary injunction hearing for March 26, 2008. At the March 26, 2008 hearing, the plaintiffs motion was denied by the court. The Company is defending the Consolidated Delaware Action
vigorously. There can be no assurance, however, that we will be successful in our defense of this action. It is not known when or on what basis this action will be resolved.
On October 12, 2007 a putative class action lawsuit titled Gross v. BEA Systems, Inc. et al. was filed in the Superior Court of the State of
California for the County of Santa Clara (the Gross Action). The complaint names the Company, eight of its directors, and certain unnamed John Doe parties as defendants, alleging that the directors breached their fiduciary
duties by failing to give proper consideration to Oracles October 10, 2007 unsolicited proposal to acquire the Company for $17.00 per share. The complaint seeks injunctive relief, including an order requiring the defendants to cooperate
with any party expressing a bona fide interest in making an offer that maximizes the value of the Companys shares and the formation of a stockholders committee to ensure the fairness of any transaction involving the Companys
shares. The complaint also seeks compensatory damages in an unspecified amount. It is not known when or on what basis this action will be resolved.
On October 16, 2007, a putative class action lawsuit titled Ellman v. Chuang et al. was filed in the Superior Court of the State of California for the County of Santa Clara (the Ellman Action). The complaint names nine of
the Companys directors as defendants and the Company as a nominal defendant, alleging that the directors breached their fiduciary duties by failing to adequately consider Oracles October 10, 2007 unsolicited proposal to acquire the
Company for $17.00 per share. In addition, the complaint asserts a derivative cause of action against the director defendants, ostensibly on behalf of and for the benefit of the Company, again alleging that the director defendants breached their
fiduciary duties by failing to adequately consider Oracles $17.00 proposal. The complaint seeks injunctive relief, including an order requiring the Companys directors to respond reasonably to offers that are in the best interests of
shareholders, a prohibition on entry into any contractual provisions designed to impede the maximization of shareholder value, and an order restraining the defendants from adopting or using any defensive measures against a potential acquiror. It is
not known when or on what basis this action will be resolved.
On October 26, 2007 a putative class action lawsuit titled Zwick v. BEA
Systems, Inc. et al. was filed in the Superior Court of the State of California for the County of Santa Clara (the Zwick Action). The complaint names the Company, eight of its current directors, and certain unnamed John Doe
parties as defendants. The complaint alleges that the director defendants breached their fiduciary duties by failing to give proper consideration to Oracles October 10, 2007 unsolicited proposal to acquire the Company for $17.00 per
share. The complaint seeks injunctive relief, including an order requiring the defendants to cooperate with any party expressing a bona fide interest in making an offer that maximizes the value of the Companys shares and the formation of a
stockholders committee to ensure the fairness of any transaction involving the Companys shares. The complaint also seeks compensatory damages in an unspecified amount.
By Order dated February 13, 2008, the Superior Court for the Country of Santa Clara consolidated the Gross Action and the Zwick Action. At a hearing
on February 14, 2008, the Superior Court for the County of Santa Clara stated that it would consolidate the Gross Action, Zwick Action, and Ellman Action (the Consolidated California Action) pending submission of a proposed order
from the parties. The Company is defending the Consolidated California Action vigorously. There can be no assurance, however, that we will be successful in our defense of this action. It is not known when or on what basis this action will be
resolved.
On October 26, 2007, a lawsuit titled High River Ltd. PShip et al. v. BEA Systems, Inc. et al. was filed in the Court
of Chancery of the State of Delaware (the High River Action). The action was brought by High River Ltd. Partnership and certain affiliated parties who purport to collectively beneficially own almost 14 percent of the Companys
stock. The complaint sought, pursuant to Del. C. § 211, to compel the Company to hold an annual meeting on or before November 30, 2007, and to enjoin the Company from taking certain actions pending the next annual meeting. The parties
subsequently agreed to settle the High River Action. Pursuant to the settlement,
120
the Company will hold its 2007 annual meeting on March 18, 2008. The settlement was approved by the Court of Chancery on December 20, 2007.
The Company is subject to legal proceedings and other claims that arise in the ordinary course of business, such as those arising from
domestic and foreign tax authorities, intellectual property matters and employee related matters, in the ordinary course of its business. While management currently believes the amount of ultimate liability, if any, with respect to these actions
will not materially affect the Companys financial position, results of operations or liquidity, the ultimate outcome could be material to the Company. It is not known when or on what basis this action will be resolved.
