e10vq
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
FORM 10-Q
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|
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x QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
|
For the Quarterly Period Ended November 30, 2007
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|
OR
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o TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
.
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Commission file number:
000-51788
Oracle Corporation
(Exact name of registrant as
specified in its charter)
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|
|
Delaware
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|
54-2185193
|
(State or other jurisdiction
of
incorporation or organization)
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|
(I.R.S. Employer
Identification no.)
|
500 Oracle Parkway
Redwood City, California 94065
(Address of principal executive
offices, including zip code)
(650) 506-7000
(Registrants telephone
number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. YES x NO o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in
Rule 12b-2
of the Exchange Act.
Large Accelerated
filer x Accelerated
filer o Non-accelerated
filer o
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). YES o NO x
The number of shares of registrants common stock
outstanding as of December 17, 2007 was: 5,136,587,722.
ORACLE
CORPORATION
FORM 10-Q
QUARTERLY REPORT
TABLE OF
CONTENTS
PART I.
FINANCIAL INFORMATION
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|
Item 1.
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Financial
Statements (Unaudited)
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ORACLE
CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
As of November 30, 2007 and May 31, 2007
(Unaudited)
|
|
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November 30,
|
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May 31,
|
|
(in millions, except per share data)
|
|
2007
|
|
|
2007
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
6,733
|
|
|
$
|
6,218
|
|
Marketable securities
|
|
|
1,699
|
|
|
|
802
|
|
Trade receivables, net of allowances of $258 and $306
|
|
|
3,264
|
|
|
|
4,074
|
|
Other receivables
|
|
|
373
|
|
|
|
515
|
|
Deferred tax assets
|
|
|
969
|
|
|
|
968
|
|
Prepaid expenses and other current assets
|
|
|
520
|
|
|
|
306
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
13,558
|
|
|
|
12,883
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|
|
|
|
|
|
|
|
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Non-current assets:
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|
|
|
|
|
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|
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Property, net
|
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|
1,655
|
|
|
|
1,603
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|
Intangible assets: software support agreements and related
relationships, net
|
|
|
2,887
|
|
|
|
3,002
|
|
Intangible assets: other, net
|
|
|
2,796
|
|
|
|
2,962
|
|
Goodwill
|
|
|
13,663
|
|
|
|
13,479
|
|
Deferred tax assets
|
|
|
412
|
|
|
|
48
|
|
Other assets
|
|
|
682
|
|
|
|
595
|
|
|
|
|
|
|
|
|
|
|
Total non-current assets
|
|
|
22,095
|
|
|
|
21,689
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
35,653
|
|
|
$
|
34,572
|
|
|
|
|
|
|
|
|
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|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Commercial paper and other short-term borrowings
|
|
$
|
2
|
|
|
$
|
1,358
|
|
Accounts payable
|
|
|
346
|
|
|
|
315
|
|
Income taxes payable
|
|
|
|
|
|
|
1,237
|
|
Accrued compensation and related benefits
|
|
|
1,191
|
|
|
|
1,349
|
|
Accrued restructuring
|
|
|
169
|
|
|
|
201
|
|
Deferred revenues
|
|
|
3,577
|
|
|
|
3,492
|
|
Other current liabilities
|
|
|
1,264
|
|
|
|
1,435
|
|
|
|
|
|
|
|
|
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Total current liabilities
|
|
|
6,549
|
|
|
|
9,387
|
|
|
|
|
|
|
|
|
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|
Non-current liabilities:
|
|
|
|
|
|
|
|
|
Notes payable, non-current
|
|
|
6,236
|
|
|
|
6,235
|
|
Income taxes payable
|
|
|
1,382
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
1,045
|
|
|
|
1,121
|
|
Accrued restructuring
|
|
|
243
|
|
|
|
258
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|
Deferred revenues
|
|
|
263
|
|
|
|
93
|
|
Other long-term liabilities
|
|
|
640
|
|
|
|
559
|
|
|
|
|
|
|
|
|
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Total non-current liabilities
|
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|
9,809
|
|
|
|
8,266
|
|
|
|
|
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Commitments and contingencies
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Stockholders equity:
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Preferred stock, $0.01 par valueauthorized:
1.0 shares; outstanding: none
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Common stock, $0.01 par value and additional paid in
capitalauthorized:
11,000 shares; outstanding: 5,128 shares at
November 30, 2007 and 5,107 shares at May 31, 2007
|
|
|
11,256
|
|
|
|
10,293
|
|
Retained earnings
|
|
|
7,478
|
|
|
|
6,223
|
|
Accumulated other comprehensive income
|
|
|
561
|
|
|
|
403
|
|
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|
|
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Total stockholders equity
|
|
|
19,295
|
|
|
|
16,919
|
|
|
|
|
|
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|
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Total liabilities and stockholders equity
|
|
$
|
35,653
|
|
|
$
|
34,572
|
|
|
|
|
|
|
|
|
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|
See notes to condensed consolidated financial statements.
ORACLE
CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Six Months Ended November 30, 2007 and
2006
(Unaudited)
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Three Months Ended
|
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Six Months Ended
|
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November 30,
|
|
|
November 30,
|
|
(in millions, except per share data)
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New software licenses
|
|
$
|
1,668
|
|
|
$
|
1,207
|
|
|
$
|
2,756
|
|
|
$
|
2,011
|
|
Software license updates and product support
|
|
|
2,491
|
|
|
|
2,007
|
|
|
|
4,873
|
|
|
|
3,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software revenues
|
|
|
4,159
|
|
|
|
3,214
|
|
|
|
7,629
|
|
|
|
5,959
|
|
Services
|
|
|
1,154
|
|
|
|
949
|
|
|
|
2,213
|
|
|
|
1,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
5,313
|
|
|
|
4,163
|
|
|
|
9,842
|
|
|
|
7,754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
1,095
|
|
|
|
915
|
|
|
|
2,070
|
|
|
|
1,665
|
|
Software license updates and product support
|
|
|
246
|
|
|
|
205
|
|
|
|
474
|
|
|
|
404
|
|
Cost of services
|
|
|
992
|
|
|
|
820
|
|
|
|
1,922
|
|
|
|
1,599
|
|
Research and development
|
|
|
674
|
|
|
|
519
|
|
|
|
1,326
|
|
|
|
1,026
|
|
General and administrative
|
|
|
206
|
|
|
|
170
|
|
|
|
402
|
|
|
|
328
|
|
Amortization of intangible assets
|
|
|
290
|
|
|
|
202
|
|
|
|
575
|
|
|
|
401
|
|
Acquisition related
|
|
|
22
|
|
|
|
(36
|
)
|
|
|
68
|
|
|
|
12
|
|
Restructuring
|
|
|
6
|
|
|
|
11
|
|
|
|
6
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
3,531
|
|
|
|
2,806
|
|
|
|
6,843
|
|
|
|
5,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
1,782
|
|
|
|
1,357
|
|
|
|
2,999
|
|
|
|
2,299
|
|
Interest expense
|
|
|
(89
|
)
|
|
|
(82
|
)
|
|
|
(183
|
)
|
|
|
(166
|
)
|
Non-operating income, net
|
|
|
122
|
|
|
|
79
|
|
|
|
199
|
|
|
|
183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
|
1,815
|
|
|
|
1,354
|
|
|
|
3,015
|
|
|
|
2,316
|
|
Provision for income taxes
|
|
|
512
|
|
|
|
387
|
|
|
|
871
|
|
|
|
679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,303
|
|
|
$
|
967
|
|
|
$
|
2,144
|
|
|
$
|
1,637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.25
|
|
|
$
|
0.19
|
|
|
$
|
0.42
|
|
|
$
|
0.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.25
|
|
|
$
|
0.18
|
|
|
$
|
0.41
|
|
|
$
|
0.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
5,125
|
|
|
|
5,184
|
|
|
|
5,117
|
|
|
|
5,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
5,232
|
|
|
|
5,287
|
|
|
|
5,224
|
|
|
|
5,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to condensed consolidated financial statements.
2
ORACLE
CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended November 30, 2007 and 2006
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
November 30,
|
|
(in millions)
|
|
2007
|
|
|
2006
|
|
|
Cash Flows From Operating Activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2,144
|
|
|
$
|
1,637
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
137
|
|
|
|
124
|
|
Amortization of intangible assets
|
|
|
575
|
|
|
|
401
|
|
Deferred income taxes
|
|
|
(72
|
)
|
|
|
5
|
|
Minority interests in income
|
|
|
29
|
|
|
|
32
|
|
Stock-based compensation
|
|
|
168
|
|
|
|
98
|
|
Tax benefits on the exercise of stock options
|
|
|
262
|
|
|
|
205
|
|
Excess tax benefits from stock-based compensation
|
|
|
(187
|
)
|
|
|
(159
|
)
|
In-process research and development
|
|
|
7
|
|
|
|
50
|
|
Net investment gains related to equity securities
|
|
|
(2
|
)
|
|
|
(18
|
)
|
Changes in operating assets and liabilities, net of effects from
acquisitions:
|
|
|
|
|
|
|
|
|
Decrease in trade receivables, net
|
|
|
937
|
|
|
|
681
|
|
Decrease in prepaid expenses and other assets
|
|
|
27
|
|
|
|
23
|
|
Decrease in accounts payable and other liabilities
|
|
|
(551
|
)
|
|
|
(855
|
)
|
Decrease in income taxes payable
|
|
|
(241
|
)
|
|
|
(196
|
)
|
Increase (decrease) in deferred revenues
|
|
|
70
|
|
|
|
(162
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
3,303
|
|
|
|
1,866
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
Purchases of marketable securities and investments
|
|
|
(1,953
|
)
|
|
|
(4,251
|
)
|
Proceeds from maturities and sales of marketable securities and
investments
|
|
|
1,273
|
|
|
|
2,204
|
|
Acquisitions, net of cash acquired
|
|
|
(651
|
)
|
|
|
(488
|
)
|
Capital expenditures
|
|
|
(156
|
)
|
|
|
(106
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used for investing activities
|
|
|
(1,487
|
)
|
|
|
(2,641
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
Payments for repurchase of common stock
|
|
|
(1,023
|
)
|
|
|
(1,936
|
)
|
Proceeds from issuance of common stock
|
|
|
682
|
|
|
|
566
|
|
Payments of debt
|
|
|
(1,362
|
)
|
|
|
(8
|
)
|
Excess tax benefits from stock-based compensation
|
|
|
187
|
|
|
|
159
|
|
Distributions to minority interests
|
|
|
(28
|
)
|
|
|
(29
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used for financing activities
|
|
|
(1,544
|
)
|
|
|
(1,248
|
)
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
243
|
|
|
|
48
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
515
|
|
|
|
(1,975
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
6,218
|
|
|
|
6,659
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
6,733
|
|
|
$
|
4,684
|
|
|
|
|
|
|
|
|
|
|
Non-cash financing transactions:
|
|
|
|
|
|
|
|
|
Fair value of stock awards assumed in connection with
acquisitions
|
|
$
|
15
|
|
|
$
|
20
|
|
Unsettled repurchases of common stock
|
|
$
|
24
|
|
|
$
|
48
|
|
Debt issued in connection with acquisitions
|
|
$
|
|
|
|
$
|
13
|
|
See notes to condensed consolidated financial statements.
3
ORACLE
CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
November 30, 2007
(Unaudited)
We have prepared the condensed consolidated financial statements
included herein, without audit, pursuant to the rules and
regulations of the U.S. Securities and Exchange Commission
(SEC). Certain information and footnote disclosures normally
included in financial statements prepared in accordance with
U.S. generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations.
However, we believe that the disclosures are adequate to ensure
the information presented is not misleading. These unaudited
condensed consolidated financial statements should be read in
conjunction with the audited financial statements and the notes
thereto included in our Annual Report on
Form 10-K
for the fiscal year ended May 31, 2007.
We believe that all necessary adjustments, which consisted only
of normal recurring items, have been included in the
accompanying financial statements to present fairly the results
of the interim periods. The results of operations for the
interim periods presented are not necessarily indicative of the
operating results to be expected for any subsequent interim
period or for our fiscal year ending May 31, 2008. Certain
prior period balances have been reclassified to conform to the
current period presentation. There have been no significant
changes in new accounting pronouncements or in our critical
accounting policies that were disclosed in our Annual Report on
Form 10-K
for the fiscal year ended May 31, 2007 other than the
impact of our adoption of Financial Accounting Standards Board
(FASB) Interpretation No. 48, Accounting for Uncertainty
in Income Taxes, an interpretation of FASB Statement
No. 109, which affected our Accounting for Income Taxes
policy (see Note 9).
|
|
2.
|
NEW
ACCOUNTING PRONOUNCEMENTS
|
Business Combinations: In December 2007, the
FASB issued Statement No. 141 (revised), Business
Combinations. The standard changes the accounting for
business combinations including the measurement of acquirer
shares issued in consideration for a business combination, the
recognition of contingent consideration, the accounting for
preacquisition gain and loss contingencies, the recognition of
capitalized in-process research and development, the accounting
for acquisition-related restructuring cost accruals, the
treatment of acquisition related transaction costs and the
recognition of changes in the acquirers income tax
valuation allowance. Statement 141(R) is effective for fiscal
years beginning after December 15, 2008, with early
adoption prohibited. We are currently evaluating the impact of
the pending adoption of Statement 141(R) on our consolidated
financial statements.
Accounting and Reporting of Noncontrolling
Interests: In December 2007, the FASB issued
Statement No. 160, Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB
No. 51. The standard changes the accounting for
noncontrolling (minority) interests in consolidated financial
statements including the requirements to classify noncontrolling
interests as a component of consolidated stockholders
equity, and the elimination of minority interest
accounting in results of operations with earnings attributable
to noncontrolling interests reported as part of consolidated
earnings. Additionally, Statement 160 revises the accounting for
both increases and decreases in a parents controlling
ownership interest. Statement 160 is effective for fiscal years
beginning after December 15, 2008, with early adoption
prohibited. We are currently evaluating the impact of the
pending adoption of Statement 160 on our consolidated financial
statements.
Fair Value Measurements: In September 2006,
the FASB issued Statement No. 157, Fair Value
Measurements. Statement 157 defines fair value,
establishes a framework for measuring fair value and expands
fair value measurement disclosures. Statement 157 is effective
for fiscal years beginning after November 15, 2007. We are
currently evaluating the impact of the pending adoption of
Statement 157 on our consolidated financial statements.
Fair Value Option for Financial Assets and Financial
Liabilities: In February 2007, the FASB issued
Statement No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities, including an amendment of FASB
Statement No. 115, which allows an entity the
irrevocable option to elect fair value for the initial and
subsequent measurement for certain financial assets and
liabilities on an
instrument-by-instrument
basis. Subsequent
4
ORACLE
CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
November 30, 2007
(Unaudited)
measurements for the financial assets and liabilities an entity
elects to record at fair value will be recognized in earnings.
Statement 159 also establishes additional disclosure
requirements. Statement 159 is effective for fiscal years
beginning after November 15, 2007, with early adoption
permitted provided that the entity also adopts Statement 157. We
are currently evaluating the impact of the pending adoption of
Statement 159 on our consolidated financial statements.
Accounting for Advanced Payments for Future Research and
Development: In June 2007, the FASB ratified
EITF 07-3,
Accounting for Nonrefundable 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. We are currently evaluating the
impact of the pending adoption of
EITF 07-3
on our consolidated financial statements.
|
|
3.
|
STOCK-BASED
COMPENSATION
|
We account for share-based payments to employees, including
grants of employee stock options and purchases under employee
stock purchase plans in accordance with FASB Statement
No. 123 (revised 2004), Share-Based Payment, which
requires that these awards (to the extent they are compensatory)
be recognized in our consolidated statements of operations based
on their fair values. In addition, we have applied the
provisions of the SECs Staff Accounting
Bulletin No. 107 in our implementation of Statement
123R.
As required by Statement 123R, we recognize stock-based
compensation expense for awards issued or assumed after
June 1, 2006 that are expected to vest. For all awards
granted or assumed beginning June 1, 2006, we recognize
stock-based compensation expense on a straight-line basis over
the service period of the award, which is generally four years.
The fair value of the unvested portion of awards granted prior
to June 1, 2006 is recognized over the remaining service
period using the accelerated expense attribution method, net of
estimated forfeitures. In determining whether an award is
expected to vest, we use an estimated, forward-looking
forfeiture rate based upon our historical forfeiture rates.
Stock-based compensation expense recorded using an estimated
forfeiture rate is updated for actual forfeitures quarterly. We
also consider, each quarter, whether there have been any
significant changes in facts and circumstances that would affect
our forfeiture rate. The net effect of forfeiture adjustments
based on actual results was an increase to stock-based
compensation expense of approximately $8 million for the
six months ended November 30, 2007 (nominal for all other
periods presented).
5
ORACLE
CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
November 30, 2007
(Unaudited)
Stock-based compensation is included in the following operating
expense line items of our condensed consolidated statements of
operations (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
November 30,
|
|
|
November 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Sales and marketing
|
|
$
|
13
|
|
|
$
|
8
|
|
|
$
|
26
|
|
|
$
|
18
|
|
Software license updates and product support
|
|
|
3
|
|
|
|
3
|
|
|
|
7
|
|
|
|
6
|
|
Cost of services
|
|
|
3
|
|
|
|
3
|
|
|
|
8
|
|
|
|
6
|
|
Research and development
|
|
|
25
|
|
|
|
21
|
|
|
|
52
|
|
|
|
43
|
|
General and administrative
|
|
|
19
|
|
|
|
12
|
|
|
|
38
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
63
|
|
|
|
47
|
|
|
|
131
|
|
|
|
97
|
|
Acquisition related
charges(1)
|
|
|
4
|
|
|
|
|
|
|
|
37
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
67
|
|
|
$
|
47
|
|
|
$
|
168
|
|
|
$
|
98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Stock-based compensation included
in acquisition related charges resulted from unvested options
assumed from acquisitions whose vesting was fully accelerated
upon termination of the employees pursuant to the terms of those
options.
|
We estimate the fair value of our stock awards using the
Black-Scholes-Merton option-pricing model, which was developed
for use in estimating the fair value of traded options that have
no vesting restrictions and are fully transferable. Option
valuation models, including the Black-Scholes-Merton
option-pricing model, require the input of assumptions,
including stock price volatility. Changes in the input
assumptions can materially affect the fair value estimates.
During the three and six months ended November 30, 2007 and
2006, the fair value of stock awards was estimated at the date
of grant or date of plan assumption (for awards assumed via
acquisition) using the following weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
November 30,
|
|
|
November 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Expected life (in years)
|
|
|
4.7
|
|
|
|
4.4
|
|
|
|
5.3
|
|
|
|
5.1
|
|
Risk-free interest rate
|
|
|
4.21%
|
|
|
|
4.56%
|
|
|
|
5.01%
|
|
|
|
5.12%
|
|
Volatility
|
|
|
31%
|
|
|
|
27%
|
|
|
|
27%
|
|
|
|
26%
|
|
Dividend yield
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average fair value at grant or assumption date
|
|
$
|
7.10
|
|
|
$
|
4.89
|
|
|
$
|
7.10
|
|
|
$
|
4.88
|
|
The expected life input is based on historical exercise patterns
and post-vesting termination behavior, the risk-free interest
rate input is based on United States Treasury instruments and
the volatility input is calculated from the implied volatility
of our longest-term, traded options. We do not currently pay
cash dividends on our common stock and do not anticipate doing
so in the foreseeable future.
Fiscal
2008 Acquisition
Agile
Software Corporation
We acquired Agile Software Corporation to expand our offering of
product life cycle management solutions on July 16, 2007 by
means of a merger of Agile with our wholly-owned subsidiary. We
have included the financial results of Agile in our consolidated
financial results effective July 16, 2007.
6
ORACLE
CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
November 30, 2007
(Unaudited)
The total purchase price for Agile was $492 million which
consisted of $471 million in cash paid to acquire the
outstanding common stock of Agile, $14 million for the fair
value of Agile options assumed and $7 million for
transaction costs. In allocating the purchase price based on
estimated fair values, we recorded approximately
$106 million of goodwill, $198 million of identifiable
intangible assets, $183 million of net tangible assets and
$5 million of in-process research and development. The
preliminary allocation of the purchase price was based upon a
preliminary valuation and our estimates and assumptions are
subject to change. The primary areas of the purchase price
allocation that are not yet finalized relate to certain legal
matters, income and non-income based taxes and residual goodwill.
Fiscal
2007 Acquisitions
Hyperion
Solutions Corporation
On April 13, 2007, we acquired majority ownership of
Hyperion Solutions Corporation by means of a cash tender offer
and, subsequently, completed a merger of Hyperion with our
wholly-owned subsidiary on April 19, 2007. We acquired
Hyperion to expand our offerings of enterprise performance
management and business intelligence software solutions.
The total purchase price for Hyperion was $3.2 billion
which consisted of $3,171 million in cash paid to acquire
the outstanding common stock of Hyperion, $51 million for
the fair value of Hyperion options assumed and restricted stock
awards exchanged and $27 million for acquisition related
transaction costs. In allocating the purchase price based on
estimated fair values, we recorded approximately
$1,658 million of goodwill, $1,460 million of
identifiable intangible assets, $75 million of net tangible
assets and $56 million of in-process research and
development. The preliminary allocation of the purchase price
was based upon a preliminary valuation and our estimates and
assumptions are subject to change. The primary areas of the
purchase price allocation that are not yet finalized relate to
certain restructuring liabilities, legal matters, income and
non-income based taxes and residual goodwill.
i-flex
solutions limited
During fiscal 2007 and fiscal 2006, we acquired interests in and
increased our ownership of i-flex solutions limited (Bombay
Stock Exchange: IFLX.BO and National Stock Exchange of India:
IFLX.NS) to approximately 83% by means of share purchase
agreements, an open offer to acquire shares and open market
purchases. We acquired a majority ownership in i-flex to expand
our offerings of software solutions and services to the
financial services industry.
