e10vk
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
FORM 10-K
|
|
|
x ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
|
For the fiscal year ended May 31, 2007
|
OR
|
o TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
|
Commission file number:
000-51788
Oracle Corporation
(Exact name of registrant as
specified in its charter)
|
|
|
Delaware
|
|
54-2185193
|
(State or other jurisdiction
of
incorporation or organization)
|
|
(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)
Securities registered pursuant to Section 12(b) of the
Act:
|
|
|
Title of Each Class
|
|
Name of Each Exchange on Which
Registered
|
Common Stock, par value $0.01 per
share
|
|
The NASDAQ Stock Market LLC
|
Preferred Stock Purchase Rights
|
|
The NASDAQ Stock Market LLC
|
Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. YES x NO o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. YES o NO x
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 if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. x
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 aggregate market value of the voting stock held by
non-affiliates of the registrant was $74,136,594,087 based on
the number of shares held by non-affiliates of the registrant as
of May 31, 2007, and based on the closing sale price of
common stock as reported by the NASDAQ Global Select Market on
November 30, 2006, which is the last business day of the
registrants most recently completed second fiscal quarter.
This calculation does not reflect a determination that persons
are affiliates for any other purposes.
Number of shares of common stock outstanding as of June 25,
2007: 5,113,035,975
Documents Incorporated by Reference:
Part IIIPortions of the registrants definitive
proxy statement to be issued in conjunction with
registrants annual stockholders meeting to be held
on November 2, 2007.
ORACLE
CORPORATION
FISCAL YEAR 2007
FORM 10-K
ANNUAL REPORT
TABLE OF CONTENTS
Forward-Looking
Statements
For purposes of this Annual Report, the terms
Oracle, we, us and
our refer to Oracle Corporation and its consolidated
subsidiaries. In addition to historical information, this Annual
Report on
Form 10-K
contains forward-looking statements that involve risks and
uncertainties that could cause our actual results to differ
materially. Factors that might cause or contribute to such
differences include, but are not limited to, those discussed in
Item 1A. Risk Factors. 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 Annual 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 Securities and Exchange Commission, including the
Quarterly Reports on
Form 10-Q
to be filed by us in our 2008 fiscal year, which runs from
June 1, 2007 to May 31, 2008.
PART I
General
We are the worlds largest enterprise software company. We
develop, manufacture, market, distribute and service database
and middleware software as well as applications software
designed to help our customers manage and grow their business
operations. We also provide support for the Linux open source
operating system through our Oracle Unbreakable Linux Support
program, which provides our customers with our industry-leading
global support programs for Linux.
Our goal is to offer customers scalable, reliable, secure and
integrated software systems that provide transactional
efficiencies, adapt to an organizations unique needs and
allow better ways to access and manage information at a lower
total cost of ownership. We seek to be an industry leader in
each of the specific product categories in which we compete and
to expand into new and emerging markets. In fiscal 2007, we
focused on strengthening our competitive position and enhancing
our existing portfolio of products and services as well as
acquiring and integrating businesses.
An active acquisition program is an important element of our
corporate strategy. In the last three fiscal years, we have
invested over $25 billion, in the aggregate, to acquire a
number of companies, products, services and technologies,
including the acquisition of PeopleSoft, Inc., Siebel Systems,
Inc. and Hyperion Solutions Corporation. 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.
We believe our acquisition program supports our long-term
strategic direction, strengthens our competitive position,
expands our customer base and provides greater scale to
accelerate innovation, grow our earnings and increase
stockholder value. We expect to continue to acquire companies,
products, services and technologies.
Oracle Corporation was incorporated in 2005 as a Delaware
corporation and is the successor to operations originally begun
in June 1977.
Software
and Services
We are organized into 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. Our software and services
businesses represented 79% and 21% of our total revenues,
respectively, in fiscal 2007 and 80% and 20% of our total
revenues, respectively, in both fiscal 2006 and fiscal 2005. See
Note 15 of Notes to Consolidated Financial Statements for
additional information related to our operating segments.
1
Software
Business
New
Software Licenses
New software licenses include the licensing of database and
middleware software, which consists of Oracle Database and
Oracle Fusion Middleware, as well as applications software. Our
technology and business solutions are based on an internet model
comprised of interconnected database servers, application
servers, web servers and computers as well as mobile devices
running web browsers. This architecture enables users to access
business data and applications through a universally adopted web
browser interface, while providing enterprises the most
efficient and cost effective method of managing business
information and applications.