Warranties and Indemnification
The
Company generally provides a warranty for its software products and services to its customers and accounts for its warranties under Statement of Financial Accounting Standards No. 5,
Accounting for Contingencies
(FAS 5). The
Companys products are generally warranted to perform substantially as described in the associated product documentation for a period of 90 days. The Companys services are generally warranted to be performed consistent with industry
standards for a period of 90 days from delivery. In the event there is a failure of such warranties, the Company generally is obligated to correct the product or service to conform to the warranty provision or, if the Company is unable to do so, the
customer is entitled to seek a refund of the purchase price of the product or service. The Company has not provided for a warranty accrual as of January 31, 2008 or January 31, 2007. To date, the Companys product warranty expense has
not been significant.
The Company generally agrees to indemnify its customers against legal claims that the Companys software
products infringe certain third-party intellectual property rights and accounts for its indemnification obligations under FAS 5. In the event of such a claim, the Company is generally obligated to defend its customer against the claim and to either
settle the claim at the Companys expense or pay damages that the customer is legally required to pay to the third-party claimant. In addition, in the event of an infringement, the Company agrees to modify or replace the infringing product, or,
if those options are not reasonably possible, to refund the cost of the software, as pro-rated over a period of years. To date, the Company has not been required to make any payment resulting from infringement claims asserted against its customers.
As such, the Company has not recorded a liability for infringement costs as of January 31, 2008.
We have obligations under certain
circumstances to indemnify each of the defendant directors against judgments, fines, settlements and expenses related to claims against such directors and otherwise to the fullest extent permitted under Delaware law and our bylaws and certificate of
incorporation.
121
20. Supplementary Data
Supplementary Quarterly Consolidated Financial Data (unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
January 31,
2008
|
|
|
October 31,
2007
|
|
July 31,
2007
|
|
|
April 30,
2007
|
|
|
|
(in thousands, except per share data)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License fees
|
|
$
|
179,473
|
|
|
$
|
134,782
|
|
$
|
123,120
|
|
|
$
|
114,647
|
|
Services
|
|
|
261,419
|
|
|
|
249,646
|
|
|
241,495
|
|
|
|
231,198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
440,892
|
|
|
|
384,428
|
|
|
364,615
|
|
|
|
345,845
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of license fees
|
|
|
12,997
|
|
|
|
14,045
|
|
|
14,182
|
|
|
|
19,745
|
|
Cost of services
|
|
|
78,270
|
|
|
|
75,021
|
|
|
73,720
|
|
|
|
70,710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
91,267
|
|
|
|
89,066
|
|
|
87,902
|
|
|
|
90,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
349,625
|
|
|
|
295,362
|
|
|
276,713
|
|
|
|
255,390
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
151,503
|
|
|
|
133,627
|
|
|
128,109
|
|
|
|
128,885
|
|
Research and development
|
|
|
62,944
|
|
|
|
57,070
|
|
|
58,902
|
|
|
|
61,214
|
|
General and administrative
|
|
|
47,268
|
|
|
|
40,379
|
|
|
36,013
|
|
|
|
38,154
|
|
Facilities consolidation
|
|
|
165
|
|
|
|
|
|
|
1,605