Our cumulative investment in i-flex as of November 30, 2007
was approximately $2.1 billion, which consisted of
$2,039 million of cash paid for common stock and
$31 million in transaction costs and other expenses. Our
cumulative investment in i-flex has been allocated to
i-flexs net tangible and identifiable intangible assets
based on their estimated fair values as of the respective dates
of acquisition of the interests. The minority interest in the
net assets of i-flex has been recorded at historical book
values. In allocating the purchase price, we recorded
approximately $1.6 billion of goodwill, $281 million
of identifiable intangible assets, $180 million of net
tangible assets and $46 million of in-process research and
development.
Other
Acquisitions
During the first half of fiscal 2008 and during fiscal year
2007, we acquired several other companies and purchased certain
technology and development assets. Our acquisitions during the
first half of fiscal 2008, excluding Agile, were insignificant.
Our fiscal year 2007 acquisitions, other than Hyperion and
i-flex, had
a total preliminary purchase price of approximately
$1.3 billion, which included cash paid of
$1,258 million and the fair value of options assumed of
$46 million. We recorded approximately $601 million of
goodwill, $574 million of identifiable
7
ORACLE
CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
November 30, 2007
(Unaudited)
intangible assets, $80 million of net tangible assets and
$49 million of in-process research and development
associated with these other fiscal 2007 acquisitions. We have
included the effects of these transactions in our results of
operations prospectively from the respective dates of the
acquisitions. The preliminary purchase price allocations for
each of these acquisitions were based upon a preliminary
valuation and our estimates and assumptions for certain of these
acquisitions are subject to change. The primary areas of the
purchase price allocations that are not yet finalized relate to
identifiable intangible assets, certain legal matters, income
and non-income based taxes and residual goodwill.
Unaudited
Pro Forma Financial Information
The unaudited financial information in the table below
summarizes the combined results of operations of Oracle, Agile,
Hyperion and other collectively significant companies acquired
during the first half of fiscal 2008 and during fiscal year
2007, on a pro forma basis, as though the companies had been
combined as of the beginning of each of the periods presented.
The pro forma financial information is presented for
informational purposes only and is not indicative of the results
of operations that would have been achieved if the acquisitions
and any borrowings undertaken to finance these acquisitions had
taken place at the beginning of each of the periods presented.
The pro forma financial information for the periods presented
also includes the business combination accounting effect on
historical Agile, Hyperion and other collectively significant
companies support revenues, amortization charges from
acquired intangible assets, stock-based compensation charges for
unvested stock awards assumed, adjustments to interest expense
and related tax effects.
The impact of our acquisitions on our unaudited pro forma
financial information during the three months ended
November 30, 2007 was nominal and, therefore, we have only
presented our historical results for this period in the below
table. The unaudited pro forma financial information for the six
months ended November 30, 2007 combines the historical
results of Oracle for the six months ended November 30,
2007, the historical results of Agile for the period from
June 1, 2007 to July 15, 2007, and the business
combination accounting effects listed above. The unaudited pro
forma financial information for the three and six months ended
November 30, 2006 combines the historical results of Oracle
for the three and six months ended November 30, 2006 and,
due to differences in our reporting periods, the historical
results of Agile for the three and six months ended
October 31, 2006, the historical results of Hyperion for
the three and six months ended December 31, 2006, the
historical results of other collectively significant companies
acquired based upon their respective previous reporting periods
and the dates that these companies were acquired by us, and the
business combination accounting effects listed above.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
November 30,
|
|
|
November 30,
|
|
(in millions, except per share data)
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Total revenues
|
|
$
|
5,313
|
|
|
$
|
4,392
|
|
|
$
|
9,855
|
|
|
$
|
8,203
|
|
Net income
|
|
$
|
1,303
|
|
|
$
|
866
|
|
|
$
|
2,137
|
|
|
$
|
1,408
|
|
Basic net income per share
|
|
$
|
0.25
|
|
|
$
|
0.17
|
|
|
$
|
0.42
|
|
|
$
|
0.27
|
|
Diluted net income per share
|
|
$
|
0.25
|
|
|
$
|
0.16
|
|
|
$
|
0.41
|
|
|
$
|
0.27
|
|
|
|
5.
|
ACQUISITION
RELATED CHARGES
|
Acquisition related charges primarily consist of in-process
research and development expenses, integration-related
professional services, stock-based compensation expenses and
personnel related costs for transitional employees. Stock-based
compensation included in acquisition related charges resulted
from unvested options assumed from acquisitions whose vesting
was fully accelerated upon termination of the employees pursuant
to the terms of those options.
8
ORACLE
CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
November 30, 2007
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
November 30,
|
|
|
November 30,
|
|
(in millions)
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
In-process research and development
|
|
$
|
|
|
|
$
|
7
|
|
|
$
|
7
|
|
|
$
|
50
|
|
Transitional employee related costs
|
|
|
15
|
|
|
|
6
|
|
|
|
19
|
|
|
|
10
|
|
Stock-based compensation
|
|
|
4
|
|
|
|
|
|
|
|
37
|
|
|
|
1
|
|
Professional fees
|
|
|
3
|
|
|
|
3
|
|
|
|
5
|
|
|
|
3
|
|
PeopleSoft pre-acquisition legal contingency accrual
|
|
|
|
|
|
|
(52
|
)
|
|
|
|
|
|
|
(52
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total acquisition related charges
|
|
$
|
22
|
|
|
$
|
(36
|
)
|
|
$
|
68
|
|
|
$
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three and six months ended November 30, 2006,
acquisition related charges also included a benefit related to
the settlement of a lawsuit filed against PeopleSoft, Inc. on
behalf of the U.S. government. This lawsuit was filed in
October 2003, prior to our acquisition of PeopleSoft. The
lawsuit alleged PeopleSoft made defective pricing disclosures to
the U.S. General Services Administration. This lawsuit
represented a pre-acquisition contingency that we identified and
assumed in connection with the PeopleSoft acquisition. On
October 10, 2006, we agreed to pay the U.S. government
$98 million to settle this lawsuit. Business combination
accounting standards require that after the end of the purchase
price allocation period, any adjustment to amounts recorded that
relate to a pre-acquisition contingency should be included as an
element of net income in the period of settlement, and not as an
adjustment to the original purchase price allocation. Since the
purchase price allocation period for PeopleSoft ended in the
third quarter of our fiscal year 2006, the favorable difference
of $52 million between the estimated exposure recorded for
this lawsuit during the purchase price allocation period and the
actual settlement amount has been included in our consolidated
statements of operations for the three and six months ended
November 30, 2006.
|
|
6.
|
NON-OPERATING
INCOME, NET
|
Non-operating income, net consists primarily of interest income,
net foreign currency exchange gains, net investment gains
related to marketable securities and other investments as well
as the minority share in the net profits of i-flex and Oracle
Japan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
November 30,
|
|
|
November 30,
|
|
(in millions)
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Interest income
|
|
$
|
89
|
|
|
$
|
81
|
|
|
$
|
163
|
|
|
$
|
158
|
|
Foreign currency gains, net
|
|
|
21
|
|
|
|
10
|
|
|
|
27
|
|
|
|
16
|
|
Net investment gains related to marketable securities
|
|
|
2
|
|
|
|
3
|
|
|
|
2
|
|
|
|
18
|
|
Minority interests
|
|
|
(16
|
)
|
|
|
(20
|
)
|
|
|
(29
|
)
|
|
|
(32
|
)
|
Other
|
|
|
26
|
|
|
|
5
|
|
|
|
36
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-operating income, net
|
|
$
|
122
|
|
|
$
|
79
|
|
|
$
|
199
|
|
|
$
|
183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
ORACLE
CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
November 30, 2007
(Unaudited)
|
|
7.
|
GOODWILL
AND INTANGIBLE ASSETS
|
The changes in the carrying amount of goodwill, the majority of
which is not deductible for tax purposes, by operating segment
for the six months ended November 30, 2007, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Updates and
|
|
|
|
|
|
|
|
|
|
|
|
|
New Software
|
|
Product
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Licenses
|
|
Support
|
|
|
Services
|
|
|
Other(1)
|
|
|
Total
|
|
|
Balance as of May 31, 2007
|
|
$
|
3,169
|
|
$
|
7,122
|
|
|
$
|
1,505
|
|
|
$
|
1,683
|
|
|
$
|
13,479
|
|
Allocation of
goodwill(1)
|
|
|
653
|
|
|
966
|
|
|
|
64
|
|
|
|
(1,683
|
)
|
|
|
|
|
Agile acquisition
goodwill(1)
|
|
|
48
|
|
|
49
|
|
|
|
9
|
|
|
|
|
|
|
|
106
|
|
Other acquisition
goodwill(1)
|
|
|
93
|
|
|
56
|
|
|
|
11
|
|
|
|
|
|
|
|
160
|
|
Goodwill
adjustments(2)
|
|
|
6
|
|
|
(86
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
(82
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of November 30, 2007
|
|
$
|
3,969
|
|
$
|
8,107
|
|
|
$
|
1,587
|
|
|
$
|
|
|
|
$
|
13,663
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents goodwill associated with
certain acquisitions that was or will be allocated to our
operating segments upon the finalization of our intangible asset
valuations.
|
|
(2) |
|
Pursuant to business combination
accounting rules, goodwill adjustments represent the effect on
goodwill of changes to net assets acquired during the purchase
price allocation period that were recorded during the first half
of fiscal 2008. Goodwill adjustments also include the effects on
goodwill of our adoption of FASB Interpretation No. 48 as
of June 1, 2007.
|
The changes in intangible assets for the six months ended
November 30, 2007 and the net book value of intangible
assets at November 30, 2007 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible Assets, Gross
|
|
|
Accumulated Amortization
|
|
|
Net Book Value
|
|
|
Weighted
|
|
|
May 31,
|
|
|
|
|
|
Nov. 30,
|
|
|
May 31,
|
|
|
|
|
|
Nov. 30,
|
|
|
May 31,
|
|
|
Nov. 30,
|
|
|
Average
|
(Dollars in millions)
|
|
2007
|
|
|
Additions
|
|
|
2007
|
|
|
2007
|
|
|
Expense
|
|
|
2007
|
|
|
2007
|
|
|
2007
|
|
|
Useful Life
|
|
Software support agreements and related relationships
|
|
$
|
3,652
|
|
|
$
|
79
|
|
|
$
|
3,731
|
|
|
$
|
(650
|
)
|
|
$
|
(194
|
)
|
|
$
|
(844
|
)
|
|
$
|
3,002
|
|
|
$
|
2,887
|
|
|
10 years
|
Developed technology
|
|
|
2,342
|
|
|
|
146
|
|
|
|
2,488
|
|
|
|
(688
|
)
|
|
|
(245
|
)
|
|
|
(933
|
)
|
|
|
1,654
|
|
|
|
1,555
|
|
|
5 years
|
Core technology
|
|
|
883
|
|
|
|
25
|
|
|
|
908
|
|
|
|
(254
|
)
|
|
|
(86
|
)
|
|
|
(340
|
)
|
|
|
629
|
|
|
|
568
|
|
|
5 years
|
Customer relationships
|
|
|
599
|
|
|
|
42
|
|
|
|
641
|
|
|
|
(85
|
)
|
|
|
(34
|
)
|
|
|
(119
|
)
|
|
|
514
|
|
|
|
522
|
|
|
9 years
|
Trademarks
|
|
|
209
|
|
|
|
2
|
|
|
|
211
|
|
|
|
(44
|
)
|
|
|
(16
|
)
|
|
|
(60
|
)
|
|
|
165
|
|
|
|
151
|
|
|
8 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,685
|
|
|
$
|
294
|
|
|
$
|
7,979
|
|
|
$
|
(1,721
|
)
|
|
$
|
(575
|
)
|
|
$
|
(2,296
|
)
|
|
$
|
5,964
|
|
|
$
|
5,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortization expense related to our intangible assets was
$290 million and $575 million for the three and six
months ended November 30, 2007, respectively, and
$202 million and $401 million for the three and six
months ended November 30, 2006, respectively. As of
November 30, 2007, estimated future amortization expense
related to intangible assets is $616 million for the
remainder of fiscal 2008, $1.1 billion in fiscal 2009,
$1.0 billion in fiscal 2010, $793 million in fiscal
2011, $658 million in fiscal 2012, $308 million in
fiscal 2013 and $1.1 billion thereafter.
10
ORACLE
CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
November 30, 2007
(Unaudited)
Deferred revenues consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
November 30,
|
|
|
May 31,
|
|
(in millions)
|
|
2007
|
|
|
2007
|
|
|
Software license updates and product support
|
|
$
|
3,097
|
|
|
$
|
3,079
|
|
Services
|
|
|
301
|
|
|
|
279
|
|
New software licenses
|
|
|
179
|
|
|
|
134
|
|
|
|
|
|
|
|
|
|
|
Deferred revenues, current
|
|
|
3,577
|
|
|
|
3,492
|
|
Deferred revenues, non-current
|
|
|
263
|
|
|
|
93
|
|
|
|
|
|
|
|
|
|
|
Total deferred revenues
|
|
$
|
3,840
|
|
|
$
|
3,585
|
|
|
|
|
|
|
|
|
|
|
Deferred software license updates and product support revenues
represent customer payments made in advance for annual support
contracts. Software license updates and product support are
typically billed on a per annum basis in advance and revenue is
recognized ratably over the support period. The deferred
software license updates and product support revenues are
typically highest at the end of our first fiscal quarter due to
the collection of cash from the large volume of service
contracts that are sold or renewed in the fiscal quarter ending
in May of each year due to the peak in sales surrounding our
fiscal year-end. Deferred service revenues include prepayments
for consulting, On Demand and education services. Revenue for
these services is recognized as the services are performed.
Deferred new software license revenues typically result from
undelivered products or specified enhancements, customer
specific acceptance provisions, software license transactions
that cannot be segmented from consulting services or certain
extended payment term arrangements.
In connection with purchase price allocations related to our
acquisitions, we have estimated the fair values of the support
obligations assumed. The estimated fair values of the support
obligations assumed were determined using a cost-build up
approach. The cost-build up approach determines fair value by
estimating the costs relating to fulfilling the obligations plus
a normal profit margin. The sum of the costs and operating
profit approximates, in theory, the amount that we would be
required to pay a third party to assume the support obligations.
These fair value adjustments reduce the revenues recognized over
the support contract term of our acquired contracts and, as a
result, we did not recognize software license updates and
product support revenues related to support contracts assumed in
business acquisitions in the amount of $115 million and
$122 million, which would have been otherwise recorded by
the acquired entities, for the six months ended
November 30, 2007 and 2006, respectively.
The effective tax rate in the periods presented is the result of
the mix of income earned in various tax jurisdictions that apply
a broad range of income tax rates. The provision for income
taxes differs from the tax computed at the U.S. federal
statutory income tax rate due primarily to state taxes and
earnings considered as indefinitely reinvested in foreign
operations. The effective tax rate was 28.2% and 28.9% for the
three and six months ended November 30, 2007, respectively,
and 28.6% and 29.3% for the three and six months ended
November 30, 2006, respectively.
On June 1, 2007, we adopted FASB Interpretation
No. 48, Accounting for Uncertainty in Income Taxes, an
Interpretation of FASB Statement No. 109 (FIN 48).
FIN 48 contains a two-step approach to recognizing and
measuring uncertain tax positions accounted for in accordance
with Statement 109, Accounting for Income Taxes. The
first step is to evaluate the tax position taken or expected to
be taken in a tax return by determining if the weight of
available evidence indicates that it is more likely than not
that, on an evaluation of the technical merits, the tax position
will be sustained on audit, including resolution of any related
appeals or litigation processes. The second
11
ORACLE
CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
November 30, 2007
(Unaudited)
step is to measure the tax benefit as the largest amount that is
more than 50% likely to be realized upon ultimate settlement.
The total amount of gross unrecognized tax benefits as of
June 1, 2007 (the date of adoption of FIN 48) was
$1.3 billion. The adoption of FIN 48 resulted in an
increase to our retained earnings of $4 million. In
addition, as of the date of adoption, $612 million of
unrecognized benefits would affect our effective tax rate if
realized. We recognize interest and penalties related to
uncertain tax positions in our provision for income taxes line
item of our consolidated statements of operations. The gross
amount of interest and penalties accrued as of the date of
adoption was $286 million.
Domestically, U.S. federal and state taxing authorities are
currently examining income tax returns of Oracle and various
acquired entities for years through fiscal 2006. Many issues are
at an advanced stage in the examination process, the most
significant of which include the deductibility of certain
royalty payments, issues related to certain capital gains and
losses, Foreign Sales Corporation/Extraterritorial Income
exemptions, stewardship deductions and foreign tax credits
taken. Other issues are related to years with expiring statutes
of limitation. With all of these domestic audit issues
considered in the aggregate, we believe it was reasonably
possible that, as of June 1, 2007, the unrecognized tax
benefits related to these audits could decrease (whether by
payment, release, or a combination of both) in the next
12 months by as much as $256 million
($225 million net of offsetting tax benefits). Our
U.S. federal and, with some exceptions, our state income
tax returns have been examined for all years prior to fiscal
2000, and we are no longer subject to audit for those periods.
Internationally, tax authorities for numerous
non-U.S. jurisdictions
are also examining returns affecting unrecognized tax benefits.
We believe it was reasonably possible that, as of June 1,
2007, the gross unrecognized tax benefits could decrease in the
next 12 months by as much as $73 million
($14 million net of offsetting tax benefits), related
primarily to a technical matter of corporate restructuring,
which would be affected by the possible passage of favorable
legislation. With some exceptions, we are generally no longer
subject to tax examinations in
non-U.S. jurisdictions
for years prior to fiscal 1998.
We believe that we have adequately provided for any reasonably
foreseeable outcomes related to our tax audits and that any
settlement will not have a material adverse effect on our
consolidated financial position or results of operations.
However, there can be no assurances as to the possible outcomes.
12
ORACLE
CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
November 30, 2007
(Unaudited)
|
|
10.
|
RESTRUCTURING
ACTIVITIES
|
Fiscal
2008 Oracle Restructuring Plan
During the second quarter of fiscal 2008, our management
approved, committed to and initiated plans to restructure and
improve efficiencies in our Oracle-based operations as a result
of certain management and organizational changes and our recent
acquisitions. The total estimated restructuring costs (primarily
related to employee severance) associated with our Fiscal 2008
Oracle Restructuring Plan are $66 million and will be
recorded to the restructuring expense line item within our
consolidated statements of operations as they are recognized.
For the three months ended November 30, 2007, we recorded
$6 million in restructuring expenses and expect to incur
the majority of the remaining $60 million over the course
of calendar 2008. Any changes to the estimates of executing the
Fiscal 2008 Oracle Restructuring Plan will be reflected in our
future results of operations.
Hyperion
Restructuring Plan
During the fourth quarter of our fiscal year 2007, management
approved and initiated plans to restructure certain operations
of pre-merger Hyperion to eliminate redundant costs resulting
from the acquisition of Hyperion and improve efficiencies in
operations. The cash restructuring charges recorded are based on
restructuring plans that have been committed to by management.
The total estimated restructuring costs associated with exiting
activities of Hyperion are $116 million, consisting
primarily of excess facilities obligations through fiscal 2019
as well as severance and other restructuring costs. These costs
were recognized as a liability assumed in the purchase business
combination and included in the allocation of the cost to
acquire Hyperion and, accordingly, have resulted in an increase
to goodwill. Our restructuring expenses may change as management
executes the approved plan. Future decreases to the estimates of
executing the Hyperion restructuring plan will be recorded as an
adjustment to goodwill indefinitely, whereas increases to the
estimates will be recorded as an adjustment to goodwill during
the purchase accounting allocation period and as an adjustment
to operating expenses thereafter.
Siebel
Restructuring Plan
During the third quarter of our fiscal year 2006, management
approved and initiated plans to restructure certain operations
of pre-merger Siebel Systems, Inc. to eliminate redundant costs
resulting from the acquisition of Siebel and improve
efficiencies in operations. The cash restructuring charges
recorded were based on a restructuring plan that was committed
to by management.
The total estimated restructuring costs associated with exiting
activities of Siebel were $570 million, consisting
primarily of excess facilities obligations through fiscal 2022
as well as severance and other restructuring costs. These costs
were recognized as a liability assumed in the purchase business
combination and included in the allocation of the cost to
acquire Siebel and, accordingly, have resulted in an increase to
goodwill. Our restructuring expenses may change as management
executes the approved plan. Future decreases to the estimates of
executing the Siebel restructuring plan will be recorded as an
adjustment to goodwill indefinitely, whereas increases to the
estimates will be recorded as operating expenses.