In an internet model, database servers manage and protect the
underlying business information, while application servers run
the business applications that automate a myriad of business
functions. We have focused on concepts such as global single
instance application deployment that involve fewer, high quality
databases of important business information, rather than dozens
or hundreds of disparate databases that are difficult to
synchronize and coordinate. Our integrated architecture provides
high quality business information and can be adapted to the
specific needs of any industry or application. Oracle technology
operates on single server or clustered server configurations,
and supports a choice of operating systems including Linux, UNIX
and Windows. In fiscal 2007, we introduced a program to support
the Linux open source operating system for our customers
information technology (IT) platforms.
New software license revenues include fees earned from granting
customers licenses to use our software products and exclude
revenues derived from software license updates and product
support. The standard end user software license agreement for
our products provides for an initial fee to use the product in
perpetuity based on a maximum number of processors, named users
or other metrics. We also have other types of software license
agreements restricted by the number of employees or the license
term. New software license revenues represented 33%, 34% and 35%
of total revenues in fiscal 2007, 2006 and 2005, respectively.
Database
and Middleware Software
Our grid software provides a cost-effective, high-performance
platform for running and managing business applications for
small and mid-size businesses and large global enterprises. With
an increasing focus by enterprises on reducing their total cost
of IT infrastructure, Oracles grid software is designed to
accommodate demanding, non-stop business environments, using
clusters of low cost servers and storage that can incrementally
scale as required. The unique ability to assign computing
resources as required simplifies our customers computing
capacity, planning and procurement in order to support all of
their business applications. With an Oracle grid infrastructure,
our customers can lower their investment in IT hardware, reduce
their risk of IT infrastructure downtime and easily cope with
sudden increases in demand on their IT environments during high
traffic periods. New software license revenues from database and
middleware products represented 71%, 73% and 81% of new software
license revenues in fiscal 2007, 2006 and 2005, respectively.
Database
As the worlds most popular database, Oracles
relational database enables the secure storage, manipulation and
retrieval of all forms of data including structured data that
resides in business applications, XML data, analytics data,
spatial data and other unstructured data such as documents,
spreadsheets and images. Designed for enterprise grid computing,
the Oracle Database is available in four editions: Express
Edition, Standard Edition One, Standard Edition and Enterprise
Edition. All editions are built using the same underlying code,
which means that database applications can easily scale from
small, single processor servers to clusters of multi-processor
servers.
Options to Oracle Database Enterprise Edition are available to
meet specific requirements in the areas of performance and
scalability, high availability, security and compliance, data
warehousing, unstructured data integration and systems
management. Examples of these options include: Oracle Real
Application Clusters, which consolidates a single, scalable and
fault tolerant database that is shared across an interconnected
cluster of servers (also available on our other database
editions); Oracle Partitioning, which supports large transaction
processing and business intelligence database systems and cost
effectively manages data throughout its lifecycle; and Oracle
2
Warehouse Builder connectors, which design, build and populate
data warehouses from a variety of legacy repositories.
Enterprise
Manager
Oracle Enterprise Manager is designed to deliver top-down
applications management. Our customers use Oracle Enterprise
Manager to monitor and manage their applications and underlying
software infrastructure, including both Oracle and non-Oracle
infrastructure products. Oracle Enterprise Manager can be used
to manage packaged applications, such as Siebel, PeopleSoft,
Oracle
E-Business
Suite or custom applications including service-oriented
applications. In addition to managing Oracle software
infrastructure products including the Oracle Database and Oracle
Fusion Middleware, Oracle Enterprise Manager also supports
third-party infrastructure products.
Oracle Enterprise Manager is designed to monitor service levels
and performance, automate tasks, manage configuration
information, and provide change management in a unified way
across groups of computers or grids. Oracle Enterprise
Managers provisioning automates the discovery, tracking
and scheduling of software patches and allows IT administrators
to apply patches without taking their system down. Additionally,
IT administrators can manage systems from anywhere through an
HTML browser or through wireless PDAs.
Secure
Enterprise Search
Oracle Secure Enterprise Search provides an internet-like search
experience to users searching secure content inside the
enterprise. Oracle Secure Enterprise Search indexes and searches
public, private and shared content across internal and external
web sites, databases, file servers, document repositories,
enterprise content management systems, applications and portals.
Oracle Secure Enterprise Search has built-in functionality that
permits users to see only search results leading to information
for which they have authorized access. The product features a
simple web interface allowing for efficient administration and
management. Additionally, users can access the search engine
through web-based user interfaces and perform traditional
keyword searches that provide results in a format similar to
conventional web searches.