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
261,880
|
|
|
|
231,076
|
|
|
224,629
|
|
|
|
228,253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
87,745
|
|
|
|
64,286
|
|
|
52,084
|
|
|
|
27,137
|
|
Interest and other, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(79
|
)
|
|
|
|
|
|
(2,103
|
)
|
|
|
(3,166
|
)
|
Net gain on sales of equity investments
|
|
|
|
|
|
|
|
|
|
222
|
|
|
|
910
|
|
Interest income and other
|
|
|
15,730
|
|
|
|
13,670
|
|
|
15,433
|
|
|
|
16,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest and other, net
|
|
|
15,651
|
|
|
|
13,670
|
|
|
13,552
|
|
|
|
14,358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
|
103,396
|
|
|
|
77,956
|
|
|
65,636
|
|
|
|
41,495
|
|
Provision for income taxes
|
|
|
27,676
|
|
|
|
21,985
|
|
|
18,584
|
|
|
|
12,057
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
75,720
|
|
|
$
|
55,971
|
|
$
|
47,052
|
|
|
$
|
29,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.19
|
|
|
$
|
0.14
|
|
$
|
0.12
|
|
|
$
|
0.07
|
|
Diluted
|
|
$
|
0.18
|
|
|
$
|
0.13
|
|
$
|
0.11
|
|
|
$
|
0.07
|
|
122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
January 31,
2007
|
|
|
October 31,
2006
|
|
|
July 31,
2006
|
|
|
April 30,
2006
|
|
|
|
(in thousands, except per share data)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License fees
|
|
$
|
168,735
|
|
|
$
|
136,365
|
|
|
$
|
135,966
|
|
|
$
|
132,404
|
|
Services
|
|
|
223,091
|
|
|
|
211,307
|
|
|
|
203,649
|
|
|
|
190,832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
391,826
|
|
|
|
347,672
|
|
|
|
339,615
|
|
|
|
323,236
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of license fees
|
|
|
17,242
|
|
|
|
15,501
|
|
|
|
16,226
|
|
|
|
15,252
|
|
Cost of services
|
|
|
70,612
|
|
|
|
67,807
|
|
|
|
67,756
|
|
|
|
62,930
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
87,854
|
|
|
|
83,308
|
|
|
|
83,982
|
|
|
|
78,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
303,972
|
|
|
|
264,364
|
|
|
|
255,633
|
|
|
|
245,054
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
146,525
|
|
|
|
130,368
|
|
|
|
127,127
|
|
|
|
120,950
|
|
Research and development
|
|
|
63,392
|
|
|
|
58,710
|
|
|
|
55,882
|
|
|
|
54,976
|
|
General and administrative
|
|
|
40,251
|
|
|
|
35,881
|
|
|
|
32,047
|
|
|
|
30,076
|
|
Facilities consolidation
|
|
|
201,615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charges
|
|
|
454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition-related in-process research and development
|
|
|
|
|
|
|
1,700
|
|
|
|
|
|
|
|
2,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
452,237
|
|
|
|
226,659
|
|
|
|
215,056
|
|
|
|
208,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(148,265
|
)
|
|
|
37,705
|
|
|
|
40,577
|
|
|
|
36,352
|
|
Interest and other, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(4,543
|
)
|
|
|
(6,082
|
)
|
|
|
(5,974
|
)
|
|
|
(6,024
|
)
|
Net gain on sales of equity investments
|
|
|
102
|
|
|
|
|
|
|
|
|
|
|
|
10,972
|
|
Interest income and other
|
|
|
14,956
|
|
|
|
15,626
|
|
|
|
14,607
|
|
|
|
10,677
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest and other, net
|
|
|
10,515
|
|
|
|
9,544
|
|
|
|
8,633
|
|
|
|
15,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision (benefit) for income taxes
|
|
|
(137,750
|
)
|
|
|
47,249
|
|
|
|
49,210
|
|
|
|
51,977
|
|
Provision for income taxes
|
|
|
(38,019
|
)
|
|
|
12,128
|
|
|
|
15,194
|
|
|
|
16,883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(99,731
|
)
|
|
$
|
35,121
|
|
|
$
|
34,016
|
|
|
$
|
35,094