13
ORACLE
CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
November 30, 2007
(Unaudited)
Summary
of All Plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Total
|
|
|
|
Accrued
|
|
|
Six Months Ended November 30, 2007
|
|
|
Accrued
|
|
|
Costs
|
|
|
Expected
|
|
|
|
May 31,
|
|
|
Initial
|
|
|
Adj. to
|
|
|
Cash
|
|
|
|
|
|
Nov. 30,
|
|
|
Accrued
|
|
|
Program
|
|
(in millions)
|
|
2007(2)
|
|
|
Costs(3)
|
|
|
Cost
|
|
|
Payments
|
|
|
Others(4)
|
|
|
2007(2)
|
|
|
to Date
|
|
|
Costs
|
|
|
Fiscal 2008 Oracle Restructuring Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New software licenses
|
|
$
|
|
|
|
$
|
2
|
|
|
$
|
|
|
|
$
|
(1
|
)
|
|
$
|
|
|
|
$
|
1
|
|
|
$
|
2
|
|
|
$
|
17
|
|
Software license updates and product support
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
9
|
|
Services
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
|
|
24
|
|
Other(1)
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
2
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fiscal 2008 Oracle Restructuring
|
|
$
|
|
|
|
$
|
6
|
|
|
$
|
|
|
|
$
|
(2
|
)
|
|
$
|
|
|
|
$
|
4
|
|
|
$
|
6
|
|
|
$
|
66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hyperion Restructuring Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
$
|
45
|
|
|
$
|
|
|
|
$
|
2
|
|
|
$
|
(7
|
)
|
|
$
|
|
|
|
$
|
40
|
|
|
$
|
47
|
|
|
$
|
47
|
|
Facilities
|
|
|
46
|
|
|
|
|
|
|
|
6
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
45
|
|
|
|
53
|
|
|
|
53
|
|
Contracts and other
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
15
|
|
|
|
16
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Hyperion Restructuring
|
|
$
|
107
|
|
|
$
|
|
|
|
$
|
8
|
|
|
$
|
(15
|
)
|
|
$
|
|
|
|
$
|
100
|
|
|
$
|
116
|
|
|
$
|
116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Siebel Restructuring Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
$
|
6
|
|
|
$
|
|
|
|
$
|
(1
|
)
|
|
$
|
(1
|
)
|
|
$
|
|
|
|
$
|
4
|
|
|
$
|
62
|
|
|
$
|
62
|
|
Facilities
|
|
|
230
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
(34
|
)
|
|
|
3
|
|
|
|
196
|
|
|
|
469
|
|
|
|
469
|
|
Contracts and other
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
39
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Siebel Restructuring
|
|
$
|
246
|
|
|
$
|
|
|
|
$
|
(4
|
)
|
|
$
|
(35
|
)
|
|
$
|
3
|
|
|
$
|
210
|
|
|
$
|
570
|
|
|
$
|
570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other Restructuring Plans
|
|
$
|
106
|
|
|
$
|
|
|
|
$
|
(1
|
)
|
|
$
|
(11
|
)
|
|
$
|
4
|
|
|
$
|
98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total All Restructuring Plans
|
|
$
|
459
|
|
|
$
|
6
|
|
|
$
|
3
|
|
|
$
|
(63
|
)
|
|
$
|
7
|
|
|
$
|
412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes costs associated with
research and development, and general and administrative
functions.
|
|
(2) |
|
Accrued restructuring at
November 30, 2007 and May 31, 2007 was $412 and $459,
respectively. The balances include $169 and $201 recorded in
accrued restructuring, current and $243 and $258 recorded in
accrued restructuring, non-current in the accompanying condensed
consolidated balance sheets at November 30, 2007 and
May 31, 2007, respectively.
|
|
(3) |
|
Costs associated with initial
restructuring plan.
|
|
(4) |
|
Represents foreign currency
translation adjustments.
|
Our Board of Directors has approved a program to repurchase
shares of our common stock to reduce the dilutive effect of our
stock option and stock purchase plans. In April 2007, our Board
of Directors expanded our repurchase program by
$4.0 billion and as of November 30, 2007,
approximately $3.2 billion was available for share
repurchases pursuant to our stock repurchase program. We
repurchased approximately 49 million shares for
$1.0 billion during the six months ended November 30,
2007 (including approximately 1 million shares for
$24 million that were repurchased but not settled) and
approximately 121 million shares for $2.0 billion
during the six months ended November 30, 2006 (including
approximately 3 million shares for $48 million that
were repurchased but not settled) under the applicable
repurchase programs authorized.
Our stock repurchase authorization does not have an expiration
date and the pace of our repurchase activity will depend on
factors such as our working capital needs, our cash requirements
for acquisitions, our debt repayment obligations, our stock
price, and economic and market conditions. Our stock repurchases
may be effected from time to time through open market purchases
or pursuant to a
Rule 10b5-1
plan. Our stock repurchase program may be accelerated,
suspended, delayed or discontinued at any time.
14
ORACLE
CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
November 30, 2007
(Unaudited)
Basic earnings per share is computed by dividing net income for
the period by the weighted average number of common shares
outstanding during the period. Diluted earnings per share is
computed by dividing net income for the period by the weighted
average number of common shares outstanding during the period,
plus the dilutive effect of outstanding stock awards and shares
issuable under the employee stock purchase plan using the
treasury stock method. The following table sets forth the
computation of basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
November 30,
|
|
|
November 30,
|
|
(in millions, except per share data)
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Net income
|
|
$
|
1,303
|
|
|
$
|
967
|
|
|
$
|
2,144
|
|
|
$
|
1,637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
5,125
|
|
|
|
5,184
|
|
|
|
5,117
|
|
|
|
5,200
|
|
Dilutive effect of employee stock plans
|
|
|
107
|
|
|
|
103
|
|
|
|
107
|
|
|
|
97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average common shares outstanding
|
|
|
5,232
|
|
|
|
5,287
|
|
|
|
5,224
|
|
|
|
5,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.25
|
|
|
$
|
0.19
|
|
|
$
|
0.42
|
|
|
$
|
0.31
|
|
Diluted earnings per share
|
|
$
|
0.25
|
|
|
$
|
0.18
|
|
|
$
|
0.41
|
|
|
$
|
0.31
|
|
Effect of shares subject to anti-dilutive stock options excluded
from
calculation(1)
|
|
|
100
|
|
|
|
63
|
|
|
|
96
|
|
|
|
84
|
|
|
|
|
(1) |
|
These weighted shares relate to
anti-dilutive stock options as calculated using the treasury
stock method (described above) and could be dilutive in the
future.
|
Comprehensive income includes foreign currency translation gains
and losses, unrealized gains and losses on debt and equity
securities and equity hedge gains and losses that are reflected
in stockholders equity instead of net income. The
following table sets forth the calculation of comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
November 30,
|
|
|
November 30,
|
|
(in millions)
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Net income
|
|
$
|
1,303
|
|
|
$
|
967
|
|
|
$
|
2,144
|
|
|
$
|
1,637
|
|
Change in net foreign currency translation gain
|
|
|
187
|
|
|
|
33
|
|
|
|
209
|
|
|
|
2
|
|
Change in unrealized gain (loss) on hedges, net
|
|
|
(32
|
)
|
|
|
(2
|
)
|
|
|
(52
|
)
|
|
|
12
|
|
Change in unrealized gain on investments, net
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
1,459
|
|
|
$
|
998
|
|
|
$
|
2,302
|
|
|
$
|
1,652
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Rate Swap Agreements
In September 2007, we entered into two interest rate swap
agreements that have the economic effect of modifying the
variable interest obligations associated with our floating rate
senior notes due May 2009 and May 2010 so that the interest
payable on the senior notes effectively becomes fixed at a rate
of 4.62% and 4.59%, respectively. The critical terms of the
interest rate swap agreements and the senior notes that the swap
agreements pertain to match, including the notional amounts,
interest rate reset dates, maturity dates and underlying market
indices. The fair values of the interest rate swaps totaled an
unrealized loss of $16 million, net of tax effects, at
November 30, 2007. We are accounting for these swaps as
hedges pursuant to FASB Statement No. 133, Accounting
for Derivative Instruments and Hedging Activities. The
losses on these swaps are included in accumulated other
comprehensive
15
ORACLE
CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
November 30, 2007
(Unaudited)
income and the corresponding fair value payable is included in
other long-term liabilities in our condensed consolidated
balance sheet.
FASB Statement No. 131, Disclosures about Segments of an
Enterprise and Related Information, establishes standards
for reporting information about operating segments. Operating
segments are defined as components of an enterprise about which
separate financial information is available that is evaluated
regularly by the chief operating decision maker, or decision
making group, in deciding how to allocate resources and in
assessing performance. Our chief operating decision maker is our
Chief Executive Officer. We are organized geographically and by
line of business. While our Chief Executive Officer evaluates
results in a number of different ways, the line of business
management structure is the primary basis for which the
allocation of resources and financial results are assessed. We
have two businesses, software and services, which are further
divided into five operating segments. Our software business is
comprised of two operating segments: (1) new software
licenses and (2) software license updates and product
support. Our services business is comprised of three operating
segments: (1) consulting, (2) On Demand and
(3) education.
The new software license line of business is engaged in the
licensing of database and middleware software as well as
applications software. Database and middleware software includes
database management software, application server software,
identification management and access, analytics, development
tools and collaboration software. Applications software provides
enterprise information that enables companies to manage their
business cycles and provide intelligence in functional areas
such as financials, human resources, maintenance management,
manufacturing, marketing, order fulfillment, product lifecycle
management, procurement, projects, sales, services, enterprise
resource planning and supply chain planning. The software
license updates and product support line of business provides
customers with rights to unspecified software product upgrades
and maintenance releases, internet access to technical content,
as well as internet and telephone access to technical support
personnel during the support period. In addition, the software
license updates and product support line of business offers
customers Oracle Unbreakable Linux Support, which provides
enterprise level support for the Linux operating system, and
also offers support for Oracle VM server virtualization software.
The consulting line of business provides services to customers
in business strategy and analysis, business process
optimization, and the implementation, deployment and upgrade of
our database, middleware and applications software. On Demand
includes Oracle On Demand, CRM On Demand and Advanced Customer
Services. Oracle On Demand provides multi-featured software and
hardware management and maintenance services for customers that
deploy our database, middleware and applications software at
Oracles data center facilities or at a site of our
customers choosing. CRM On Demand is a service offering
that provides our customers with our Siebel CRM Software
functionality delivered via a hosted solution that we manage.
Advanced Customer Services consists of solution support centers,
business critical assistance, technical account management,
expert services, configuration and performance analysis,
personalized support and annual
on-site
technical services. The education line of business provides
instructor led, media based and internet based training in the
use of our database, middleware and applications software.
We do not track our assets by operating segments. Consequently,
it is not practical to show assets by operating segments.
16
ORACLE
CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
November 30, 2007
(Unaudited)
The following table presents a summary of our businesses and
operating segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
November 30,
|
|
|
November 30,
|
|
(in millions)
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
New software licenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues(1)
|
|
$
|
1,665
|
|
|
$
|
1,205
|
|
|
$
|
2,750
|
|
|
$
|
2,006
|
|
Sales and distribution expenses
|
|
|
934
|
|
|
|
769
|
|
|
|
1,771
|
|
|
|
1,396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Margin(2)
|
|
$
|
731
|
|
|
$
|
436
|
|
|
$
|
979
|
|
|
$
|
610
|
|
Software license updates and product support:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues(1)
|
|
$
|
2,542
|
|
|
$
|
2,060
|
|
|
$
|
4,987
|
|
|
$
|
4,070
|
|
Cost of services
|
|
|
229
|
|
|
|
191
|
|
|
|
443
|
|
|
|
377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Margin(2)
|
|
$
|
2,313
|
|
|
$
|
1,869
|
|
|
$
|
4,544
|
|
|
$
|
3,693
|
|
Total software business:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues(1)
|
|
$
|
4,207
|
|
|
$
|
3,265
|
|
|
$
|
7,737
|
|
|
$
|
6,076
|
|
Expenses
|
|
|
1,163
|
|
|
|
960
|
|
|
|
2,214
|
|
|
|
1,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Margin(2)
|
|
$
|
3,044
|
|
|
$
|
2,305
|
|
|
$
|
5,523
|
|
|
$
|
4,303
|
|
Consulting:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues(1)
|
|
$
|
871
|
|
|
$
|
711
|
|
|
$
|
1,666
|
|
|
$
|
1,347
|
|
Cost of services
|
|
|
723
|
|
|
|
585
|
|
|
|
1,397
|
|
|
|
1,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Margin(2)
|
|
$
|
148
|
|
|
$
|
126
|
|
|
$
|
269
|
|
|
$
|
210
|
|
On Demand:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues(1)
|
|
$
|
167
|
|
|
$
|
140
|
|
|
$
|
326
|
|
|
$
|
265
|
|
Cost of services
|
|
|
143
|
|
|
|
137
|
|
|
|
280
|
|
|
|
265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Margin(2)
|
|
$
|
24
|
|
|
$
|
3
|
|
|
$
|
46
|
|
|
$
|
|
|
Education:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues(1)
|
|
$
|
119
|
|
|
$
|
100
|
|
|
$
|
228
|
|
|
$
|
188
|
|
Cost of services
|
|
|
80
|
|
|
|
65
|
|
|
|
155
|
|
|
|
129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Margin(2)
|
|
$
|
39
|
|
|
$
|
35
|
|
|
$
|
73
|
|
|
$
|
59
|
|
Total services business:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues(1)
|
|
$
|
1,157
|
|
|
$
|
951
|
|
|
$
|
2,220
|
|
|
$
|
1,800
|
|
Cost of services
|
|
|
946
|
|
|
|
787
|
|
|
|
1,832
|
|
|
|
1,531
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Margin(2)
|
|
$
|
211
|
|
|
$
|
164
|
|
|
$
|
388
|
|
|
$
|
269
|
|
Totals:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues(1)
|
|
$
|
5,364
|
|
|
$
|
4,216
|
|
|
$
|
9,957
|
|
|
$
|
7,876
|
|
Expenses
|
|
|
2,109
|
|
|
|
1,747
|
|
|
|
4,046
|
|
|
|
3,304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Margin(2)
|
|
$
|
3,255
|
|
|
$
|
2,469
|
|
|
$
|
5,911
|
|
|
$
|
4,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Operating segment revenues differ
from the external reporting classifications for our revenues due
to certain software license products that are classified as
service revenues for management reporting purposes.
Additionally, software license updates and product support
revenues for management reporting include $51 million and
$53 million of revenues that we did not recognize in the
accompanying condensed consolidated statements of operations for
the three months ended November 30, 2007 and 2006,
respectively, and $115 million and $122 million for
the six months ended November 30, 2007 and 2006,
respectively. See Note 8 for an explanation of these
adjustments and the following table for a reconciliation of
operating segment revenues to total revenues.
|
|
(2) |
|
The margins reported reflect only
the direct controllable costs and expenses of each line of
business and do not represent the actual margins for each
operating segment because they do not contain an allocation of
product development, information technology, marketing and
partner programs, and corporate and general and administrative
expenses incurred in support of the lines of business.
Additionally, the margins do not reflect the amortization of
intangible assets, restructuring costs, acquisition related
costs or stock-based compensation expenses.
|
17
ORACLE
CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
November 30, 2007
(Unaudited)
The following table reconciles operating segment revenues to
total revenues as well as operating segment margin to income
before provision for income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
November 30,
|
|
|
November 30,
|
|
(in millions)
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Total revenues for reportable segments
|
|
$
|
5,364
|
|
|
$
|
4,216
|
|
|
$
|
9,957
|
|
|
$
|
7,876
|
|
Software license updates and product support
revenues(1)
|
|
|
(51
|
)
|
|
|
(53
|
)
|
|
|
(115
|
)
|
|
|
(122
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
5,313
|
|
|
$
|
4,163
|
|
|
$
|
9,842
|
|
|
$
|
7,754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total margin for reportable segments
|
|
$
|
3,255
|
|
|
$
|
2,469
|
|
|
$
|
5,911
|
|
|
$
|
4,572
|
|
Software license updates and product support
revenues(1)
|
|
|
(51
|
)
|
|
|
(53
|
)
|
|
|
(115
|
)
|
|
|
(122
|
)
|
Product development and information technology expenses
|
|
|
(745
|
)
|
|
|
(577
|
)
|
|
|
(1,459
|
)
|
|
|
(1,138
|
)
|
Marketing and partner program expenses
|
|
|
(122
|
)
|
|
|
(110
|
)
|
|
|
(214
|
)
|
|
|
(199
|
)
|
Corporate and general and administrative expenses
|
|
|
(168
|
)
|
|
|
(142
|
)
|
|
|
(333
|
)
|
|
|
(271
|
)
|
Amortization of intangible assets
|
|
|
(290
|
)
|
|
|
(202
|
)
|
|
|
(575
|
)
|
|
|
(401
|
)
|
Acquisition related
|
|
|
(22
|
)
|
|
|
36
|
|
|
|
(68
|
)
|
|
|
(12
|
)
|
Restructuring
|
|
|
(6
|
)
|
|
|
(11
|
)
|
|
|
(6
|
)
|
|
|
(20
|
)
|
Stock-based compensation
|
|
|
(63
|
)
|
|
|
(47
|
)
|
|
|
(131
|
)
|
|
|
(97
|
)
|
Interest expense
|
|
|
(89
|
)
|
|
|
(82
|
)
|
|
|
(183
|
)
|
|
|
(166
|
)
|
Non-operating income, net
|
|
|
116
|
|
|
|
73
|
|
|
|
188
|
|
|
|
170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
$
|
1,815
|
|
|
$
|
1,354
|
|
|
$
|
3,015
|
|
|
$
|
2,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Software license updates and
product support revenues for management reporting include
$51 million and $53 million of revenues that we did
not recognize in the accompanying condensed consolidated
statements of operations for the three months ended
November 30, 2007 and 2006, respectively, and
$115 million and $122 million for the six months ended
November 30, 2007 and 2006, respectively. See Note 8
for an explanation of these adjustments and this table for a
reconciliation of operating segment revenues to total revenues.
|
|
|
15.
|
PEOPLESOFT
CUSTOMER ASSURANCE PROGRAM
|
In June 2003, in response to our tender offer, PeopleSoft
implemented what it referred to as the customer assurance
program or CAP. The CAP incorporated a
provision in PeopleSofts standard licensing arrangement
that purports to contractually burden Oracle, as a result of our
acquisition of PeopleSoft, with a contingent obligation to make
payments to PeopleSoft customers should we fail to take certain
business actions for a fixed period. PeopleSoft ceased using the
CAP on December 29, 2004, the date on which we acquired a
controlling interest in PeopleSoft. The payment obligation,
which typically expires four years from the date of the
contract, is fixed at an amount generally between two and five
times the license and first year support fees paid to PeopleSoft
in the applicable license transaction. PeopleSoft customers
retain rights to the licensed products whether or not the CAP
payments are triggered.
18
ORACLE
CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
November 30, 2007
(Unaudited)
The maximum potential penalty under the CAP, by version, as of
November 30, 2007 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum Potential
|
|
|
|
Dates Offered to
Customers(1)
|
|
Penalty
|
|
CAP Version
|
|
Start Date
|
|
End Date
|
|
(in millions)
|
|
|
Version 1
|
|
June 2003
|
|
September 12, 2003
|
|
$
|
3
|
|
Version 2
|
|
September 12, 2003
|
|
September 30, 2003
|
|
|
|
|
Version 3
|
|
September 30, 2003
|
|
November 7, 2003
|
|
|
7
|
|
Version 4
|
|
November 18, 2003
|
|
June 30, 2004
|
|
|
1,065
|
|
Version 5
|
|
June 16, 2004
|
|
December 28, 2004
|
|
|
729
|
|
Version 6
|
|
October 12, 2004
|
|
December 28, 2004
|
|
|
1,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Some contracts originally submitted
to customers prior to these end dates were executed following
such dates. The majority of the CAP provisions will expire no
later than four years after the contract date.
|
This purported obligation was not reflected as a liability on
PeopleSofts balance sheet as PeopleSoft concluded that it
could be triggered only following the consummation of an
acquisition. We have concluded that, as of the date of the
acquisition, the penalty provisions under the CAP represented a
contingent liability of Oracle. The aggregate potential CAP
obligation as of November 30, 2007 was $2.9 billion.
Unless the CAP provisions are removed from these licensing
arrangements, we do not expect the aggregate potential CAP
obligation to decline substantially until later in fiscal 2008
when these provisions begin to expire. We have not recorded a
liability related to the CAP, as we do not believe it is
probable that our post-acquisition activities related to the
PeopleSoft and JD Edwards product lines will trigger an
obligation to make any payment pursuant to the CAP. While no
assurance can be given as to the ultimate outcome of any
litigation, we believe we would also have substantial defenses
with respect to the legality and enforceability of the CAP
contract provisions in response to any claims seeking payment
from us under the CAP terms.