Middleware
Oracle Fusion Middleware is a broad product family that forms a
reliable and scalable foundation on which customers can build,
deploy and integrate business applications and automate their
business processes. Oracle Fusion Middleware includes Oracle
Application Server, Oracle Identity and Access Management Suite,
Oracle Webcenter Suite, Oracle Business Intelligence Suite,
Oracle Developer Suite, Oracle Service Oriented Architecture
Suite, Oracle Enterprise Content Management Suite and Oracle
Business Process Analysis Suite, among others. Oracle Fusion
Middleware is designed to protect our customers IT
investments and work with both Oracle and non-Oracle Database,
Applications and Middleware products through its hot-pluggable
architecture and adherence to industry standards such as J2EE
and Business Process Execution Language (BPEL).
By using Oracle Fusion Middleware, our customers increase their
capacity to adapt to business changes rapidly, reduce their
risks related to security and compliance, increase user
productivity, and drive better business decisions. Specifically,
Oracle Fusion Middleware enables customers to easily integrate
heterogeneous business applications, automate business
processes, simplify security and compliance, manage lifecycle of
documents and get actionable, targeted business intelligence,
while continuing to utilize their existing IT systems. In
addition, Oracle Fusion Middleware supports multiple development
languages and tools, which allows developers to build and deploy
web services, web sites, portals and web-based applications.
Oracles Fusion Middleware is used to support Oracle
applications, as well as other enterprise applications and
independent software vendors that build their own custom
applications.
Application
Server
The foundation of Oracle Fusion Middleware is Oracle Application
Server. Designed for grid computing, Oracle Application Server
incorporates clustering and caching technology, which increases
application reliability, performance, security and scalability.
Oracle Application Server also provides a complete integration
platform that is designed to simplify and accelerate business,
application and data integration projects.
3
Identity and
Access Management Suite
The Oracle Identity and Access Management suite makes it easier
for our customers to manage multiple user identities, provision
users in multiple enterprise applications and systems and manage
access privileges for customers, employees and partners. Our
customers use Oracle Identity and Access Management Suite to
secure their information from potential threats. In addition,
our customers also use Oracle Identity and Access Management
Suite to increase compliance levels, while lowering the total
cost of their compliance efforts.
Webcenter
Suite
Oracle Webcenter Suite enables personalized, task oriented web
applications and portal sites to be rapidly developed and
deployed, all with single sign-on access and security. Our
customers can assemble portal sites using page regions or
portlets, which are reusable interface components that provide
access to web-based resources such as applications, business
intelligence reports, syndicated content feeds and outsourced
software services. With the Oracle Communications and Mobility
Server option, such web and portal applications support mobile
and Voice-over-IP (VoIP) clients.
Business
Intelligence Suite
Oracle Business Intelligence Suite is a family of enterprise
business intelligence products that unites Oracles
business intelligence and middleware technology with Siebel
Business Analytics to offer our customers enterprise-wide
business intelligence infrastructure and tools. Based on
Oracles hot-pluggable business intelligence
infrastructure, these products deliver to our customers a full
spectrum of business intelligence requirements, including
interactive dashboards, ad hoc query and analysis, proactive
intelligence and alerts, enterprise reporting, real-time
predictive intelligence and mobile analytics. In April 2007, we
acquired Hyperion, a market leader in enterprise performance
management and business intelligence products. As a result of
the Hyperion acquisition, we now offer our customers the most
comprehensive, integrated, end-to-end enterprise performance
management system available, spanning consolidation, planning,
operational analytic applications, business intelligence tools,
reporting, and data integration, all on a unified business
intelligence platform.
Current editions of the Oracle Business Intelligence Suite
include the Oracle Business Intelligence Suite Enterprise
Edition and Oracle Business Intelligence Suite Standard
Edition. Oracle Business Intelligence Suite Enterprise
Edition is open to any enterprise data source and optimized for
Oracle or non-Oracle databases, allowing customers to integrate
data from all their enterprise applications, including third
party and customer applications. Oracle Business Intelligence
Suite Standard Edition is optimized to work with Oracle
data and applications.
Developer
Suite
Oracle Developer Suite is an integrated suite of development
tools designed to facilitate rapid development of internet
database applications and web services. The Oracle Developer
Suite contains application development and business intelligence
tools and is built on internet standards such as Java, J2EE, XML
and HTML.