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.25
|
)
|
|
$
|
0.09
|
|
|
$
|
0.09
|
|
|
$
|
0.09
|
|
Diluted
|
|
$
|
(0.25
|
)
|
|
$
|
0.08
|
|
|
$
|
0.08
|
|
|
$
|
0.09
|
|
123
Consolidated balance sheets for the interim periods of fiscal 2008 and fiscal 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31,
2008
|
|
|
October 31,
2007
|
|
|
July 31,
2007
|
|
|
April 30,
2007
|
|
|
|
(in thousands)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
993,685
|
|
|
$
|
826,602
|
|
|
$
|
830,683
|
|
|
$
|
942,917
|
|
Restricted cash
|
|
|
837
|
|
|
|
1,035
|
|
|
|
1,266
|
|
|
|
1,413
|
|
Short-term investments
|
|
|
508,070
|
|
|
|
416,619
|
|
|
|
290,313
|
|
|
|
342,350
|
|
Accounts receivable, net of allowance for doubtful accounts
|
|
|
395,890
|
|
|
|
297,013
|
|
|
|
296,213
|
|
|
|
305,380
|
|
Deferred tax assets, net
|
|
|
81,991
|
|
|
|
98,122
|
|
|
|
118,543
|
|
|
|
128,882
|
|
Prepaid expenses and other current assets
|
|
|
72,548
|
|
|
|
55,956
|
|
|
|
49,855
|
|
|
|
49,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
2,053,021
|
|
|
|
1,695,347
|
|
|
|
1,586,873
|
|
|
|
1,770,760
|
|
Long-term investments
|
|
|
17,475
|
|
|
|
26,374
|
|
|
|
52,683
|
|
|
|
48,913
|
|
Property and equipment, net
|
|
|
194,867
|
|
|
|
189,397
|
|
|
|
188,724
|
|
|
|
188,664
|
|
Goodwill, net
|
|
|
227,536
|
|
|
|
232,527
|
|
|
|
233,213
|
|
|
|
233,226
|
|
Acquired intangible assets, net
|
|
|
38,173
|
|
|
|
42,453
|
|
|
|
48,599
|
|
|
|
55,834
|
|
Long-term restricted cash
|
|
|
2,597
|
|
|
|
2,399
|
|
|
|
2,371
|
|
|
|
2,371
|
|
Long-term deferred tax assets, net
|
|
|
129,620
|
|
|
|
111,477
|
|
|
|
112,255
|
|
|
|
112,602
|
|
Other long-term assets
|
|
|
9,359
|
|
|
|
9,931
|
|
|
|
10,185
|
|
|
|
9,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,672,648
|
|
|
$
|
2,309,905
|
|
|
$
|
2,234,903
|
|
|
$
|
2,422,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
30,631
|
|
|
$
|
29,806
|
|
|
$
|
25,597
|
|
|
$
|
31,119
|
|
Accrued liabilities
|
|
|
107,277
|
|
|
|
103,899
|
|
|
|
87,315
|
|
|
|
98,922
|
|
Restructuring obligations
|
|
|
2,846
|
|
|
|
3,112
|
|
|
|
3,168
|
|
|
|
2,000
|
|
Accrued payroll and related liabilities
|
|
|
112,187
|
|
|
|
82,136
|
|
|
|
82,594
|
|
|
|
71,100
|
|
Accrued income taxes
|
|
|
9,880
|
|
|
|
5,403
|
|
|
|
14,446
|
|
|
|
18,632
|
|
Deferred revenue
|
|
|
476,985
|
|
|
|
388,589
|
|
|
|
407,925
|
|
|
|
434,722
|
|
Deferred tax liability
|
|
|
|
|
|
|
4,788
|
|
|
|
4,788
|
|
|
|
4,788
|
|
Current portion of notes payable and other obligations
|
|
|
988
|
|
|
|
657
|
|
|
|
565
|
|
|
|
607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
740,794
|
|
|
|
618,390
|
|
|
|
626,398
|
|
|
|
661,890
|
|
Long-term tax liabilities
|
|
|
151,767
|
|
|
|
135,044
|
|
|
|
132,551
|
|
|
|
130,456
|
|
Notes payable and other long-term obligations
|
|
|
21,977
|
|
|
|
20,728
|
|
|
|
16,720
|
|
|
|
230,735
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
471
|
|
|
|
456
|
|
|
|
456
|
|
|
|
456
|
|
Additional paid-in capital
|
|
|
2,079,967
|
|
|
|
1,936,435
|
|
|
|
1,926,244
|
|
|
|
1,915,017
|
|
Treasury stock, at cost
|
|
|
(478,249
|
)
|
|
|
(478,249
|
)
|
|
|
(478,249
|
)
|
|
|
(478,249
|
)
|
Retained earnings (Accumulated deficit)
|
|
|
125,899
|
|
|
|
50,179
|
|
|
|
(5,793
|
)
|
|
|
(52,844
|
)
|
Accumulated other comprehensive income
|
|
|
30,022
|
|
|
|
26,922
|
|
|
|
16,576
|
|
|
|
14,767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
1,758,110
|
|
|
|
1,535,743
|
|
|
|
1,459,234
|
|
|
|
1,399,147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
2,672,648
|
|
|