Securities
Class Action
Stockholder class actions were filed in the United States
District Court for the Northern District of California against
us and our Chief Executive Officer on and after March 9,
2001. Between March 2002 and March 2003, the court dismissed
plaintiffs consolidated complaint, first amended complaint
and a revised second amended complaint. The last dismissal was
with prejudice. On September 1, 2004, the United States
Court of Appeals for the Ninth Circuit reversed the dismissal
order and remanded the case for further proceedings. The revised
second amended complaint named our Chief Executive Officer, our
then Chief Financial Officer (who currently is Chairman of our
Board of Directors) and a former Executive Vice President as
defendants. This complaint was brought on behalf of purchasers
of our stock during the period from December 14, 2000
through March 1, 2001. Plaintiffs alleged that the
defendants made false and misleading statements about our actual
and expected financial performance and the performance of
certain of our applications products, while certain individual
defendants were selling Oracle stock in violation of federal
securities laws. Plaintiffs further alleged that certain
individual defendants sold Oracle stock while in possession of
material non-public information. Plaintiffs also allege that the
defendants engaged in accounting violations. On July 26,
2007, defendants filed a motion for summary judgment, and
plaintiffs filed a motion for partial summary judgment against
all defendants and a motion for summary judgment against our
Chief Executive Officer. On August 7, 2007, plaintiffs
filed amended versions of these motions. The parties
summary judgment motions are fully briefed. On October 5,
2007, plaintiffs filed a motion seeking a default judgment
against defendants or various other sanctions because of
defendants alleged
19
ORACLE
CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
November 30, 2007
(Unaudited)
destruction of evidence. This motion is fully briefed. A hearing
on all these motions was held on December 20, 2007. The
court has set a trial date of March 24, 2008. Plaintiffs
seek unspecified damages plus interest, attorneys fees and
costs, and equitable and injunctive relief. We believe that we
have meritorious defenses against this action, and we will
continue to vigorously defend it.
Siebel
Securities Class Action
On March 10, 2004, William Wollrab, on behalf of himself
and purportedly on behalf of a class of stockholders of Siebel,
filed a complaint in the United States District Court for the
Northern District of California against Siebel and certain of
its officers relating to predicted adoption rates of Siebel v7.0
and certain customer satisfaction surveys. This complaint was
consolidated and amended on August 27, 2004, with the
Policemens Annuity and Benefit Fund of Chicago being
appointed to serve as lead plaintiff. The consolidated complaint
also raised claims regarding Siebels business performance
in 2002. In October 2004, Siebel filed a motion to dismiss,
which was granted on January 28, 2005 with leave to amend.
Plaintiffs filed an amended complaint on March 1, 2005.
Plaintiffs seek unspecified damages plus interest,
attorneys fees and costs, and equitable and injunctive
relief. Siebel filed a motion to dismiss the amended complaint
on April 27, 2005, and on December 28, 2005, the Court
dismissed the case with prejudice. On January 17, 2006,
plaintiffs filed a notice of appeal, and on September 18,
2006, plaintiffs filed their opening appellate brief.
Defendants responsive brief was filed on December 15,
2006. Plaintiffs filed their reply brief on January 16,
2007. The court heard oral argument on this appeal on
December 6, 2007. We believe that we have meritorious
defenses against this action, and we will continue to vigorously
defend it.
Intellectual
Property Litigation
Mangosoft, Inc. and Mangosoft Corporation filed a patent
infringement action against us in the United States District
Court for the District of New Hampshire on November 22,
2002. Plaintiffs alleged that we are willfully infringing
U.S. Patent Nos. 6,148,377 (the 377 patent) and
5,918,229 (the 229 patent), which they claim to own.
Plaintiffs seek damages based on our license sales of the Real
Application Clusters database option, the 9i and 10g databases,
and the Application Server, and seek injunctive relief. We
denied infringement and asserted affirmative defenses and
counterclaimed against plaintiffs for declaratory judgment that
the 377 and 229 patents are invalid, unenforceable
and not infringed by us. On May 19, 2004, the court held a
claims construction (Markman) hearing, and on September 21,
2004, it issued a Markman order. On June 21, 2005,
plaintiffs withdrew their allegations of infringement of the
229 patent. Discovery closed on July 1, 2005. Summary
judgment motions were filed on August 25, 2005, and the
court held a hearing on these motions on October 17, 2005.
On March 14, 2006 the court ruled that Oracles Real
Application Clusters database option did not infringe the
377 patent.
Oracles counterclaims against Mangosoft, alleging that the
377 patent is invalid and unenforceable, were the only
claims that the Court left open for trial. On April 21,
2006 Mangosoft filed a motion asking that Mangosoft be allowed
to appeal the noninfringement ruling immediately to the Federal
Circuit Court of Appeals and that trial on Oracles
counterclaims be stayed until that appeal has been resolved.
Oracle filed a brief opposing that motion on May 8, 2006.
On March 28, 2007, the Court issued an order largely
granting the relief sought by Mangosoft. The Court dismissed
Oracles counterclaims of invalidity and inequitable
conduct without prejudice and ordered the entry of judgment of
noninfringement consistent with its March 14, 2006 order on
summary judgment. On March 29, 2007, the Court entered
Judgment in Oracles favor on the issue of noninfringement
and, on the same day, Mangosoft filed its notice of appeal to
the Federal Circuit stating that it was appealing (1) the
Courts March 14, 2006 order on summary judgment,
(2) the Courts order of March 28, 2007,
(3) the Courts claim construction order of
September 21, 2004, and (4) the entry of judgment on
March 29, 2007. Oracle has filed its statement of costs in
connection with the entry of judgment. On May 21, 2007, the
parties were notified that the matter was selected for inclusion
in the Federal Circuits mandatory Appellate Mediation
Program. A mediation was held on for June 20, 2007, but the
matter was not resolved. Mangosoft filed its opening brief in
the Federal Circuit on August 6, 2007.
20
ORACLE
CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
November 30, 2007
(Unaudited)
Oracle filed its responsive brief on November 16, 2007, and
Mangosofts reply is due on January 8, 2008. We
believe that we have meritorious defenses against this action,
and we will continue to vigorously defend it.
SAP
Intellectual Property Litigation
On March 22, 2007, Oracle Corporation, Oracle USA, Inc. and
Oracle International Corporation (collectively, Oracle) filed a
complaint in the United States District Court for the Northern
District of California against SAP AG, its wholly owned
subsidiary, SAP America, Inc., and its wholly owned subsidiary,
TomorrowNow, Inc., (collectively, the SAP Defendants) alleging
violations of the Federal Computer Fraud and Abuse Act and the
California Computer Data Access and Fraud Act, civil conspiracy,
trespass, conversion, violation of the California Unfair
Business Practices Act, and intentional and negligent
interference with prospective economic advantage. Oracle alleged
that SAP unlawfully accessed Oracles Customer Connection
support website and improperly took and used Oracles
intellectual property, including software code and knowledge
management solutions. The complaint seeks unspecified damages
and preliminary and permanent injunctive relief. On
April 10, 2007, Oracle filed a stipulation extending the
time for the SAP Defendants to respond to the complaint. On
June 1, 2007, Oracle filed their First Amended Complaint,
adding claims for infringement of the federal Copyright Act and
breach of contract, and dropping the conversion and separately
pled conspiracy claims. On July 2, 2007 the SAP
Defendants filed their Answer and Affirmative Defenses,
acknowledging that TomorrowNow had made some inappropriate
downloads and otherwise denying the claims alleged in the
First Amended Complaint. The parties are engaged in discovery
and continue to negotiate a Preservation Order. A Case
Management Conference was held on September 25, 2007, and
the next Case Management Conference is scheduled for
February 12, 2008.
Other
Litigation
We are party to various legal proceedings and claims, either
asserted or unasserted, which arise in the ordinary course of
business, including proceedings and claims that relate to
acquisitions we have completed or to companies we have acquired
or are attempting to acquire. While the outcome of these matters
cannot be predicted with certainty, we do not believe that the
outcome of any of these claims or any of the above mentioned
legal matters will have a material adverse effect on our
consolidated financial position, results of operations or cash
flows.
21
|
|
Item 2.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
We begin Managements Discussion and Analysis of Financial
Condition and Results of Operations with an overview of our key
operating business segments and significant trends. This
overview is followed by a summary of our critical accounting
policies and estimates that we believe are important to
understanding the assumptions and judgments incorporated in our
reported financial results. We then provide a more detailed
analysis of our financial condition and results of operations.
In addition to historical information, this Quarterly Report on
Form 10-Q
contains forward-looking statements that involve risks and
uncertainties that could cause our actual results to differ
materially. When used in this report, the words
expects, anticipates,
intends, plans, believes,
seeks, estimates and similar expressions
are generally intended to identify forward-looking statements.
You should not place undue reliance on these forward-looking
statements, which reflect our opinions only as of the date of
this Quarterly Report. We undertake no obligation to publicly
release any revisions to the forward-looking statements after
the date of this document. You should carefully review the risk
factors described in other documents we file from time to time
with the U.S. Securities and Exchange Commission, including
our Annual Report on
Form 10-K
for our fiscal year ended May 31, 2007 and our other
Quarterly Reports on
Form 10-Q
to be filed by us in our fiscal year 2008, which runs from
June 1, 2007 to May 31, 2008.
Business
Overview
We are the worlds largest enterprise software company. We
are organized into two businesses, software and services, which
are further divided into five operating segments. Each of these
operating segments has unique characteristics and faces
different opportunities and challenges. Although we report our
actual results in U.S. Dollars, we conduct a significant
number of transactions in currencies other than
U.S. Dollars. Therefore, we present constant currency
information to provide a framework for assessing how our
underlying business performed excluding the effect of foreign
currency rate fluctuations. An overview of our five operating
segments follows.
Software
Business
Our software business is comprised of two operating segments:
(1) new software licenses and (2) software license
updates and product support. We expect that our software
business revenues will continue to increase, which should allow
us to improve margins and profits and continue to make
investments in research and development.
New Software Licenses: We license our
database and middleware as well as our applications software to
businesses of many sizes, government agencies, educational
institutions and resellers. The growth in new software license
revenues is affected by the strength of general economic and
business conditions, governmental budgetary constraints, the
competitive position of our software products and our
acquisitions. The new software license business is also
characterized by long sales cycles. The timing of a few large
software license transactions can substantially affect our
quarterly new software license revenues. Since our new software
license revenues in a particular quarter can be difficult to
predict as a result of the timing of a few large software
license transactions, we believe that the analysis of new
software revenues on a trailing
4-quarter
period provides additional visibility into the underlying
performance of our new software license business. New software
license revenues represent 33% of our total revenues on a
trailing
4-quarter
basis. Our new software license margins have been and will be
affected by the amortization of intangible assets associated
with companies we have acquired.
Competition in the software business is intense. Our goal is to
maintain a first or second position in each of our software
product categories and certain industry segments as well as to
grow our software revenues faster than our competitors. We
believe that the features and functionality of our software
products are as strong as they have ever been. We have focused
on lowering the total cost of ownership of our software products
by improving integration, decreasing installation times,
lowering administration costs and improving the ease of use.
Reducing the total cost of ownership of our products provides
our customers with a higher return on their investment, which we
believe will create more demand and provide us with a
competitive advantage. We have also continued to focus on
improving the overall quality of our software products and
service levels. We believe this will lead to higher customer
satisfaction and loyalty and help us achieve our goal of
becoming our customers leading technology advisor.
22
Software License Updates and Product
Support: Customers that purchase software
license updates and product support are granted rights to
unspecified product upgrades and maintenance releases issued
during the support period, as well as technical support
assistance. In addition, we offer Oracle Unbreakable Linux
Support, which provides enterprise level support for the Linux
operating system and, in fiscal 2008, we introduced support for
Oracle VM server virtualization software. Substantially all of
our customers renew their software license updates and product
support contracts annually. The growth of software license
updates and product support revenues is primarily influenced by
three factors: (1) the renewal rate of the support contract
base, (2) the amount of new support contracts sold in
connection with the sale of new software licenses, and
(3) the support contract base assumed from companies we
have acquired.
Software license updates and product support revenues, which
represent approximately 46% of our total revenues on a trailing
4-quarter
basis, is our highest margin business unit. Support margins over
the trailing
4-quarters
were 84%, and account for 77% of our total margins over the same
respective period. We believe that software license updates and
product support revenues and margins will continue to grow for
the following reasons:
|
|
|
|
|
Substantially all of our customers, including customers from
acquired companies, renew their support contracts when eligible
for renewal.
|
|
|
|
Substantially all of our customers purchase license updates and
product support contracts when they buy new software licenses,
resulting in a further increase in our support contract base.
Even if new license revenue growth was flat, software license
updates and product support revenues would continue to grow
assuming renewal and cancellation rates remained relatively
constant since substantially all new software license
transactions add to our support contract base.
|
|
|
|
Our acquisitions have significantly increased our support
contract base, as well as the portfolio of products available to
be licensed.
|
We record adjustments to reduce support obligations assumed in
business acquisitions to their estimated fair values at the
acquisition dates. As a result, as required by business
combination accounting rules, we did not recognize software
license updates and product support revenues related to support
contracts that would have been otherwise recorded by acquired
businesses as independent entities in the amount of
$51 million and $53 million for the three months ended
November 30, 2007 and 2006, respectively, and
$115 million and $122 million for the six months ended
November 30, 2007 and 2006, respectively. To the extent
underlying support contracts are renewed with us following an
acquisition, we will recognize the revenues for the full value
of the support contracts over the support periods, the majority
of which are one year.
Services
Business
Our services business consists of consulting, On Demand and
education. Our services business, which represents 21% of our
total revenues on a trailing
4-quarter
basis, has significantly lower margins than our software
business.
Consulting: Consulting revenues have
increased primarily due to an increase in application
implementations created by higher sales of new software
applications over the past year. We expect consulting revenues
to continue to grow as consulting revenues tend to lag software
revenues by several quarters since consulting services, if
purchased, are typically performed after the purchase of new
software licenses and our new license growth rates have
generally increased over the last several quarters in comparison
to the corresponding prior year periods.
On Demand: On Demand includes our
Oracle On Demand, CRM On Demand as well as Advanced Customer
Services. We believe that our On Demand offerings provide our
customers flexibility in how they manage their information
technology environments and an additional opportunity to lower
their total costs of ownership and can therefore provide us with
a competitive advantage. We have made and plan to continue to
make investments in On Demand to support current and future
revenue growth, which has negatively impacted On Demand margins
and may continue to do so in the future.
Education: The purpose of our education
services is to further enhance the usability of our software
products by our customers and to create opportunities to grow
our software revenues. Education revenues have been impacted
23
by personnel reductions in our customers information
technology departments, tighter controls over discretionary
spending and greater use of outsourcing solutions.
Acquisitions
An active acquisition program is an important element of our
corporate strategy. Over the past four fiscal years, we have
acquired PeopleSoft, Inc., a provider of enterprise applications
software products; Siebel Systems, Inc., a provider of customer
relationship management software; Hyperion Solutions
Corporation, a provider of enterprise performance management and
business intelligence software; and others. Typically, the
significant majority of our integration activities related to an
acquisition are substantially complete in the United States
within three to six months after the closing of the acquisition.
Integration activities for international operations,
particularly in Europe, generally take longer.
We believe our acquisition program supports our long-term
strategic direction, strengthens our competitive position,
particularly in the applications marketplace, expands our
customer base and provides greater scale to increase our
investment in research and development to accelerate innovation,
grow our earnings and increase stockholder value. We expect to
continue to acquire companies, products, services and
technologies. See Note 4 in our condensed consolidated
financial statements for additional information related to our
recent acquisitions.
We believe we can fund additional acquisitions, with our
internally available cash and marketable securities, cash
generated from operations, amounts available under our
commercial paper program, additional borrowings or from the
issuance of additional securities. We estimate the financial
impact of any potential acquisition with regard to earnings,
operating margin, cash flow and return on invested capital
targets before deciding to move forward with an acquisition.
Critical
Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance
with U.S. generally accepted accounting principles (GAAP).
These accounting principles require us to make certain
estimates, judgments and assumptions. We believe that the
estimates, judgments and assumptions upon which we rely are
reasonable based upon information available to us at the time
that these estimates, judgments and assumptions are made. These
estimates, judgments and assumptions can affect the reported
amounts of assets and liabilities as of the date of the
financial statements as well as the reported amounts of revenues
and expenses during the periods presented. To the extent there
are material differences between these estimates, judgments or
assumptions and actual results, our financial statements will be
affected. The accounting policies that reflect our more
significant estimates, judgments and assumptions and which we
believe are the most critical to aid in fully understanding and
evaluating our reported financial results include the following:
|
|
|
|
|
Revenue Recognition
|
|
|
|
Business Combinations
|
|
|
|
Goodwill and Intangible Assets
|
|
|
|
Accounting for Income Taxes
|
|
|
|
Legal and Other Contingencies
|
|
|
|
Stock-Based Compensation
|
|
|
|
Allowances for Doubtful Accounts and Returns
|
In many cases, the accounting treatment of a particular
transaction is specifically dictated by GAAP and does not
require managements judgment in its application. There are
also areas in which managements judgment in selecting
among available alternatives would not produce a materially
different result. Our senior management has reviewed these
critical accounting policies and related disclosures with the
Finance and Audit Committee of the Board of Directors.
24
With the exception of the below paragraph that discusses the
impact of FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes, an Interpretation of FASB Statement
No. 109 (FIN 48) on our critical accounting
policy and estimates for accounting for income taxes, during the
first half of fiscal 2008 there were no significant changes in
our critical accounting policies and estimates. Please refer to
Managements Discussion and Analysis of Financial Condition
and Results of Operations contained in Part II, Item 7
of our Annual Report on
Form 10-K
for our fiscal year ended May 31, 2007 for a more complete
discussion of our critical accounting policies and estimates.
On June 1, 2007, we adopted FIN 48, which contains a
two-step approach to recognizing and measuring uncertain tax
positions accounted for in accordance with Statement 109,
Accounting for Income Taxes. The first step is to
evaluate the tax position taken or expected to be taken in a tax
return by determining if the weight of available evidence
indicates that it is more likely than not that the tax position
will be sustained on audit, including resolution of any related
appeals or litigation processes. The second step is to measure
the tax benefit as the largest amount that is more than 50%
likely to be realized upon ultimate settlement. During our first
quarter of fiscal 2008, we adjusted our policy in the accounting
for and presentation of uncertain tax positions in order to
comply with the interpretive guidance set forth in FIN 48.
Results
of Operations
The comparability of our operating results in the second quarter
and first half of fiscal 2008 compared with the same periods in
fiscal 2007 is impacted by our acquisitions, principally our
acquisition of Hyperion in the fourth quarter of fiscal 2007.
In our discussion of changes in our results of operations from
the second quarter and first half of fiscal 2008 compared to the
corresponding periods in the prior year, we quantify the
contribution of our acquired products to the growth in new
software license revenues and the amount of revenues associated
with software license updates and product support and present
supplemental disclosure related to acquisition accounting and
stock-based compensation where applicable. Although certain
revenues were quantifiable, we are unable to identify the
following:
|
|
|
|
|
The contribution of the significant majority of consulting and
education services revenues from acquired companies during the
second quarter and first half of fiscal 2008 as the significant
majority of these services have been fully integrated into our
existing operations.
|
|
|
|
The contribution of the significant majority of expenses
associated with acquired products and services during the second
quarter and first half of fiscal 2008 as the significant
majority of these expenses have been fully integrated into our
existing operations.
|
We caution readers that, while pre- and post-acquisition
comparisons as well as the quantified amounts themselves may
provide indications of general trends, the information has
inherent limitations for the following reasons:
|
|
|
|
|
The quantifications cannot address the substantial effects
attributable to our sales force integration efforts, in
particular the effect of having a single sales force offer
similar products. The commissions earned by our integrated sales
force generally do not vary based on the application product
sold. We believe that if our sales forces had not been
integrated, the relative mix of products sold would have been
different.
|
|
|
|
Our acquisitions have not resulted in our entry into a new line
of business or product category. Therefore, we provided multiple
products with substantially similar features and functionality.
|
|
|
|
Although substantially all of our customers, including customers
from acquired companies, renew their software license updates
and product support contracts when the contracts are eligible
for renewal, amounts shown as support deferred revenue in our
supplemental disclosure related to acquisition accounting and
stock-based compensation are not necessarily indicative of
revenue improvements we will achieve upon contract renewal to
the extent customers do not renew.
|
Constant
Currency Presentation
We compare the percent change in the results from one period to
another period in this quarterly report using constant currency
disclosure. We present constant currency information to provide
a framework for assessing how our underlying businesses
performed excluding the effect of foreign currency rate
fluctuations. To present this
25
information, current and comparative prior period results for
entities reporting in currencies other than U.S. Dollars
are converted into U.S. Dollars at the exchange rate in
effect on May 31, 2007, which was the last day of our prior
fiscal year, rather than the actual exchange rates in effect
during the respective periods. For example, if an entity
reporting in Euros had revenues of 1.0 million Euros from
products sold on November 30, 2007 and November 30,
2006, our financial statements would reflect revenues of
$1.48 million during the first half of fiscal 2008 (using
1.48 as the exchange rate) and $1.31 million during the
first half of fiscal 2007 (using 1.31 as the exchange rate). The
constant currency presentation would translate the results for
the six months ended November 30, 2007 and 2006 using the
May 31, 2007 exchange rate and indicate, in this example,
no change in revenues during the periods. In each of the tables
below, we present the percent change based on actual results as
reported and based on constant currency.