The Oracle Developer Suite includes Oracle JDeveloper, a Java
development environment for modeling, building, debugging and
testing enterprise-class J2EE applications and web
services. In addition, the suite contains Oracle Designer, a
tool that allows developers to model business processes and
automatically generate enterprise database applications, and
Oracle Forms Developer, a development tool for building
database applications that can be deployed unchanged in both
internet and client/server based environments.
The Oracle Developer Suite also includes Oracle Warehouse
Builder software that consolidates fragmented data and metadata
pulled from packaged applications, custom applications and
legacy applications. Oracle Warehouse Builder enables developers
to graphically design the multidimensional database schema and
to automatically generate and load data into the data warehouse.
Service-Oriented
Architecture Suite
Oracle Service-Oriented Architecture (SOA) Suite is a complete
set of service infrastructure components for creating,
deploying, and managing SOAs, including Oracle Developer, Oracle
BPEL Process Manager, Oracle Web
4
Services Manager, Oracle Business Rules Engine, Oracle
Business Activity Monitoring, and Oracle Enterprise Service Bus.
Oracle SOA Suite enables services to be created, managed and
orchestrated into composite applications and reconfigurable
business processes, reducing development time and costs and
increasing flexibility and response time. Oracle SOA Suite is
hot-pluggable, enabling customers to easily extend and evolve
their architectures instead of replacing existing investments.
Enterprise
Content Management Suite
Oracle Enterprise Content Management suite provides a
comprehensive set of capabilities to create, publish, share,
archive and retain documents, manage business process flows
involving these documents as well as manage information access
rights to these documents. It supports an extensive set of
document and image formats.
Applications
Software
Our applications strategy is designed to provide customers with
a complete industry business process automation footprint,
supported by a robust, standards-based technology platform.
Central to that strategy is our commitment to offer our
customers that purchase software license updates and support
contracts a choice as to when they wish to upgrade to any of our
existing or future technology offerings. Until our customers
upgrade, we protect their investments in their applications by
providing them lifetime support, product enhancements and
upgrades. New technologies such as Oracle Fusion Middleware,
Oracle Business Intelligence Suite, and Oracle WebCenter Suite
are designed to help our customers extend the benefits of their
investment in Oracle Applications, to reduce their investment
risk, and to support their evolution to the next generation of
enterprise software that best fits their needs.
Our applications combine business functionality with innovative
technologies such as role-based analytics, secure search,
identity management, self-service, and workflow to deliver
business intelligence and insights, adaptive industry processes,
and a superior ownership experience. Our applications enable
efficient management of all core business functions, including
customer relationship management (CRM), enterprise performance
management (EPM), enterprise resource planning (ERP) and
industry-specific applications. Oracle applications are offered
as integrated suites or available on a component basis, and all
are built on open architectures and are designed for flexible
configuration and open, multi-vendor integration. Our
applications are available in multiple languages, and support a
broad range of location specific requirements, enabling
companies to support both global and local business practices
and legal requirements.
Customer
Relationship Management (CRM)
We offer a complete set of CRM applications that manage all of
the business processes and associated systems that touch a
customer, including: billing and delivery; sales solutions that
provide a single repository for customer and supply chain
information; and service solutions that increase customer
satisfaction by providing visibility into customer billing and
order information.
Enterprise
Performance Management (EPM)
We offer a full spectrum of open, industry-specific analytic
applications with capabilities such as enterprise performance
management, interactive dashboarding, and embedded analytic
functionality for delivering insight across the enterprise. Our
Siebel business analytics solution is tailored to 20 industries,
giving customers the ability to monitor, analyze, and act upon
intelligence while providing end-to-end visibility into company
operations and financial performance. With our acquisition of
Hyperion in April 2007, we added complementary products to
Oracles business intelligence offerings, including a
leading open enterprise planning system, financial consolidation
products, and a multi-source OLAP server. Our acquisition of
Hyperion enables us to offer our customers an integrated,
end-to-end EPM system that spans planning, consolidation,
operational analytic applications, business intelligence tools,
reporting, and data integration, all on a unified business
intelligence platform.
Enterprise
Resource Planning (ERP)
Companies use our ERP applications to automate and integrate a
variety of their key global business processes including
manufacturing, order entry, accounts receivable and payable,
general ledger, purchasing, warehousing,
5
transportation and human resources. Our ERP applications combine
business functionality with innovative technologies, such as
workflow and self-service applications, to enable companies to
lower the cost of their business operations by providing their
customers, suppliers and employees with self-service internet
access to both transaction processing and critical business
information. Our ERP applications are available in multiple
languages and currencies, enabling companies to support both
global and local business practices and legal requirements.