$
|
2,309,905
|
|
|
$
|
2,234,903
|
|
|
$
|
2,422,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31,
2007
|
|
|
October 31,
2006
|
|
|
July 31,
2006
|
|
|
April 30,
2006
|
|
|
|
(in thousands)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
867,294
|
|
|
$
|
799,312
|
|
|
$
|
1,041,891
|
|
|
$
|
971,965
|
|
Restricted cash
|
|
|
1,413
|
|
|
|
262,168
|
|
|
|
1,813
|
|
|
|
1,666
|
|
Short-term investments
|
|
|
313,941
|
|
|
|
344,830
|
|
|
|
323,347
|
|
|
|
297,325
|
|
Accounts receivable, net of allowance for doubtful accounts
|
|
|
394,799
|
|
|
|
273,162
|
|
|
|
255,359
|
|
|
|
242,461
|
|
Deferred tax assets, net
|
|
|
56,767
|
|
|
|
|
|
|
|
20,604
|
|
|
|
25,500
|
|
Prepaid expenses and other current assets
|
|
|
46,126
|
|
|
|
43,750
|
|
|
|
55,056
|
|
|
|
61,154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,680,340
|
|
|
|
1,723,222
|
|
|
|
1,698,070
|
|
|
|
1,600,071
|
|
Long-term investments
|
|
|
93,528
|
|
|
|
31,743
|
|
|
|
46,834
|
|
|
|
45,490
|
|
Property and equipment, net
|
|
|
144,471
|
|
|
|
344,789
|
|
|
|
341,112
|
|
|
|
341,991
|
|
Goodwill, net
|
|
|
233,998
|
|
|
|
246,951
|
|
|
|
201,148
|
|
|
|
200,213
|
|
Acquired intangible assets, net
|
|
|
67,959
|
|
|
|
78,323
|
|
|
|
80,726
|
|
|
|
88,540
|
|
Long-term restricted cash
|
|
|
2,372
|
|
|
|
1,534
|
|
|
|
1,534
|
|
|
|
2,644
|
|
Long-term deferred tax assets, net
|
|
|
166,027
|
|
|
|
38,230
|
|
|
|
35,984
|
|
|
|
28,574
|
|
Other long-term assets
|
|
|
10,147
|
|
|
|
10,696
|
|
|
|
10,182
|
|
|
|
8,939
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,398,842
|
|
|
$
|
2,475,488
|
|
|
$
|
2,415,590
|
|
|
$
|
2,316,462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
27,521
|
|
|
$
|
36,059
|
|
|
$
|
32,641
|
|
|
$
|
24,019
|
|
Accrued liabilities
|
|
|
93,507
|
|
|
|
92,683
|
|
|
|
88,096
|
|
|
|
96,223
|
|
Restructuring obligations
|
|
|
3,089
|
|
|
|
2,022
|
|
|
|
2,034
|
|
|
|
3,198
|
|
Accrued payroll and related liabilities
|
|
|
105,797
|
|
|
|
77,178
|
|
|
|
75,854
|
|
|
|
72,742
|
|
Accrued income taxes
|
|
|
120,156
|
|
|
|
71,357
|
|
|
|
76,628
|
|
|
|
74,983
|
|
Deferred revenue
|
|
|
449,282
|
|
|
|
337,598
|
|
|
|
355,914
|
|
|
|
365,003
|
|
Convertible subordinated notes
|
|
|
|
|
|
|
255,250
|
|
|
|
255,250
|
|
|
|
255,250
|
|
Deferred tax liability
|
|
|
4,788
|
|
|
|
|
|
|
|
1,208
|
|
|
|
|
|
Current portion of notes payable and other obligations
|
|
|
1,302
|
|
|
|
504
|
|
|
|
421
|
|
|
|
933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
805,442
|
|
|
|
872,651
|
|
|
|
888,046
|
|
|
|
892,351
|
|
Long-term deferred tax liabilities
|
|
|
|
|
|
|
3,943
|
|
|
|
3,363
|
|
|
|
1,283
|
|
Notes payable and other long-term obligations
|
|
|
228,790
|
|
|
|
231,386
|
|
|
|
227,516
|
|
|
|
227,632
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
456
|
|
|
|
456
|
|
|
|
454
|
|
|
|
449
|
|
Additional paid-in capital
|
|
|
1,902,657
|
|
|
|
1,806,713
|
|
|
|
1,771,368
|
|
|
|
1,708,103
|
|
Treasury stock, at cost
|
|
|
(478,249
|
)
|
|
|
(478,249
|
)
|
|
|
(478,249
|
)
|
|
|
(478,249
|
)
|
Retained earnings (Accumulated deficit)
|
|
|
(72,416
|
)
|
|
|
27,317
|
|
|
|
(7,805
|
)
|
|
|
(41,819
|
)
|
Accumulated other comprehensive income
|
|
|
12,162
|
|
|
|
11,271
|
|
|
|
10,897
|
|
|
|
6,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
1,364,610
|
|
|
|
1,367,508
|
|
|
|
1,296,665
|
|
|
|
1,195,196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
2,398,842
|
|
|
$
|
2,475,488
|
|
|
$
|
2,415,590
|
|
|
$
|
2,316,462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
125