Total
Revenues and Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended November 30,
|
|
|
Six Months Ended November 30,
|
|
|
|
|
|
|
Percent Change
|
|
|
|
|
|
|
|
|
Percent Change
|
|
|
|
|
(Dollars in millions)
|
|
2007
|
|
|
Actual
|
|
|
Constant
|
|
|
2006
|
|
|
2007
|
|
|
Actual
|
|
|
Constant
|
|
|
2006
|
|
|
Total Revenues by Geography:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
2,674
|
|
|
|
23%
|
|
|
|
21%
|
|
|
$
|
2,170
|
|
|
$
|
5,049
|
|
|
|
22%
|
|
|
|
21%
|
|
|
$
|
4,126
|
|
EMEA(1)
|
|
|
1,865
|
|
|
|
31%
|
|
|
|
19%
|
|
|
|
1,422
|
|
|
|
3,394
|
|
|
|
32%
|
|
|
|
22%
|
|
|
|
2,562
|
|
Asia Pacific
|
|
|
774
|
|
|
|
36%
|
|
|
|
27%
|
|
|
|
571
|
|
|
|
1,399
|
|
|
|
31%
|
|
|
|
25%
|
|
|
|
1,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
5,313
|
|
|
|
28%
|
|
|
|
21%
|
|
|
|
4,163
|
|
|
|
9,842
|
|
|
|
27%
|
|
|
|
22%
|
|
|
|
7,754
|
|
Total Operating Expenses
|
|
|
3,531
|
|
|
|
26%
|
|
|
|
20%
|
|
|
|
2,806
|
|
|
|
6,843
|
|
|
|
25%
|
|
|
|
21%
|
|
|
|
5,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Margin
|
|
$
|
1,782
|
|
|
|
31%
|
|
|
|
22%
|
|
|
$
|
1,357
|
|
|
$
|
2,999
|
|
|
|
30%
|
|
|
|
23%
|
|
|
$
|
2,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Margin %
|
|
|
34%
|
|
|
|
|
|
|
|
|
|
|
|
33%
|
|
|
|
31%
|
|
|
|
|
|
|
|
|
|
|
|
30%
|
|
% Revenues by Geography:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
|
50%
|
|
|
|
|
|
|
|
|
|
|
|
52%
|
|
|
|
51%
|
|
|
|
|
|
|
|
|
|
|
|
53%
|
|
EMEA
|
|
|
35%
|
|
|
|
|
|
|
|
|
|
|
|
34%
|
|
|
|
35%
|
|
|
|
|
|
|
|
|
|
|
|
33%
|
|
Asia Pacific
|
|
|
15%
|
|
|
|
|
|
|
|
|
|
|
|
14%
|
|
|
|
14%
|
|
|
|
|
|
|
|
|
|
|
|
14%
|
|
Total Revenues by Business:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
|
|
$
|
4,159
|
|
|
|
29%
|
|
|
|
23%
|
|
|
$
|
3,214
|
|
|
$
|
7,629
|
|
|
|
28%
|
|
|
|
23%
|
|
|
$
|
5,959
|
|
Services
|
|
|
1,154
|
|
|
|
22%
|
|
|
|
15%
|
|
|
|
949
|
|
|
|
2,213
|
|
|
|
23%
|
|
|
|
17%
|
|
|
|
1,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
5,313
|
|
|
|
28%
|
|
|
|
21%
|
|
|
$
|
4,163
|
|
|
$
|
9,842
|
|
|
|
27%
|
|
|
|
22%
|
|
|
$
|
7,754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Revenues by Business:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
|
|
|
78%
|
|
|
|
|
|
|
|
|
|
|
|
77%
|
|
|
|
78%
|
|
|
|
|
|
|
|
|
|
|
|
77%
|
|
Services
|
|
|
22%
|
|
|
|
|
|
|
|
|
|
|
|
23%
|
|
|
|
22%
|
|
|
|
|
|
|
|
|
|
|
|
23%
|
|
|
|
|
(1) |
|
Comprised of Europe, the Middle
East and Africa
|
Fiscal Second Quarter 2008 Compared to Fiscal Second
Quarter 2007: Total revenues increased in the
second quarter of fiscal 2008 due to increased demand for our
products and services offerings, strong sales execution and
incremental revenues from our acquisitions. The growth in our
total revenues was positively affected by foreign currency rate
fluctuations of 7 percentage points in the second quarter
of fiscal 2008 due to the weakening of the United States dollar
relative to other major international currencies. Excluding the
effects of currency rate fluctuations, new software license
revenues contributed 43% to the growth in total revenues,
software license updates and product support revenues
contributed 41% and services revenues contributed 16%. Excluding
the effect of currency rate fluctuations, the Americas
contributed 51% to the increase in total revenues, EMEA
contributed 31% and Asia Pacific contributed 18%.
Operating expense growth was adversely affected by foreign
currency rate fluctuations of 6 percentage points.
Excluding the effect of currency rate fluctuations, the increase
in operating expenses in the second quarter of fiscal
26
2008 was primarily due to higher salary and employee benefits
associated with increased headcount levels (primarily resulting
from our acquisitions of Hyperion, Agile and other companies
since the second quarter of fiscal 2007), as well as higher
commissions and bonuses associated with both increased revenues
and headcount levels. In addition, operating expenses also
increased in the second quarter of fiscal 2008 due to higher
amortization costs of intangible assets resulting primarily from
acquisitions that we completed since the second quarter of
fiscal 2007 and higher stock-based compensation charges
resulting primarily from a higher fair value (caused by our
higher stock price) for stock options that we granted during
fiscal 2008. Operating expenses were also favorably affected
during fiscal 2007 as a result of a $52 million benefit
associated with the settlement of a legal contingency matter
assumed in our acquisition of PeopleSoft, which lowered our
acquisition related expenses.
Operating margin as a percentage of total revenues increased
during the second quarter of fiscal 2008. The growth in our
operating margin in the second quarter of fiscal 2008 was
favorably affected by foreign currency rate fluctuations of
9 percentage points. Our total revenues grew at a faster
rate than our total operating expenses, and grew at an even
faster rate after excluding the impact of amortization of
intangible assets expenses and stock-based compensation expenses.
International operations will continue to provide a significant
portion of our total revenues. As a result, total revenues and
expenses will continue to be affected by changes in the relative
strength of the U.S. Dollar against certain major
international currencies.
First Half Fiscal 2008 Compared to First Half Fiscal
2007: Total revenues increased in the first
half of fiscal 2008 due to the same reasons as noted above. The
growth in our total revenues was positively affected by foreign
currency rate fluctuations of 5 percentage points.
Excluding the effects of currency rate fluctuations, new
software license revenues contributed 38% to the growth in total
revenues, software license updates and product support revenues
contributed 43% and services revenues contributed 19%. Excluding
the effect of currency rate fluctuations, the Americas
contributed 50% to the increase in total revenues, EMEA
contributed 34% and Asia Pacific contributed 16%.
Excluding the effect of currency rate fluctuations, the increase
in operating expenses in the first half of fiscal 2008 was
primarily due to the same reasons as noted above, as well as
additional stock-based compensation charges recorded in the
first quarter of fiscal 2008 resulting from the acceleration of
vesting of certain acquired stock awards upon employee
termination pursuant to the original terms of those awards.
Operating expense growth was adversely affected by foreign
currency rate fluctuations of 4 percentage points.
Operating margin as a percentage of total revenues increased
during the first half of fiscal 2008. The growth in our
operating margin in the first half of fiscal 2008 was favorably
affected by foreign currency rate fluctuations of
7 percentage points. Our operating margin increased during
the first half of fiscal 2008 due to the same reasons as noted
above.
Supplemental
Disclosure Related to Acquisition Accounting and Stock-Based
Compensation
To supplement our consolidated financial information, we believe
the following information is helpful to an overall understanding
of our past financial performance and prospects for the future.
Readers are directed to the introduction under Results of
Operations (above) for a discussion of the inherent
limitations in comparing pre- and post-acquisition information.
27
Our operating results include the following business combination
accounting entries and expenses related to acquisitions as well
as other significant expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended November 30,
|
|
|
Six Months Ended November 30,
|
|
(in millions)
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Support deferred
revenues(1)
|
|
$
|
51
|
|
|
$
|
53
|
|
|
$
|
115
|
|
|
$
|
122
|
|
Amortization of intangible
assets(2)
|
|
|
290
|
|
|
|
202
|
|
|
|
575
|
|
|
|
401
|
|
Acquisition related
charges(3)(5)
|
|
|
22
|
|
|
|
(36
|
)
|
|
|
68
|
|
|
|
12
|
|
Restructuring(4)
|
|
|
6
|
|
|
|
11
|
|
|
|
6
|
|
|
|
20
|
|
Stock-based
compensation(5)
|
|
|
63
|
|
|
|
47
|
|
|
|
131
|
|
|
|
97
|
|
Income tax
effect(6)
|
|
|
(122
|
)
|
|
|
(79
|
)
|
|
|
(259
|
)
|
|
|
(192
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
310
|
|
|
$
|
198
|
|
|
$
|
636
|
|
|
$
|
460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
In connection with purchase price
allocations related to our acquisitions, we have estimated the
fair values of the support obligations assumed. Due to our
application of business combination accounting rules, we did not
recognize software license updates and product support revenues
related to support contracts that would have otherwise been
recorded by the acquired businesses as independent entities, in
the amounts of $51 million and $53 million for the
three months ended November 30, 2007 and 2006,
respectively, and $115 million and $122 million for
the six months ended November 30, 2007 and 2006,
respectively. As of November 30, 2007, approximately
$31 million of estimated software license updates and
product support revenues related to support contracts assumed
will not be recognized during the remainder of fiscal 2008 that
would have otherwise been recognized by the acquired businesses
as independent entities, due to the application of business
combination accounting rules. To the extent customers renew
these support contracts, we expect to recognize revenues for the
full contract value over the support renewal period.
|
|
(2) |
|
Represents the amortization of
intangible assets acquired in connection with our acquisitions,
primarily PeopleSoft, Siebel, Hyperion and i-flex. Estimated
future amortization expenses related to intangible assets are as
follows (in millions):
|
|
|
|
|
|
Remainder of Fiscal 2008
|
|
$
|
616
|
|
Fiscal 2009
|
|
|
1,146
|
|
Fiscal 2010
|
|
|
1,022
|
|
Fiscal 2011
|
|
|
793
|
|
Fiscal 2012
|
|
|
658
|
|
Fiscal 2013
|
|
|
308
|
|
Thereafter
|
|
|
1,140
|
|
|
|
|
|
|
Total
|
|
$
|
5,683
|
|
|
|
|
|
|
|
|
|
(3) |
|
Acquisition related charges
primarily consist of in-process research and development
expenses, stock-based compensation expenses, integration-related
professional services, and personnel related costs for
transitional employees. For the three and six months ended
November 30, 2006, acquisition related charges include a
benefit of $52 million related to the settlement of a
pre-acquisition lawsuit against PeopleSoft (see Note 5 in
our condensed consolidated financial statements for further
information).
|
|
(4) |
|
Restructuring costs relate to
Oracle employee severance in connection with restructuring plans
initiated in the second quarter of fiscal 2008, and third
quarter of fiscal 2006 for which additional expenses were
recorded during the first half of fiscal 2007.
|
|
(5) |
|
Stock-based compensation is
included in the following operating expense line items of our
condensed consolidated statements of operations (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended November 30,
|
|
|
Six Months Ended November 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Sales and marketing
|
|
$
|
13
|
|
|
$
|
8
|
|
|
$
|
26
|
|
|
$
|
18
|
|
Software license updates and product support
|
|
|
3
|
|
|
|
3
|
|
|
|
7
|
|
|
|
6
|
|
Cost of services
|
|
|
3
|
|
|
|
3
|
|
|
|
8
|
|
|
|
6
|
|
Research and development
|
|
|
25
|
|
|
|
21
|
|
|
|
52
|
|
|
|
43
|
|
General and administrative
|
|
|
19
|
|
|
|
12
|
|
|
|
38
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
63
|
|
|
|
47
|
|
|
|
131
|
|
|
|
97
|
|
Acquisition related charges
|
|
|
4
|
|
|
|
|
|
|
|
37
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
67
|
|
|
$
|
47
|
|
|
$
|
168
|
|
|
$
|
98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation included
in acquisition related charges resulted from unvested options
assumed from acquisitions whose vesting was fully accelerated
upon termination of the employees pursuant to the terms of those
options.
|
|
(6) |
|
The income tax effect on purchase
accounting adjustments and other significant expenses including
stock-based compensation was calculated based on our effective
tax rate of 28.2% and 28.6% in the second quarter of fiscal 2008
and 2007, respectively, and 28.9% and 29.3% in the first half of
fiscal 2008 and 2007, respectively.
|
28
Software
Software includes new software licenses and software license
updates and product support.
New Software Licenses: New software
license revenues represent fees earned from granting customers
licenses to use our database and middleware as well as our
application software products. We continue to place significant
emphasis, both domestically and internationally, on direct sales
through our own sales force. We also continue to market our
products through indirect channels.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended November 30,
|
|
|
Six Months Ended November 30,
|
|
|
|
|
|
Percent Change
|
|
|
|
|
|
|
|
|
Percent Change
|
|
|
|
(Dollars in millions)
|
|
2007
|
|
|
Actual
|
|
|
Constant
|
|
|
2006
|
|
|
2007
|
|
|
Actual
|
|
|
Constant
|
|
|
2006
|
|
New Software License Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
752
|
|
|
|
42
|
%
|
|
|
39
|
%
|
|
$
|
531
|
|
|
$
|
1,251
|
|
|
|
40
|
%
|
|
|
38
|
%
|
|
$
|
892
|
EMEA
|
|
|
598
|
|
|
|
34
|
%
|
|
|
22
|
%
|
|
|
446
|
|
|
|
976
|
|
|
|
38
|
%
|
|
|
28
|
%
|
|
|
706
|
Asia Pacific
|
|
|
318
|
|
|
|
38
|
%
|
|
|
32
|
%
|
|
|
230
|
|
|
|
529
|
|
|
|
28
|
%
|
|
|
23
|
%
|
|
|
413
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,668
|
|
|
|
38
|
%
|
|
|
31
|
%
|
|
|
1,207
|
|
|
|
2,756
|
|
|
|
37
|
%
|
|
|
31
|
%
|
|
|
2,011
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and
marketing(1)
|
|
|
1,082
|
|
|
|
19
|
%
|
|
|
13
|
%
|
|
|
907
|
|
|
|
2,044
|
|
|
|
24
|
%
|
|
|
19
|
%
|
|
|
1,647
|
Stock-based compensation
|
|
|
13
|
|
|
|
53
|
%
|
|
|
53
|
%
|
|
|
8
|
|
|
|
26
|
|
|
|
44
|
%
|
|
|
44
|
%
|
|
|
18
|
Amortization of intangible
assets(2)
|
|
|
132
|
|
|
|
66
|
%
|
|
|
66
|
%
|
|
|
80
|
|
|
|
261
|
|
|
|
66
|
%
|
|
|
66
|
%
|
|
|
157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expense
|
|
|
1,227
|
|
|
|
23
|
%
|
|
|
18
|
%
|
|
|
995
|
|
|
|
2,331
|
|
|
|
28
|
%
|
|
|
23
|
%
|
|
|
1,822
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Margin
|
|
$
|
441
|
|
|
|
108
|
%
|
|
|
95
|
%
|
|
$
|
212
|
|
|
$
|
425
|
|
|
|
125
|
%
|
|
|
115
|
%
|
|
$
|
189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Margin %
|
|
|
26%
|
|
|
|
|
|
|
|
|
|
|
|
18%
|
|
|
|
15%
|
|
|
|
|
|
|
|
|
|
|
|
9%
|
% Revenues by Geography:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
|
45%
|
|
|
|
|
|
|
|
|
|
|
|
44%
|
|
|
|
46%
|
|
|
|
|
|
|
|
|
|
|
|
44%
|
EMEA
|
|
|
36%
|
|
|
|
|
|
|
|
|
|
|
|
37%
|
|
|
|
35%
|
|
|
|
|
|
|
|
|
|
|
|
35%
|
Asia Pacific
|
|
|
19%
|
|
|
|
|
|
|
|
|
|
|
|
19%
|
|
|
|
19%
|
|
|
|
|
|
|
|
|
|
|
|
21%
|
Revenues by Product:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Database and middleware
|
|
$
|
1,102
|
|
|
|
28
|
%
|
|
|
21
|
%
|
|
$
|
859
|
|
|
$
|
1,796
|
|
|
|
26
|
%
|
|
|
21
|
%
|
|
$
|
1,424
|
Applications
|
|
|
553
|
|
|
|
63
|
%
|
|
|
56
|
%
|
|
|
340
|
|
|
|
929
|
|
|
|
64
|
%
|
|
|
58
|
%
|
|
|
568
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues by product
|
|
|
1,655
|
|
|
|
38
|
%
|
|
|
31
|
%
|
|
|
1,199
|
|
|
|
2,725
|
|
|
|
37
|
%
|
|
|
31
|
%
|
|
|
1,992
|
Other revenues
|
|
|
13
|
|
|
|
68
|
%
|
|
|
62
|
%
|
|
|
8
|
|
|
|
31
|
|
|
|
60
|
%
|
|
|
54
|
%
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total new software license revenues
|
|
$
|
1,668
|
|
|
|
38
|
%
|
|
|
31
|
%
|
|
$
|
1,207
|
|
|
$
|
2,756
|
|
|
|
37
|
%
|
|
|
31
|
%
|
|
$
|
2,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Revenues by Product:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Database and middleware
|
|
|
67%
|
|
|
|
|
|
|
|
|
|
|
|
72%
|
|
|
|
66%
|
|
|
|
|
|
|
|
|
|
|
|
71%
|
Applications
|
|
|
33%
|
|
|
|
|
|
|
|
|
|
|
|
28%
|
|
|
|
34%
|
|
|
|
|
|
|
|
|
|
|
|
29%
|
|
|
|
(1) |
|
Excluding stock-based compensation
|
|
(2) |
|
Included as a component of
Amortization of Intangible Assets in our condensed
consolidated statements of operations
|
Fiscal Second Quarter 2008 Compared to Fiscal Second
Quarter 2007: New software license revenues
growth was positively affected by foreign currency rate
fluctuations of 7 percentage points in the second quarter
of fiscal 2008. Excluding the effect of currency rate
fluctuations, new software license revenues grew in all major
product lines and geographies. Our database and middleware
products contributed 49% and our applications products
contributed 51% to the increase in our total new software
license revenues growth. The Americas contributed 54%, EMEA
contributed 27% and Asia Pacific contributed 19% to the increase
in our total new software license revenues.
29
We believe that the trailing
4-quarter
growth rates provide additional visibility into the underlying
performance of our new software license business since large
transactions can cause significant swings in our quarterly
reported product revenue growth rates and are not predictive of
our future quarterly or annual growth rates.
Excluding the effect of currency rate fluctuations, database and
middleware revenues grew 21% in the second quarter of fiscal
2008 and 17% over the trailing
4-quarters
as a result of a gain in market share, increased demand for our
database and middleware products, strong sales execution as well
as incremental revenues from acquired companies. Hyperion
products contributed $23 million, Stellent products
contributed $13 million and other recently acquired
products contributed $3 million to the total database and
middleware revenue growth in the second quarter of fiscal 2008.
On a constant currency basis, applications revenues increased
56% in the second quarter of fiscal 2008 and 36% over the
trailing
4-quarters
as a result of a gain in market share resulting from a continued
strengthening of our competitive position in the applications
market due to improved product features and functionality and
incremental revenues from acquired companies. Hyperion products
contributed $48 million, Agile products contributed
$13 million, MetaSolv products contributed $5 million
and other recently acquired products contributed $5 million
to the growth in our applications revenues during the second
quarter of fiscal 2008.
New software license revenues earned from transactions over
$0.5 million grew by 57% in the second quarter of fiscal
2008 and increased from 41% of new software license revenues in
the second quarter of fiscal 2007 to 46% in the second quarter
of fiscal 2008.
Excluding the effect of currency rate fluctuations, sales and
marketing expenses increased in the second quarter of fiscal
2008 primarily due to higher salaries and personnel related
expenses associated with increased headcount, as well as higher
commission expenses associated with both increased revenues and
headcount levels. Total new software license margin as a
percentage of revenues increased as the growth rate of our
revenues exceeded the growth rate of the majority of our
expenses, but was partially offset by higher growth rates in our
stock-based compensation expenses and amortization of intangible
assets expenses, as well as by adverse currency impacts that
accelerated our operating expense growth rate.
First Half Fiscal 2008 Compared to First Half Fiscal
2007: New software license revenues growth
was positively affected by foreign currency rate fluctuations of
6 percentage points. Excluding the effect of currency rate
fluctuations, the Americas contributed 53%, EMEA contributed 32%
and Asia Pacific contributed 15% to the increase in new software
license revenues.
On a constant currency basis, database and middleware revenues
grew 21% for similar reasons as noted above contributing 47% to
the growth in the new software license revenues in the first
half of fiscal 2008. Hyperion products contributed
$52 million, Stellent products contributed $28 million
and other recently acquired products contributed $6 million
to the total database and middleware revenue growth in the first
half of fiscal 2008.
On a constant currency basis, applications revenues grew 58% for
similar reasons as noted above and contributed 53% to the growth
in new software license revenues in the first half of fiscal
2008. Hyperion products contributed $100 million, Agile
products contributed $20 million, MetaSolv products
contributed $10 million, Portal products contributed
$9 million and other recently acquired products contributed
$16 million.
New software license revenues earned from transactions over
$0.5 million increased by 60% in the first half of fiscal
2008. New software license revenues earned from transactions
over $0.5 million increased from 38% of new software
license revenues in the first half of fiscal 2007 to 44% in the
first half of fiscal 2008.
Sales and marketing expenses increased in the first half of
fiscal 2008 primarily due to the same reasons noted above. Total
new software license margin as a percentage of revenues
increased primarily due to the same reasons noted above.
Software License Updates and Product
Support: Software license updates grant
customers rights to unspecified software product upgrades and
maintenance releases issued during the support period. Product
support includes internet access to technical content as well as
internet and telephone access to technical support personnel in
our global support centers. Expenses associated with our
software license updates and product support line of business
30
include the cost of providing the support services, largely
personnel related expenses, and the amortization of our
intangible assets associated with software support and customer
relationships obtained from our acquisitions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended November 30,
|
|
|
Six Months Ended November 30,
|
|
|
|
|
|
|
|
|
Percent Change
|
|
|
|
|
|
|
|
|
Percent Change
|
|
|
|
|
|
|
(Dollars in millions)
|
|
2007
|
|
|
Actual
|
|
|
Constant
|
|
|
2006
|
|
|
2007
|
|
|
Actual
|
|
|
Constant
|
|
|
2006
|
|
|
|
|
Software License Updates and Product Support
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
1,353
|
|
|
|
19
|
%
|
|
|
17
|
%
|
|
$
|
1,135
|
|
|
$
|
2,661
|
|
|
|
19
|
%
|
|
|
17
|
%
|
|
$
|
2,239
|
|
|
|
|
EMEA
|
|
|
837
|
|
|
|
31
|
%
|
|
|
19
|
%
|
|
|
637
|
|
|
|
1,631
|
|
|
|
30
|
%
|
|
|
20
|
%
|
|
|
1,251
|
|
|
|
|
Asia Pacific
|
|
|
301
|
|
|
|
28
|
%
|
|
|
20
|
%
|
|
|
235
|
|
|
|
581
|
|
|
|
27
|
%
|
|
|
21
|
%
|
|
|
458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
2,491
|
|
|
|
24
|
%
|
|
|
18
|
%
|
|
|
2,007
|
|
|
|
4,873
|
|
|
|
23
|
%
|
|
|
18
|
%
|
|
|
3,948
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software license updates and product
support(1)
|
|
|
243
|
|
|
|
20
|
%
|
|
|
14
|
%
|
|
|
202
|
|
|
|
467
|
|
|
|
17
|
%
|
|
|
12
|
%
|
|
|
398
|
|
|
|
|
Stock-based compensation
|
|
|
3
|
|
|
|
18
|
%
|
|
|
18
|
%
|
|
|
3
|
|
|
|
7
|
|
|
|
29
|
%
|
|
|
29
|
%
|
|
|
6
|
|
|
|
|
Amortization of intangible
assets(2)
|
|
|
144
|
|
|
|
29
|
%
|
|
|
29
|
%
|
|
|
111
|
|
|
|
287
|
|
|
|
29
|
%
|
|
|
29
|
%
|
|
|
222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
390
|
|
|
|
23
|
%
|
|
|
19
|
%
|
|
|
316
|
|
|
|
761
|
|
|
|
22
|
%
|
|
|
18
|
%
|
|
|
626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Margin
|
|
$
|
2,101
|
|
|
|
24
|
%
|
|
|
18
|
%
|
|
$
|
1,691
|
|
|
$
|
4,112
|
|
|
|
24
|
%
|
|
|
19
|
%
|
|
$
|
3,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Margin %
|
|
|
84%
|
|
|
|
|
|
|
|
|
|
|
|
84%
|
|
|
|
84%
|
|
|
|
|
|
|
|
|
|
|
|
84%
|
|
|
|
|
% Revenues by Geography:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
|
54%
|
|
|
|
|
|
|
|
|
|
|
|
57%
|
|
|
|
55%
|
|
|
|
|
|
|
|
|
|
|
|
57%
|
|
|
|
|
EMEA
|
|
|
34%
|
|
|
|
|
|
|
|
|
|
|
|
32%
|
|
|
|
33%
|
|
|
|
|
|
|
|
|
|
|
|
32%
|
|
|
|
|
Asia Pacific
|
|
|
12%
|
|
|
|
|
|
|
|
|
|
|
|
11%
|
|
|
|
12%
|
|
|
|
|
|
|
|
|
|
|
|
11%
|
|
|
|
|
|
|
|
(1) |
|
Excluding stock-based compensation
|
|
(2) |
|
Included as a component of
Amortization of Intangible Assets in our condensed
consolidated statements of operations
|
Fiscal Second Quarter 2008 Compared to Fiscal Second
Quarter 2007: The growth in our software
license updates and product support revenues was positively
affected by foreign currency rate fluctuations of
6 percentage points in the second quarter of fiscal 2008.
Excluding the effect of currency rate fluctuations, software
license updates and product support revenues increased in the
second quarter of fiscal 2008 as a result of new software
licenses sold during the trailing
4-quarter
period (in particular our fourth quarter of fiscal 2007, which
was our largest quarter), the renewal of substantially all of
the customer base eligible for renewal in the current fiscal
year and incremental revenues from the expansion of our customer
base from acquisitions. Excluding the effect of currency rate
fluctuations, the Americas contributed 53%, EMEA contributed 34%
and Asia Pacific contributed 13% to the increase in software
license updates and product support revenues.
Software license updates and product support revenues in the
second quarter of fiscal 2008 include incremental revenues of
$67 million from Hyperion, $11 million from MetaSolv,
$10 million from Stellent, and $17 million from other
recently acquired companies. As a result of our acquisitions, we
recorded adjustments to reduce support obligations assumed to
their estimated fair value at the acquisition dates. Due to our
application of business combination accounting rules, software
license updates and product support revenues related to support
contracts in the amounts of $51 million and
$53 million that would have been otherwise recorded by our
acquired businesses as independent entities, were not recognized
in the second quarter of fiscal 2008 and 2007, respectively.
Historically, substantially all of our customers, including
customers from acquired companies, renew their support contracts
when such contracts are eligible for renewal. To the extent
these underlying support contracts are renewed, we will
recognize the revenues for the full value of these contracts
over the support periods, the majority of which are one year.
Excluding the effect of currency rate fluctuations, software
license updates and product support expenses increased due to
higher salary and benefits associated with increased headcount
to support the expansion of our customer base and higher
amortization expenses resulting from additional intangible
assets acquired since the second quarter of fiscal 2007. Total
software license updates and product support margin as a
percentage of revenues remained
31
constant as the growth rate of our revenues was offset by the
higher growth rate of the amortization of our intangible assets.
First Half Fiscal 2008 Compared to First Half Fiscal
2007: The growth in our software license
updates and product support revenues and expenses is primarily
attributable to the same reasons noted above. Excluding the
effect of currency rate fluctuations, the Americas contributed
52%, EMEA contributed 35% and Asia Pacific contributed 13% to
the increase in software license updates and product support
revenues. Software license updates and product support revenues
in the first half of fiscal 2008 included incremental
contributions from our recently acquired companies of
$119 million from Hyperion, $19 million from Stellent,
$18 million from MetaSolv and $45 million from other
recently acquired companies. Software license updates and
product support revenues related to support contracts in the
amounts of $115 million and $122 million that would
have been otherwise recorded by our acquired businesses as
independent entities, were not recognized in the first half of
fiscal 2008 and 2007, respectively.
Services
Services consist of consulting, On Demand and education.
Consulting: Consulting revenues are
earned by providing services to customers in the design,
implementation, deployment and upgrade of our database and
middleware as well as applications software products. The cost
of providing consulting services consists primarily of personnel
related expenditures.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended November 30,
|
|
|
Six Months Ended November 30,
|
|
|
|
|
|
|
Percent Change
|
|
|
|
|
|
|
|
|
Percent Change
|
|
|
|
|
(Dollars in millions)
|
|
2007
|
|
|
Actual
|
|
|
Constant
|
|
|
2006
|
|
|
2007
|
|
|
Actual
|
|
|
Constant
|
|
|
2006
|
|
|
Consulting Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
432
|
|
|
|
13
|
%
|
|
|
11
|
%
|
|
$
|
382
|
|
|
$
|
865
|
|
|
|
14
|
%
|
|
|
12
|
%
|
|
$
|
756
|
|
EMEA
|
|
|
331
|
|
|
|
27
|
%
|
|
|
15
|
%
|
|
|
260
|
|
|
|
604
|
|
|
|
30
|
%
|
|
|
19
|
%
|
|
|
465
|
|
Asia Pacific
|
|
|
114
|
|
|
|
53
|
%
|
|
|
39
|
%
|
|
|
74
|
|
|
|
209
|
|
|
|
54
|
%
|
|
|
43
|
%
|
|
|
135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
877
|
|
|
|
23
|
%
|
|
|
15
|
%
|
|
|
716
|
|
|
|
1,678
|
|
|
|
24
|
%
|
|
|
18
|
%
|
|
|
1,356
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
services(1)
|
|
|
747
|
|
|
|
23
|
%
|
|
|
16
|
%
|
|
|
608
|
|
|
|
1,443
|
|
|
|
22
|
%
|
|
|
16
|
%
|
|
|
1,184
|
|
Stock-based compensation
|
|
|
2
|
|
|
|
20
|
%
|
|
|
20
|
%
|
|
|
2
|
|
|
|
5
|
|
|
|
8
|
%
|
|
|
8
|
%
|
|
|
4
|
|
Amortization of intangible
assets(2)
|
|
|
10
|
|
|
|
113
|
%
|
|
|
111
|
%
|
|
|
5
|
|
|
|
20
|
|
|
|
123
|
%
|
|
|
122
|
%
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
759
|
|
|
|
23
|
%
|
|
|
16
|
%
|
|
|
615
|
|
|
|
1,468
|
|
|
|
23
|
%
|
|
|
16
|
%
|
|
|
1,197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Margin
|
|
$
|
118
|
|
|
|
17
|
%
|
|
|
9
|
%
|
|
$
|
101
|
|
|
$
|
210
|
|
|
|
32
|
%
|
|
|
26
|
%
|
|
$
|
159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Margin %
|
|
|
14%
|
|
|
|
|
|
|
|
|
|
|
|
14%
|
|
|
|
13%
|
|
|
|
|
|
|
|
|
|
|
|
12%
|
|
% Revenues by Geography:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
|
49%
|
|
|
|
|
|
|
|
|
|
|
|
53%
|
|
|
|
52%
|
|
|
|
|
|
|
|
|
|
|
|
56%
|
|
EMEA
|
|
|
38%
|
|
|
|
|
|
|
|
|
|
|
|
36%
|
|
|
|
36%
|
|
|
|
|
|
|
|
|
|
|
|
34%
|
|
Asia Pacific
|
|
|
13%
|
|
|
|
|
|
|
|
|
|
|
|
11%
|
|
|
|
12%
|
|
|
|
|
|
|
|
|
|
|
|
10%
|
|
|
|
|
(1) |
|
Excluding stock-based compensation
|
|
(2) |
|
Included as a component of
Amortization of Intangible Assets in our condensed
consolidated statements of operations
|
Fiscal Second Quarter 2008 Compared to Fiscal Second
Quarter 2007: Consulting revenue growth was
positively affected by foreign currency rate fluctuations of
8 percentage points in the second quarter of fiscal 2008.
Excluding the effect of currency rate fluctuations, consulting
revenues increased during the second quarter of fiscal 2008
primarily due to an increase in application product
implementations associated with the sales of our application
software products and $11 million of constant currency
revenue growth from i-flex. Excluding the effect
32
of currency rate fluctuations, the Americas contributed 36%,
EMEA contributed 37% and Asia Pacific contributed 27% to the
increase in consulting revenues.
Excluding the effect of currency rate fluctuations, consulting
expenses increased during the second quarter of fiscal 2008 as a
result of higher personnel related expenses attributed to higher
headcount levels and third-party contractor expenses that
supported our increase in revenues and included $27 million
of constant currency expense growth from i-flex. Total
consulting margin as a percentage of revenues was constant as
our utilization improvements were offset by an increase in
i-flex expenses, which were incurred in support of its expanding
operations.
First Half Fiscal 2008 Compared to First Half Fiscal
2007: Consulting revenue growth was
positively affected by foreign currency rate fluctuations of
6 percentage points in the first half of fiscal 2008.
Excluding the effect of currency rate fluctuations, the growth
in consulting revenues and expenses was generally due to the
same reasons as noted above, including $37 million and
$42 million of constant currency revenue and expense
growth, respectively, from i-flex. On a constant currency basis,
the Americas contributed 37% to the growth in consulting
revenues, EMEA contributed 38% and Asia Pacific contributed 25%.
Total consulting margin as a percentage of revenues remained
constant during the first half of fiscal 2008 for similar
reasons as noted above.
On Demand: On Demand includes Oracle On
Demand, CRM On Demand and Advanced Customer Services. Oracle On
Demand provides multi-featured software and hardware management,
and maintenance services for our database and middleware as well
as our applications software at our data center facilities or at
a site of our customers choosing. CRM On Demand is a
service offering that provides our customers with our Siebel CRM
software functionality delivered via a hosted solution that we
manage. Advanced Customer Services consists of configuration and
performance analysis, personalized support and
on-site
technical services. The cost of providing On Demand services
consists primarily of personnel related expenditures, technology
infrastructure expenditures and facilities costs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended November 30,
|
|
|
Six Months Ended November 30,
|
|
|
|
|
|
|
Percent Change
|
|
|
|
|
|
|
|
|
Percent Change
|
|
|
|
|
(Dollars in millions)
|
|
2007
|
|
|
Actual
|
|
|
Constant
|
|
|
2006
|
|
|
2007
|
|
|
Actual
|
|
|
Constant
|
|
|
2006
|
|
|
On Demand Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
91
|
|
|
|
12
|
%
|
|
|
11
|
%
|
|
$
|
81
|
|
|
$
|
179
|
|
|
|
14
|
%
|
|
|
13
|
%
|
|
$
|
156
|
|
EMEA
|
|
|
54
|
|
|
|
25
|
%
|
|
|
14
|
%
|
|
|
43
|
|
|
|
104
|
|
|
|
32
|
%
|
|
|
22
|
%
|
|
|
79
|
|
Asia Pacific
|
|
|
22
|
|
|
|
45
|
%
|
|
|
36
|
%
|
|
|
16
|
|
|
|
42
|
|
|
|
45
|
%
|
|
|
38
|
%
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
167
|
|
|
|
20
|
%
|
|
|
15
|
%
|
|
|
140
|
|
|
|
325
|
|
|
|
23
|
%
|
|
|
19
|
%
|
|
|
265
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
services(1)
|
|
|
158
|
|
|
|
12
|
%
|
|
|
8
|
%
|
|
|
141
|
|
|
|
310
|
|
|
|
13
|
%
|
|
|
9
|
%
|
|
|
274
|
|
Stock-based compensation
|
|
|
1
|
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
1
|
|
|
|
2
|
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
2
|
|
Amortization of intangible
assets(2)
|
|
|
4
|
|
|
|
33
|
%
|
|
|
33
|
%
|
|
|
3
|
|
|
|
7
|
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
163
|
|
|
|
12
|
%
|
|
|
8
|
%
|
|
|
145
|
|
|
|
319
|
|
|
|
12
|
%
|
|
|
9
|
%
|
|
|
283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Margin
|
|
$
|
4
|
|
|
|
173
|
%
|
|
|
162
|
%
|
|
$
|
(5
|
)
|
|
$
|
6
|
|
|
|
130
|
%
|
|
|
127
|
%
|
|
$
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Margin %
|
|
|
3%
|
|
|
|
|
|
|
|
|
|
|
|
-4%
|
|
|
|
2%
|
|
|
|
|
|
|
|
|
|
|
|
-7%
|
|
% Revenues by Geography:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
|
55%
|
|
|
|
|
|
|
|
|
|
|
|
58%
|
|
|
|
55%
|
|
|
|
|
|
|
|
|
|
|
|
59%
|
|
EMEA
|
|
|
32%
|
|
|
|
|
|
|
|
|
|
|
|
31%
|
|
|
|
32%
|
|
|
|
|
|
|
|
|
|
|
|
30%
|
|
Asia Pacific
|
|
|
13%
|
|
|
|
|
|
|
|
|
|
|
|
11%
|
|
|
|
13%
|
|
|
|
|
|
|
|
|
|
|
|
11%
|
|
|
|
|
(1) |
|
Excluding stock-based compensation
|
|
(2) |
|
Included as a component of
Amortization of Intangible Assets in our condensed
consolidated statements of operations
|
Fiscal Second Quarter 2008 Compared to Fiscal Second
Quarter 2007: On Demand revenue growth was
positively affected by foreign currency rate fluctuations of
5 percentage points in the second quarter of fiscal 2008.
33
On Demand revenues increased due to higher Advanced Customer
Services revenues, and the expansion of our subscription base in
both Oracle On Demand and CRM On Demand services. On a constant
currency basis, Oracle On Demand, Advanced Customer Services,
and CRM On Demand contributed 52%, 38% and 10%, respectively, to
the growth in On Demand revenues. Excluding the effect of
currency rate fluctuations, the Americas contributed 44%, EMEA
contributed 29% and Asia Pacific contributed 27% to the increase
in On Demand revenues.
Excluding the effect of currency rate fluctuations, On Demand
expenses increased due to higher salaries and benefits related
expenditures associated with increased headcount, and higher
technology infrastructure related costs to support the expansion
of our customer base. Total On Demand margin as a percentage of
revenues improved primarily as a result of our Oracle On Demand
business, which increased revenues while managing operating
expenses to a relatively consistent level with the second
quarter of fiscal 2007, while Advanced Customer Services margin
percentage remained relatively constant and CRM On Demand margin
percentage declined modestly.
First Half Fiscal 2008 Compared to First Half Fiscal
2007: On Demand revenue growth was positively
affected by foreign currency rate fluctuations of
4 percentage points in the first half of fiscal 2008.
Excluding the effect of currency rate fluctuations, Advanced
Customer Services, Oracle On Demand and CRM On Demand
contributed 45%, 38% and 17%, respectively, to the growth in On
Demand revenues. On Demand expenses generally increased due to
the same reasons as noted above. The Americas contributed 42% to
the growth in On Demand revenues, EMEA contributed 36% and Asia
Pacific contributed 22%.
Education: Education revenues are
earned by providing instructor led, media based and internet
based training in the use of our database and middleware as well
as applications software. Education expenses primarily consist
of personnel related expenditures, facilities and external
contractor costs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended November 30,
|
|
|
Six Months Ended November 30,
|
|
|
|
|
|
|
Percent Change
|
|
|
|
|
|
|
|
|
Percent Change
|
|
|
|
|
(Dollars in millions)
|
|
2007
|
|
|
Actual
|
|
|
Constant
|
|
|
2006
|
|
|
2007
|
|
|
Actual
|
|
|
Constant
|
|
|
2006
|
|
|
Education Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
46
|
|
|
|
10%
|
|
|
|
8%
|
|
|
$
|
41
|
|
|
$
|
93
|
|
|
|
13%
|
|
|
|
11%
|
|
|
$
|
83
|
|
EMEA
|
|
|
45
|
|
|
|
24%
|
|
|
|
12%
|
|
|
|
36
|
|
|
|
79
|
|
|
|
29%
|
|
|
|
18%
|
|
|
|
61
|
|
Asia Pacific
|
|
|
19
|
|
|
|
21%
|
|
|
|
13%
|
|
|
|
16
|
|
|
|
38
|
|
|
|
24%
|
|
|
|
17%
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
110
|
|
|
|
17%
|
|
|
|
10%
|
|
|
|
93
|
|
|
|
210
|
|
|
|
20%
|
|
|
|
15%
|
|
|
|
174
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
services(1)
|
|
|
84
|
|
|
|
25%
|
|
|
|
16%
|
|
|
|
68
|
|
|
|
161
|
|
|
|
20%
|
|
|
|
14%
|
|
|
|
134
|
|
Stock-based compensation
|
|
|
|
|
|
|
0%
|
|
|
|
0%
|
|
|
|
|
|
|
|
1
|
|
|
|
51%
|
|
|
|
51%
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
84
|
|
|
|
25%
|
|
|
|
16%
|
|
|
|
68
|
|
|
|
162
|
|
|
|
20%
|
|
|
|
14%
|
|
|
|
135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Margin
|
|
$
|
26
|
|
|
|
2%
|
|
|
|
-6%
|
|
|
$
|
25
|
|
|
$
|
48
|
|
|
|
22%
|
|
|
|
18%
|
|
|
$
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Margin %
|
|
|
24%
|
|
|
|
|
|
|
|
|
|
|
|
28%
|
|
|
|
23%
|
|
|
|
|
|
|
|
|
|
|
|
22%
|
|
% Revenues by Geography:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
|
41%
|
|
|
|
|
|
|
|
|
|
|
|
44%
|
|
|
|
44%
|
|
|
|
|
|
|
|
|
|
|
|
48%
|
|
EMEA
|
|
|
41%
|
|
|
|
|
|
|
|
|
|
|
|
39%
|
|
|
|
38%
|
|
|
|
|
|
|
|
|
|
|
|
35%
|
|
Asia Pacific
|
|
|
18%
|
|
|
|
|
|
|
|
|
|
|
|
17%
|
|
|
|
18%
|
|
|
|
|
|
|
|
|
|
|
|
17%
|
|
|
|
|
(1) |
|
Excluding stock-based compensation
|
Fiscal Second Quarter 2008 Compared to Fiscal Second
Quarter 2007: Education revenue growth was positively
affected by foreign currency rate fluctuations of
7 percentage points in the second quarter of fiscal 2008.
Excluding the effect of currency rate fluctuations, education
revenues increased in the second quarter of fiscal 2008 due
primarily to an increase in customer training on the use of our
applications products. The Americas contributed 33%, EMEA
contributed 45% and Asia Pacific contributed 22% to the overall
increase in education revenues.
Excluding the effects of currency rate fluctuations, education
expenses increased due to an increase in salary related
expenditures as a result of incremental headcount, as well as
higher third party contractor and royalty fees
34
associated with increased revenues. Education margin as a
percentage of revenues decreased as education expenses grew at a
faster rate than our revenues and education expenses were also
adversely impacted by 9 percentage points of unfavorable
currency fluctuations.
First Half Fiscal 2008 Compared to First Half Fiscal
2007: Excluding the effect of currency rate
fluctuations, the growth rates for both education revenues and
expenses were due generally to the same reasons as noted above.
The Americas contributed 36% to the growth in education
revenues, EMEA contributed 44% and Asia Pacific contributed 20%.
Research and Development
Expenses: Research and development expenses
consist primarily of personnel related expenditures. We intend
to continue to invest significantly in our research and
development efforts because, in our judgment, they are essential
to maintaining our competitive position.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended November 30,
|
|
|
Six Months Ended November 30,
|
|
|
|
|
|
|
Percent Change
|
|
|
|
|
|
|
|
|
Percent Change
|
|
|
|
|
(Dollars in millions)
|
|
2007
|
|
|
Actual
|
|
|
Constant
|
|
|
2006
|
|
|
2007
|
|
|
Actual
|
|
|
Constant
|
|
|
2006
|
|
|
Research and
development(1)
|
|
$
|
649
|
|
|
|
30
|
%
|
|
|
27
|
%
|
|
$
|
498
|
|
|
$
|
1,274
|
|
|
|
30
|
%
|
|
|
27
|
%
|
|
$
|
983
|
|
Stock-based compensation
|
|
|
25
|
|
|
|
19
|
%
|
|
|
19
|
%
|
|
|
21
|
|
|
|
52
|
|
|
|
23
|
%
|
|
|
23
|
%
|
|
|
43
|
|
Amortization of intangible
assets(2)
|
|
|
|
|
|
|
-100
|
%
|
|
|
-100
|
%
|
|
|
3
|
|
|
|
|
|
|
|
-100
|
%
|
|
|
-100
|
%
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
$
|
674
|
|
|
|
29
|
%
|
|
|
26
|
%
|
|
$
|
522
|
|
|
$
|
1,326
|
|
|
|
29
|
%
|
|
|
26
|
%
|
|
$
|
1,032
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Total Revenues
|
|
|
12%
|
|
|
|
|
|
|
|
|
|
|
|
13%
|
|
|
|
13%
|
|
|
|
|
|
|
|
|
|
|
|
13%
|
|
|
|
|
(1) |
|
Excluding stock-based compensation
|
|
(2) |
|
Included as a component of
Amortization of Intangible Assets in our condensed
consolidated statements of operations
|
Excluding the effect of currency rate fluctuations, research and
development expenses increased during our fiscal 2008 periods
presented above due to higher employee related expenses
associated with higher headcount levels. Research and
development headcount increased by approximately
3,800 employees in comparison to the second quarter of
fiscal 2007. The increase in headcount was the combined result
of our recent acquisitions and our hiring of additional
resources to develop new functionality for our legacy products.
General and Administrative
Expenses: General and administrative expenses
primarily consist of personnel related expenditures for
information technology, finance, legal and human resources
support functions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended November 30,
|
|
|
Six Months Ended November 30,
|
|
|
|
|
|
|
Percent Change
|
|
|
|
|
|
|
|
|
Percent Change
|
|
|
|
|
(Dollars in millions)
|
|
2007
|
|
|
Actual
|
|
|
Constant
|
|
|
2006
|
|
|
2007
|
|
|
Actual
|
|
|
Constant
|
|
|
2006
|
|
|
General and
administrative(1)
|
|
$
|
187
|
|
|
|
18
|
%
|
|
|
12
|
%
|
|
$
|
158
|
|
|
$
|
364
|
|
|
|
20
|
%
|
|
|
14
|
%
|
|
$
|
304
|
|
Stock-based compensation
|
|
|
19
|
|
|
|
59
|
%
|
|
|
59
|
%
|
|
|
12
|
|
|
|
38
|
|
|
|
61
|
%
|
|
|
61
|
%
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
$
|
206
|
|
|
|
21
|
%
|
|
|
16
|
%
|
|
$
|
170
|
|
|
$
|
402
|
|
|
|
23
|
%
|
|
|
18
|
%
|
|
$
|
328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Total Revenues
|
|
|
4%
|
|
|
|
|
|
|
|
|
|
|
|
4%
|
|
|
|
4%
|
|
|
|
|
|
|
|
|
|
|
|
4%
|
|
|
|
|
(1) |
|
Excluding stock-based compensation
|
Excluding the effect of currency rate fluctuations, general and
administrative expenses increased during our fiscal 2008 periods
presented above as a result of higher personnel related costs
associated with increased headcount to support our expanding
operations and increased stock-based compensation expenses.
35
Amortization
of Intangible Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended November 30,
|
|
|
Six Months Ended November 30,
|
|
|
|
|
|
|
Percent Change
|
|
|
|
|
|
|
|
|
Percent Change
|
|
|
|
|
(Dollars in millions)
|
|
2007
|
|
|
Actual
|
|
|
Constant
|
|
|
2006
|
|
|
2007
|
|
|
Actual
|
|
|
Constant
|
|
|
2006
|
|
|
Software support agreements and related relationships
|
|
$
|
98
|
|
|
|
29%
|
|
|
|
29%
|
|
|
$
|
76
|
|
|
$
|
194
|
|
|
|
28%
|
|
|
|
28%
|
|
|
$
|
152
|
|
Developed technology
|
|
|
124
|
|
|
|
57%
|
|
|
|
57%
|
|
|
|
79
|
|
|
|
245
|
|
|
|
57%
|
|
|
|
57%
|
|
|
|
155
|
|
Core technology
|
|
|
43
|
|
|
|
39%
|
|
|
|
39%
|
|
|
|
31
|
|
|
|
86
|
|
|
|
37%
|
|
|
|
37%
|
|
|
|
63
|
|
Customer contracts
|
|
|
17
|
|
|
|
70%
|
|
|
|
70%
|
|
|
|
10
|
|
|
|
34
|
|
|
|
70%
|
|
|
|
70%
|
|
|
|
20
|
|
Trademarks
|
|
|
8
|
|
|
|
33%
|
|
|
|
33%
|
|
|
|
6
|
|
|
|
16
|
|
|
|
45%
|
|
|
|
45%
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortization of intangible assets
|
|
$
|
290
|
|
|
|
43%
|
|
|
|
43%
|
|
|
$
|
202
|
|
|
$
|
575
|
|
|
|
44%
|
|
|
|
43%
|
|
|
$
|
401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangible assets increased in the second
quarter and first half of fiscal 2008 due to the amortization of
acquired intangibles from Agile, Hyperion, and other
acquisitions that we consummated since the second quarter of
fiscal 2007. See Note 7 in our condensed consolidated
financial statements for additional information regarding our
intangible assets (including weighted average useful lives) and
related amortization expenses.
Acquisition Related
Charges: Acquisition related charges
primarily consist of in-process research and development
expenses, integration-related professional services, stock
compensation expenses and personnel-related costs for
transitional employees. Stock-based compensation included in
acquisition related charges relates to unvested options assumed
from acquisitions whose vesting was fully accelerated upon
termination of the employees pursuant to the original terms of
those options.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended November 30,
|
|
|
Six Months Ended November 30,
|
|
|
|
|
|
|
Percent Change
|
|
|
|
|
|
|
|
|
Percent Change
|
|
|
|
|
(Dollars in millions)
|
|
2007
|
|
|
Actual
|
|
|
Constant
|
|
|
2006
|
|
|
2007
|
|
|
Actual
|
|
|
Constant
|
|
|
2006
|
|
|
In-process research and development
|
|
$
|
|
|
|
|
-100%
|
|
|
|
-100%
|
|
|
$
|
7
|
|
|
$
|
7
|
|
|
|
-86%
|
|
|
|
-86%
|
|
|
$
|
50
|
|
Transitional employee related costs
|
|
|
15
|
|
|
|
150%
|
|
|
|
150%
|
|
|
|
6
|
|
|
|
19
|
|
|
|
90%
|
|
|
|
90%
|
|
|
|
10
|
|
Stock-based compensation
|
|
|
4
|
|
|
|
*
|
|
|
|
*
|
|
|
|
|
|
|
|
37
|
|
|
|
3,600%
|
|
|
|
3,600%
|
|
|
|
1
|
|
Professional fees
|
|
|
3
|
|
|
|
0%
|
|
|
|
0%
|
|
|
|
3
|
|
|
|
5
|
|
|
|
67%
|
|
|
|
67%
|
|
|
|
3
|
|
PeopleSoft pre-acquisition legal contingency accrual
|
|
|
|
|
|
|
100%
|
|
|
|
100%
|
|
|
|
(52
|
)
|
|
|
|
|
|
|
100%
|
|
|
|
100%
|
|
|
|
(52
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total acquisition related charges
|
|
$
|
22
|
|
|
|
160%
|
|
|
|
158%
|
|
|
$
|
(36
|
)
|
|
$
|
68
|
|
|
|
467%
|
|
|
|
453%
|
|
|
$
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three and six months ended November 30, 2007,
acquisition related charges increased in comparison to the
corresponding periods in the prior year primarily due to a
$52 million benefit recorded during the three months ended
November 30, 2006 relating to the settlement of a lawsuit
filed against PeopleSoft on behalf of the U.S. government.
This lawsuit was filed in October 2003, prior to our acquisition
of PeopleSoft, and represented a pre-acquisition contingency
that we identified and assumed in connection with our
acquisition of PeopleSoft. We settled this lawsuit in October
2006, which was after the purchase price allocation period, for
approximately $98 million. Business combination accounting
standards require that after the end of the purchase price
allocation period, any adjustment that results from a
pre-acquisition contingency should be included as an element of
net income in the period of settlement. Accordingly, we included
the difference between the amount accrued as of the end of the
purchase price allocation period and the settlement amount as a
benefit in our consolidated statements of operations for the
three and six months ended November 30, 2006. Excluding
this benefit, acquisition related charges increased in the
second quarter and first half of fiscal 2008 primarily due to
higher transitional employee
36
and related costs associated with our acquisitions of Hyperion
and Agile and higher stock-based compensation expenses resulting
from the acceleration of certain unvested stock options of
former Hyperion and Agile employees pursuant to the original
terms of those options.
Restructuring: Restructuring expenses
consist of Oracle employee severance costs and may also include
Oracle duplicate facilities closures and other exit costs that
were initiated to improve our cost structure, primarily as a
result of our acquisitions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended November 30,
|
|
|
Six Months Ended November 30,
|
|
|
|
|
|
|
Percent Change
|
|
|
|
|
|
|
|
|
Percent Change
|
|
|
|
|
(Dollars in millions)
|
|
2007
|
|
|
Actual
|
|
|
Constant
|
|
|
2006
|
|
|
2007
|
|
|
Actual
|
|
|
Constant
|
|
|
2006
|
|
|
Severance costs
|
|
$
|
6
|
|
|
|
-49%
|
|
|
|
-51%
|
|
|
$
|
11
|
|
|
$
|
6
|
|
|
|
-71%
|
|
|
|
-73%
|
|
|
$
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the second quarter of fiscal 2008, our management with
the appropriate level of authority approved, committed to, and
initiated the Oracle Fiscal 2008 Restructuring Plan (2008 Plan)
as a result of certain management and operational changes that
are intended to improve efficiencies in our Oracle-based
operations. The total estimated costs associated with the 2008
Plan are approximately $66 million, primarily related to
employee severance, and the majority of these costs are expected
to be incurred over the course of calendar 2008. Our estimated
costs are preliminary and may be subject to change in future
periods. We incurred restructuring expenses of $6 million
during the second quarter and first half of fiscal 2008 pursuant
to the 2008 Plan (see Note 10 in our condensed consolidated
financial statements for additional information). Restructuring
expenses in the second quarter and first half of fiscal 2007
relate to Oracle employee severance and facility closures that
were recorded in those periods and were a part of a
restructuring plan initiated in the third quarter of fiscal 2006.
Interest
Expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended November 30,
|
|
|
Six Months Ended November 30,
|
|
|
|
|
|
|
Percent Change
|
|
|
|
|
|
|
|
|
Percent Change
|
|
|
|
|
(Dollars in millions)
|
|
2007
|
|
|
Actual
|
|
|
Constant
|
|
|
2006
|
|
|
2007
|
|
|
Actual
|
|
|
Constant
|
|
|
2006
|
|
|
Interest expense
|
|
$
|
89
|
|
|
|
8%
|
|
|
|
8%
|
|
|
$
|
82
|
|
|
$
|
183
|
|
|
|
10%
|
|
|
|
10%
|
|
|
$
|
166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense increased in the second quarter and first half
of fiscal 2008 due to additional long-term senior notes that
were issued in our fourth quarter of fiscal 2007, as well as
higher average borrowings resulting from our issuances of
short-term commercial paper in our fourth quarter of fiscal 2007
(these commercial paper issuances were repaid during our first
quarter of fiscal 2008). These increases were partially offset
by lower effective interest rates on our average borrowings as a
result of certain refinancings of our long-term, floating rate
senior notes in the fourth quarter of fiscal 2007 and certain
interest rate swap agreements entered into during the second
quarter of fiscal 2008 (described below).
Non-Operating Income,
net: Non-operating income, net consists
primarily of interest income, net foreign currency exchange
gains, net investment gains related to marketable securities and
other investments as well as the minority share in the net
profits of i-flex and Oracle Japan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended November 30,
|
|
|
Six Months Ended November 30,
|
|
|
|
|
|
|
Percent Change
|
|
|
|
|
|
|
|
|
Percent Change
|
|
|
|
|
(Dollars in millions)
|
|
2007
|
|
|
Actual
|
|
|
Constant
|
|
|
2006
|
|
|
2007
|
|
|
Actual
|
|
|
Constant
|
|
|
2006
|
|
|
Interest income
|
|
$
|
89
|
|
|
|
10%
|
|
|
|
5%
|
|
|
$
|
81
|
|
|
$
|
163
|
|
|
|
4%
|
|
|
|
0%
|
|
|
$
|
158
|
|
Foreign currency gains
|
|
|
21
|
|
|
|
99%
|
|
|
|
104%
|
|
|
|
10
|
|
|
|
27
|
|
|
|
65%
|
|
|
|
71%
|
|
|
|
16
|
|
Net investment gains related to marketable equity securities and
other investments
|
|
|
2
|
|
|
|
-30%
|
|
|
|
-30%
|
|
|
|
3
|
|
|
|
2
|
|
|
|
-87%
|
|
|
|
-46%
|
|
|
|
18
|
|
Minority interests
|
|
|
(16
|
)
|
|
|
-19%
|
|
|
|
-22%
|
|
|
|
(20
|
)
|
|
|
(29
|
)
|
|
|
-11%
|
|
|
|
-15%
|
|
|
|
(32
|
)
|
Other
|
|
|
26
|
|
|
|
332%
|
|
|
|
321%
|
|
|
|
5
|
|
|
|
36
|
|
|
|
59%
|
|
|
|
50%
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-operating income, net
|
|
$
|
122
|
|
|
|
52%
|
|
|
|
48%
|
|
|
$
|
79
|
|
|
$
|
199
|
|
|
|
9%
|
|
|
|
6%
|
|
|
$
|
183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37
Non-operating income, net increased in the second quarter and
first half of fiscal 2008 primarily due to an increase in
interest income, foreign currency gains and other income.
Provision for Income Taxes: The
effective tax rate in all periods is the result of the mix of
income earned in various tax jurisdictions that apply a broad
range of income tax rates. The provision for income taxes
differs from the tax computed at the federal statutory income
tax rate due primarily to state taxes and earnings considered as
indefinitely reinvested in foreign operations. Future effective
tax rates could be adversely affected if earnings are lower than
anticipated in countries where we have lower statutory rates, by
unfavorable changes in tax laws and regulations, or by adverse
rulings in tax related litigation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended November 30,
|
|
|
Six Months Ended November 30,
|
|
|
|
|
|
|
Percent Change
|
|
|
|
|
|
|
|
|
Percent Change
|
|
|
|
|
(Dollars in millions)
|
|
2007
|
|
|
Actual
|
|
|
Constant
|
|
|
2006
|
|
|
2007
|
|
|
Actual
|
|
|
Constant
|
|
|
2006
|
|
|
Provision for income taxes
|
|
$
|
512
|
|
|
|
32%
|
|
|
|
28%
|
|
|
$
|
387
|
|
|
$
|
871
|
|
|
|
28%
|
|
|
|
26%
|
|
|
$
|
679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
28.2%
|
|
|
|
|
|
|
|
|
|
|
|
28.6%
|
|
|
|
28.9%
|
|
|
|
|
|
|
|
|
|
|
|
29.3%
|
|
Provision for income taxes increased in the second quarter and
first half of fiscal 2008 due to higher earnings before tax,
partially offset by a lower effective tax rate.
Liquidity
and Capital Resources
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30,
|
|
|
|
|
|
May 31,
|
|
(Dollars in millions)
|
|
2007
|
|
|
Change
|
|
|
2007
|
|
|
Working capital
|
|
$
|
7,009
|
|
|
|
100%
|
|
|
$
|
3,496
|
|
Cash, cash equivalents and marketable securities
|
|
$
|
8,432
|
|
|
|
20%
|
|
|
$
|
7,020
|
|
Working capital: The increase in
working capital in the first half of fiscal 2008 was primarily
due to an increase in our cash, cash equivalents and marketable
securities balances resulting primarily from additional cash
generated from our current year net income and collection of our
fiscal fourth quarter receivables, and our adoption of
FIN 48, which resulted in a significant reclassification of
certain short-term tax liabilities to long-term (see Note 9
in our condensed consolidated financial statements for
additional information). The increase in working capital was
partially offset by cash used during the first half of fiscal
2008 to repurchase our common stock and to pay for our
acquisitions.
Cash, cash equivalents and marketable
securities: Cash and cash equivalents consist
of highly liquid investments in time deposits held at major
banks, commercial paper, United States government agency
discount notes, money market mutual funds and other money market
securities with original maturities of 90 days or less.
Marketable securities primarily consist of commercial paper,
corporate notes and United States government agency notes. Cash,
cash equivalents and marketable securities include
$6.8 billion held by our foreign subsidiaries as of
November 30, 2007. The increase in cash, cash equivalents
and marketable securities at November 30, 2007 is due to an
increase in our operating cash flows resulting primarily from an
increase in net income and from the collection of our trade
receivables generated by our higher fourth quarter of fiscal
2007 sales volumes, partially offset by cash used during the
first half of fiscal 2008 for repayment of commercial paper
(issued in the fourth quarter of fiscal 2007), to repurchase our
common stock and to pay for our acquisitions.
Days sales outstanding, which is calculated by dividing period
end accounts receivable by average daily sales for the quarter,
was 55 days at November 30, 2007 compared with
62 days at May 31, 2007. The days sales outstanding
calculation excludes the adjustment to reduce software license
updates and product support revenues acquired to fair value. The
decline in days sales outstanding is primarily due to the
collection, in our first half of fiscal 2008, of large license
and support balances outstanding as of May 31, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended November 30,
|
|
(Dollars in millions)
|
|
2007
|
|
|
Change
|
|
|
2006
|
|
|
Cash provided by operating activities
|
|
$
|
3,303
|
|
|
|
77%
|
|
|
$
|
1,866
|
|
Cash used for investing activities
|
|
$
|
(1,487
|
)
|
|
|
-44%
|
|
|
$
|
(2,641
|
)
|
Cash used for financing activities
|
|
$
|
(1,544
|
)
|
|
|
24%
|
|
|
$
|
(1,248
|
)
|
38
Cash flows from operating
activities: Our largest source of operating
cash flows is cash collections from our customers following the
purchase and renewal of their software license updates and
product support agreements. Payments from customers for software
license updates and product support are generally received near
the beginning of the contract term, which is generally one year
in length. We also generate significant cash from new software
license sales and, to a lesser extent, services. Our primary
uses of cash from operating activities are for personnel related
expenditures as well as payments related to taxes and facilities.
Cash flows provided by operating activities increased in the
first half of fiscal 2008 primarily due to higher earnings and
the collection of trade receivables generated by our higher
fourth quarter of fiscal 2007 sales volumes.
Cash flows from investing
activities: The changes in cash flows from
investing activities primarily relate to acquisitions and the
timing of purchases, maturities and sales of marketable
securities. We also use cash to invest in capital and other
assets to support our growth.
Cash used for investing activities decreased in the first half
of fiscal 2008 primarily due to fewer purchases of marketable
securities, partially offset by an increase in cash used for
acquisitions.
Cash flows from financing
activities: The changes in cash flows from
financing activities primarily relate to borrowings and payments
under debt obligations as well as stock repurchase and stock
option exercise activity.
Cash used for financing activities increased in the first half
of fiscal 2008 primarily due to the repayment of short-term
commercial paper issued in the fourth quarter of fiscal 2007,
partially offset by lower stock repurchases and additional
proceeds from employee stock option exercises.
Free cash flow: To supplement our
statements of cash flows presented on a GAAP basis, we use
non-GAAP measures of cash flows on a trailing
4-quarter
basis to analyze cash flow generated from our operations. We
believe free cash flow is also useful as one of the bases for
comparing our performance with our competitors. The presentation
of non-GAAP free cash flow is not meant to be considered in
isolation or as an alternative to net income as an indicator of
our performance, or as an alternative to cash flows from
operating activities as a measure of liquidity. We calculate
free cash flows as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trailing 4-Quarters Ended November 30,
|
|
(Dollars in millions)
|
|
2007
|
|
|
Change
|
|
|
2006
|
|
|
Cash provided by operating activities
|
|
$
|
6,957
|
|
|
|
50
|
%
|
|
$
|
4,651
|
|
Capital
expenditures(1)
|
|
|
(369
|
)
|
|
|
44
|
%
|
|
|
(256
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Free cash flow
|
|
$
|
6,588
|
|
|
|
50
|
%
|
|
$
|
4,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
4,781
|
|
|
|
|
|
|
$
|
3,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Free cash flow as a percent of net income
|
|
|
138%
|
|
|
|
|
|
|
|
119%
|
|
|
|
|
(1) |
|
Represents capital expenditures as
reported in cash flows from investing activities in our
condensed consolidated statements of cash flows presented in
accordance with U.S. generally accepted accounting principles.
|
Long-Term
Customer Financing
We offer our customers the option to acquire our software and
services through separate long-term payment contracts. We
generally sell contracts that we have financed on a non-recourse
basis to financial institutions. We record the transfers of
amounts due from customers to financial institutions as sales of
financial assets because we are considered to have surrendered
control of these financial assets. In the first half of fiscal
2008 and 2007, $317 million and $207 million,
respectively, or approximately 11% and 10%, respectively, of our
new software license revenues were financed through our
financing division.
Contractual
Obligations
The contractual obligations presented in the table below
represent our estimates of future payments under fixed
contractual obligations and commitments. Changes in our business
needs, cancellation provisions, changing interest rates and
other factors may result in actual payments differing from these
estimates. We cannot provide
39
certainty regarding the timing and amounts of payments. We have
presented below a summary of the most significant assumptions
used in our information within the context of our consolidated
financial position, results of operations and cash flows.
The following is a summary of our contractual obligations as of
November 30, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ending May 31,
|
(Dollars in millions)
|
|
Total
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
Thereafter
|
|
Principal payments on notes
payable(1)
|
|
$
|
6,250
|
|
|
$
|
|
|
|
$
|
1,000
|
|
|
$
|
1,000
|
|
|
$
|
2,250
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,000
|
Capital
leases(2)
|
|
|
2
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest payments on notes
payable(1)
|
|
|
1,476
|
|
|
|
154
|
|
|
|
312
|
|
|
|
266
|
|
|
|
219
|
|
|
|
105
|
|
|
|
105
|
|
|
|
315
|
Operating
leases(3)
|
|
|
1,508
|
|
|
|
171
|
|
|
|
326
|
|
|
|
300
|
|
|
|
210
|
|
|
|
152
|
|
|
|
102
|
|
|
|
247
|
Purchase
obligations(4)
|
|
|
400
|
|
|
|
160
|
|
|
|
219
|
|
|
|
3
|
|
|
|
3
|
|
|
|
3
|
|
|
|
3
|
|
|
|
9
|
Funding
commitments(5)
|
|
|
3
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
9,639
|
|
|
$
|
489
|
|
|
$
|
1,858
|
|
|
$
|
1,569
|
|
|
$
|
2,682
|
|
|
$
|
260
|
|
|
$
|
210
|
|
|
$
|
2,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Notes payable consist of the
following as of November 30, 2007:
|
|
|
|
|
|
|
|
Principal Balance
|
|
|
Floating rate senior notes due May 2009 (effective interest rate
of 4.89%)
|
|
$
|
1,000
|
|
Floating rate senior notes due May 2010 (effective interest rate
of 4.93%)
|
|
|
1,000
|
|
5.00% senior notes due January 2011, net of discount of $5
|
|
|
2,245
|
|
5.25% senior notes due January 2016, net of discount of $9
|
|
|
1,991
|
|
|
|
|
|
|
Total borrowings
|
|
$
|
6,236
|
|
|
|
|
|
|
|
|
|
|
|
In September 2007, we entered into
two interest-rate swap agreements that have the economic effect
of modifying the variable interest obligations associated with
our floating rate senior notes due May 2009 and May 2010 so that
the interest payable on the senior notes effectively became
fixed at a rate of 4.62% and 4.59%, respectively. Interest
payments were calculated based on terms of the related
agreements and include estimates based on the effective interest
rates as of November 30, 2007 for variable rate borrowings
after consideration of the aforementioned interest rate swap
agreements.
|
|
(2) |
|
Represents remaining payments under
capital leases of computer equipment assumed from acquisitions.
|
|
(3) |
|
Primarily represents leases of
facilities and includes future minimum rent payments for
facilities that we have vacated pursuant to our restructuring
and merger integration activities. We have approximately
$302 million in facility obligations, net of estimated
sublease income and other costs, in accrued restructuring for
these locations in our condensed consolidated balance sheet at
November 30, 2007.
|
|
(4) |
|
Represents amounts associated with
agreements that are enforceable, legally binding and that
specify terms, including: fixed or minimum quantities to be
purchased; fixed, minimum or variable price provisions; and the
approximate timing of payments.
|
|
(5) |
|
Represents the maximum additional
capital we may need to contribute toward our venture fund
investments which are payable upon demand.
|
On June 1, 2007, we adopted FIN 48 and reclassified
$1.3 billion of gross unrecognized tax benefits to
non-current income taxes payable in our consolidated balance
sheet. As of November 30, 2007, we cannot make a reasonably
reliable estimate of the period in which these liabilities will
be settled with the respective tax authorities, although we
believe it is reasonably possible that certain of these
liabilities could be settled during fiscal 2008 (see Note 9
of Notes to Condensed Consolidated Financial Statements for
additional information).
We believe that our current cash and cash equivalents,
marketable securities and cash generated from operations will be
sufficient to meet our working capital, capital expenditures and
contractual obligations. In addition, we believe we could fund
our acquisitions and repurchase common stock with our internally
available cash and investments, cash generated from operations,
amounts available under our credit facilities, additional
borrowings or from the issuance of additional securities.
Off-Balance
Sheet Arrangements
We do not have any off-balance sheet arrangements that have or
are reasonably likely to have a current or future effect on our
financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures
or capital resources that is material to investors.
40
Stock
Options
Our stock option program is a key component of the compensation
package we provide to attract and retain talented employees and
align their interests with the interests of existing
stockholders. We recognize that options dilute existing
stockholders and have sought to control the number of options
granted while providing competitive compensation packages.
Consistent with these dual goals, our cumulative potential
dilution since June 1, 2004 has been less than 2.0% and has
a weighted average annualized rate of 1.6% per year. The
potential dilution percentage is calculated as the weighted
average of new option grants for the year, net of options
forfeited by employees leaving the company, divided by the
weighted average outstanding shares during the calculation
period. This maximum potential dilution will only result if all
options are exercised. Some of these options, which have
10-year
exercise periods, have exercise prices substantially higher than
the current market price. At November 30, 2007, 25% of our
outstanding stock options had exercise prices in excess of the
current market price. Consistent with our historical practices,
we do not expect that dilution from future grants before the
effect of our stock repurchase program will exceed 2.0% per year
for our ongoing business. Over the last 10 years, our stock
repurchase program has more than offset the dilutive effect of
our stock option program; however, we may reduce the level of
our stock repurchases in the future as we may use our available
cash for acquisitions, to repay indebtedness or for other
purposes. At November 30, 2007, the maximum potential
dilution from all outstanding and unexercised option awards,
regardless of when granted and regardless of whether vested or
unvested and including options where the strike price is higher
than the current market price, was 8.2%.
The Compensation Committee of the Board of Directors reviews and
approves the organization-wide stock option grants to selected
employees, all stock option grants to executive officers and any
individual stock option grants in excess of 100,000 shares.
A separate Plan Committee, which is an executive officer
committee, approves individual stock option grants up to
100,000 shares to non-executive officers and employees.
Options granted from June 1, 2004 through November 30,
2007 are summarized as follows (shares in millions):
|
|
|
|
|
Options outstanding at May 31, 2004
|
|
|
440
|
|
Options granted
|
|
|
227
|
|
Options assumed
|
|
|
206
|
|
Options exercised
|
|
|
(331
|
)
|
Forfeitures and cancellations
|
|
|
(122
|
)
|
|
|
|
|
|
Options outstanding at November 30, 2007
|
|
|
420
|
|
|
|
|
|
|
Weighted average annualized options granted, net of forfeitures
|
|
|
81
|
|
Weighted average annualized stock repurchases
|
|
|
156
|
|
Shares outstanding at November 30, 2007
|
|
|
5,128
|
|
Weighted average shares outstanding from June 1, 2004
through November 30, 2007
|
|
|
5,148
|
|
Options outstanding as a percent of shares outstanding at
November 30, 2007
|
|
|
8.2%
|
|
In the money options outstanding (based on our November 30,
2007 stock price) as a percent of shares outstanding at
November 30, 2007
|
|
|
6.2%
|
|
Weighted average annualized options granted and assumed, net of
forfeitures and before stock repurchases, as a percent of
weighted average shares outstanding from June 1, 2004
through November 30, 2007
|
|
|
1.6%
|
|
Weighted average annualized options granted, net of forfeitures
and after stock repurchases, as a percent of weighted average
shares outstanding from June 1, 2004 through
November 30, 2007
|
|
|
-1.4%
|
|
Our Compensation Committee approves the annual organization-wide
option grants to selected employees. These annual option grants
are made during the ten
business-day
period following the second business day after the announcement
of our fiscal year-end earnings report. During the first half of
fiscal 2008, we made our annual grant of options on July 5,
2007, and made or assumed other grants to purchase approximately
58 million shares, which were partially offset by
forfeitures of 5 million shares.
41
|
|
Item 3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
Interest Rate Risk. We generally
purchase investments with relatively short maturities.
Therefore, interest rate movements generally do not materially
affect the valuation of our investments. Changes in the overall
level of interest rates affect the interest income that is
generated from our investments. For the six months ended
November 30, 2007, total interest income was
$163 million with investments yielding an average of 4.15%
on a worldwide basis. This interest rate level was up
approximately 36 basis points from 3.79% for the six months
ended November 30, 2006. If overall interest rates fell by
a similar amount (36 basis points) in fiscal 2008, our
annual interest income would decline by approximately
$28 million on an annualized basis, assuming consistent
investment levels. The table below presents the cash, cash
equivalent and marketable securities balances and the related
weighted average interest rates for our investment portfolio at
November 30, 2007. The cash, cash equivalent and marketable
securities balances are recorded at fair value at
November 30, 2007:
|
|
|
|
|
|
|
|
|
Market Value of
|
|
|
|
|
|
Available-for-Sale
|
|
|
Weighted Average
|
(Dollars in millions)
|
|
Securities
|
|
|
Interest Rate
|
|
Cash and cash equivalents
|
|
$
|
6,733
|
|
|
4.27%
|
Marketable securities
|
|
|
1,699
|
|
|
3.65%
|
|
|
|
|
|
|
|
Total cash, cash equivalents and marketable securities
|
|
$
|
8,432
|
|
|
4.14%
|
|
|
|
|
|
|
|
The following table includes the U.S. Dollar equivalent of
cash, cash equivalents and marketable securities denominated in
foreign currencies. See discussion of our foreign currency risk
below for a description of how we hedge net assets of certain
international subsidiaries from foreign currency exposure.
|
|
|
|
|
|
|
U.S. Dollar
|
|
|
|
Equivalent at
|
|
|
|
November 30,
|
|
(in millions)
|
|
2007
|
|
Euro
|
|
$
|
1,617
|
|
Japanese Yen
|
|
|
717
|
|
British Pound
|
|
|
614
|
|
Chinese Renminbi
|
|
|
417
|
|
Australian Dollar
|
|
|
275
|
|
Canadian Dollar
|
|
|
236
|
|
Indian Rupee
|
|
|
197
|
|
Other currencies
|
|
|
1,260
|
|
|
|
|
|
|
Total cash, cash equivalents and marketable securities
denominated in foreign currencies
|
|
$
|
5,333
|
|
|
|
|
|
|
Our borrowings as of November 30, 2007 were
$6.2 billion, consisting of $4.2 billion of fixed rate
borrowings and $2.0 billion of variable rate borrowings.
Our variable rate borrowings were as follows at
November 30, 2007:
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
Borrowings
|
|
Effective Interest Rate
|
|
|
Floating rate senior notes due May
2009(1)
|
|
$
|
1,000
|
|
|
4.89%
|
|
Floating rate senior notes due May
2010(1)
|
|
|
1,000
|
|
|
4.93%
|
|
|
|
|
|
|
|
|
|
Total borrowings subject to variable interest rate fluctuations
|
|
$
|
2,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The 2009 and 2010 Notes bear
interest at a floating rate equal to three-month LIBOR plus
0.02% per year and 0.06% per year, respectively. In September
2007, we entered into two interest-rate swap agreements that
have the economic effect of modifying the variable interest
obligations associated with our floating rate senior notes due
May 2009 and May 2010 so that the interest payable on the senior
notes effectively becomes fixed at a rate of 4.62% and 4.59%,
respectively. The critical terms of the interest rate swap
agreements and the senior notes that the swap agreements pertain
to match, including the notional amounts, interest rate reset
dates, maturity dates and underlying market indices. The fair
values of the interest rate swaps totaled an unrealized loss of
$16 million, net of tax effects, at November 30, 2007.
We are accounting for these swaps as hedges pursuant to FASB
Statement No. 133, Accounting for Derivative Instruments and
Hedging Activities. The losses are included in accumulated
other comprehensive income and the corresponding fair value
payable is included in other long-term liabilities in our
condensed consolidated balance sheet.
|
42
Foreign Currency Transaction Risk. We
transact business in various foreign currencies and have
established a program that primarily utilizes foreign currency
forward contracts to offset the risks associated with the
effects of certain foreign currency exposures. Under this
program, increases or decreases in our foreign currency
exposures are offset by gains or losses on the forward
contracts, to mitigate the possibility of foreign currency
transaction gains or losses. These foreign currency exposures
typically arise from intercompany sublicense fees and other
intercompany transactions. Our forward contracts generally have
terms of 90 days or less. We do not use forward contracts
for trading purposes. All outstanding foreign currency forward
contracts (excluding our Yen equity hedge described below) are
marked to market at the end of the period with unrealized gains
and losses resulting from fair value changes included in
non-operating income, net. Our ultimate realized gain or loss
with respect to currency fluctuations will depend on the
currency exchange rates and other factors in effect as the
contracts mature. Net foreign exchange transaction gains
included in non-operating income, net in the accompanying
condensed consolidated statements of operations were
$14 million and $1 million for the six months ended
November 30, 2007 and 2006, respectively. The unrealized
gains of our outstanding foreign currency forward contracts were
$14 million at November 30, 2007 and $5 million
at May 31, 2007.
Net Investment Risk. We hedge the net
assets of certain international subsidiaries (net investment
hedges) using foreign currency forward contracts to offset the
translation and economic exposures related to our investments in
these subsidiaries. We measure the effectiveness of net
investment hedges by using the changes in spot exchange rates
because this method reflects our risk management strategies, the
economics of those strategies in our financial statements and
better manages interest rate differentials between different
countries. Under this method, the change in fair value of the
forward contract attributable to the changes in spot exchange
rates (the effective portion) is reported in stockholders
equity to offset the translation results on the net investments.
The remaining change in fair value of the forward contract (the
ineffective portion) is recognized in non-operating income, net.
Net gains (losses) on investment hedges reported in
stockholders equity, net of tax effects, were
$(36) million and $19 million for the six months ended
November 30, 2007 and 2006, respectively. Net gains on
investment hedges reported in non-operating income, net were
$13 million and $15 million for the six months ended
November 30, 2007 and 2006, respectively.
At November 30, 2007, we had one net investment hedge in
Japanese Yen. The Yen investment hedge minimizes currency risk
arising from net assets held in Yen as a result of equity
capital raised during the initial public offering and secondary
offering of Oracle Japan, our majority owned subsidiary. The
fair value of our Yen investment hedge was nominal as of
November 30, 2007 and May 31, 2007. As of
November 30, 2007, the Yen investment hedge has a notional
amount of $607 million and an exchange rate of 108.81 Yen
for each U.S. Dollar.
|
|
Item 4.
|
Controls
and Procedures
|
Evaluation of Disclosure Controls and
Procedures. Our Chief Executive Officer and
our Chief Financial Officer, after evaluating the effectiveness
of our disclosure controls and procedures (as
defined in the Securities Exchange Act of 1934 (Exchange Act)
Rules 13a-15(e)
or
15d-15(e))
as of the end of the period covered by this quarterly report,
have concluded that our disclosure controls and procedures are
effective based on their evaluation of these controls and
procedures required by paragraph (b) of Exchange Act
Rules 13a-15
or 15d-15.
Changes in Internal Control over Financial
Reporting. There were no changes in our
internal control over financial reporting that occurred during
our last fiscal quarter that have materially affected, or are
reasonably likely to materially affect, our internal control
over financial reporting.
Inherent Limitations on Effectiveness of
Controls. Our management, including our Chief
Executive Officer and Chief Financial Officer, believes that our
disclosure controls and procedures and internal control over
financial reporting are effective at the reasonable assurance
level. However, our management does not expect that our
disclosure controls and procedures or our internal control over
financial reporting will prevent all errors and all fraud. A
control system, no matter how well conceived and operated, can
provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Further, the design of
a control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered
relative to their costs. Because of the inherent limitations in
all control systems, no evaluation of controls can provide
absolute assurance that all control issues and instances of
fraud, if any, have been detected. These inherent limitations
include the
43
realities that judgments in decision-making can be faulty, and
that breakdowns can occur because of a simple error or mistake.
Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more people or by
management override of the controls. The design of any system of
controls also is based in part upon certain assumptions about
the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under
all potential future conditions; over time, controls may become
inadequate because of changes in conditions, or the degree of
compliance with policies or procedures may deteriorate. Because
of the inherent limitations in a cost-effective control system,
misstatements due to error or fraud may occur and not be
detected.
PART II. OTHER
INFORMATION
|
|
Item 1.
|
Legal
Proceedings
|
The information set forth in Note 16 of Notes to Condensed
Consolidated Financial Statements in Part I, Item 1 of
this
Form 10-Q
is incorporated herein by reference.
In addition to the other information set forth in this report,
you should carefully consider the factors discussed in
Part I, Item 1A. Risk Factors in our
Annual Report on
Form 10-K
for our fiscal year ended May 31, 2007. The risks discussed
in our Annual Report on
Form 10-K
could materially affect our business, financial condition and
future results. The risks described in our Annual Report on
Form 10-K
are not the only risks facing us. Additional risks and
uncertainties not currently known to us or that we currently
deem to be immaterial also may materially and adversely affect
our business, financial condition or operating results.
|
|
Item 2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
Our Board of Directors has approved a program to repurchase
shares of our common stock to reduce the dilutive effect of our
stock option and stock purchase plans. In April 2007, our Board
of Directors expanded our repurchase program by
$4.0 billion and as of November 30, 2007,
approximately $3.2 billion was available for share
repurchases pursuant to our stock repurchase program. We
repurchased approximately 49 million shares for
$1.0 billion during the six months ended November 30,
2007 (including approximately 1 million shares for
$24 million that were repurchased but not settled) and
approximately 121 million shares for $2.0 billion
during the six months ended November 30, 2006 (including
approximately 3 million shares for $48 million that
were repurchased but not settled) under the applicable
repurchase programs authorized.
Our stock repurchase authorization does not have an expiration
date and the pace of our repurchase activity will depend on
factors such as our working capital needs, our cash requirements
for acquisitions, our debt repayment obligations (as described
above), our stock price, and economic and market conditions. Our
stock repurchases may be effected from time to time through open
market purchases or pursuant to a
Rule 10b5-1
plan. Our stock repurchase program may be accelerated,
suspended, delayed or discontinued at any time.
The following table summarizes the stock repurchase activity for
the three months ended November 30, 2007 and the
approximate dollar value of shares that may yet be purchased
pursuant to our stock repurchase programs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
|
Approximate Dollar
|
|
|
Total Number
|
|
|
Average
|
|
Shares Purchased as
|
|
|
Value of Shares that
|
|
|
of Shares
|
|
|
Price Paid
|
|
Part of Publicly
|
|
|
May Yet Be Purchased
|
(in millions, except per share amounts)
|
|
Purchased
|
|
|
Per Share
|
|
Announced Program
|
|
|
Under the Program
|
|
September 1, 2007September 30, 2007
|
|
|
7.2
|
|
|
$
|
20.86
|
|
|
7.2
|
|
|
$
|
3,558.6
|
October 1, 2007October 31, 2007
|
|
|
8.4
|
|
|
$
|
21.77
|
|
|
8.4
|
|
|
$
|
3,376.3
|
November 1, 2007November 30, 2007
|
|
|
8.1
|
|
|
$
|
20.68
|
|
|
8.1
|
|
|
$
|
3,209.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
23.7
|
|
|
$
|
21.12
|
|
|
23.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44