Industry
Applications
Our applications can be tailored to offer customers a variety of
industry-specific solutions. As part of our strategy, we strive
to ensure that our applications portfolio addresses the major
industry-influenced technology challenges of customers in key
industries. With our acquisition of Siebel, we gained expertise
in the vertical markets in which Siebel offered industry
solutions. We have also expanded our offerings in a number of
other key industries we view as strategic to our future growth,
most notably in retail with our acquisitions of Retek, Inc. and
several other companies; in banking and financial institutions
with our acquisition of i-flex solutions limited; and in
telecommunications with our acquisitions of Portal Software,
Inc. and MetaSolv, Inc. These acquired industry applications are
in addition to industry applications we developed for
healthcare, life sciences, manufacturing, education,
professional services, public sector and utilities.
New software license revenues from applications software
represented 29%, 27% and 19% of new software license revenues in
fiscal 2007, 2006 and 2005, respectively.
Applications
Unlimited
In fiscal 2006, we announced we would continue to invest in
enhancements to our current Oracle
E-Business
Suite, PeopleSoft Enterprise, JD Edwards EnterpriseOne, JD
Edwards World and Siebel applications products beyond the
delivery of Oracle Fusion Applications (described below). In
January 2007, we delivered five new releases of these existing
product lines, incorporating new products and customer-driven
enhancements in areas such as global support, localization,
middleware, and analytics. With the Applications Unlimited
program, customers will not be required to migrate to Oracle
Fusion Applications and may choose to stay with their current
product lines with dedicated development and support teams.
Fusion
Applications
Oracle Fusion Applications, currently in development, represent
the next generation of Oracle Applications, based on a
service-oriented platform, built on open industry standards,
extendable by customers and partners and interoperable with
third party and existing installations. Fusion applications are
being designed to leverage the best functionality and combine
the best features, flows and usability traits of our legacy and
acquired application products into one product line. We believe
the resulting suite of applications will deliver a superior
ownership experience through improved usability, adaptive
business process automation, built-in business intelligence and
industry-specific capabilities.
Software
License Updates and Product Support
We seek to protect and enhance our customers current
investments in Oracle technology and applications by offering
lifetime support, product enhancements and upgrades. Software
license updates provide customers with rights to unspecified
software product upgrades and maintenance releases and patches
released during the term of the support period. Product support
includes internet and telephone access to technical support
personnel located in our global support centers, as well as
internet access to technical content. Software license updates
and product support are generally priced as a percentage of the
new software license fees. Substantially all of our customers
purchase software license updates and product support when they
acquire new software licenses. In addition, substantially all of
our customers renew their software license updates and product
support contracts annually.
Unbreakable
Linux Support
During fiscal 2007, we introduced a program to support the Linux
open source operating system for our customers IT
platforms. Oracle Unbreakable Linux, a support program that
provides enterprises with industry-leading global
6
support for Linux, addresses customer demand for true
enterprise-quality Linux support. The Oracle Unbreakable Linux
support program delivers fully tested, high-quality,
comprehensive and integrated support solutions to our customers
using the Linux operating system. With Oracle solutions on
Linux, our customers benefit from high performance, reliability
and data security at a fraction of the cost of proprietary
platforms. Oracle Unbreakable Linux also allows us to offer
end-to-end support for our customers entire software
stack, including enterprise applications,
middleware, database and operating system.
Our software license updates and product support revenues
represented 46% of total revenues in both fiscal 2007 and 2006
and 45% of total revenues in fiscal 2005.
Services
Business
Consulting
Oracle Consulting assists our customers in successfully
deploying our applications and technology products. Our
consulting services include business strategy and analysis;
business process optimization; product implementation,
enhancement, and upgrades; and ongoing managed services. These
services help our customers to achieve measurable business
results, manage their total cost of ownership, and reduce their
deployment risk.
Oracle Consulting deploys professionals globally utilizing our
blended delivery capabilities, including use of onsite
consultants and personnel from our offshore delivery centers and
applications solutions centers to leverage economies of scale
for our customers. Consulting revenues represented 16% of total
revenues in fiscal 2007 and 15% of total revenues in both fiscal
2006 and fiscal 2005.
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
customers that deploy our database, middleware and applications
software at our data center facilities or at a site of our
customers choosing. We recently expanded our Oracle On
Demand offerings to include our PeopleSoft, Siebel Business
Intelligence and retail applications. 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. On Demand revenues represented 3% of total
revenues in fiscal 2007, 2006 and 2005.
Education
We provide training to customers, partners and employees as part
of our mission of accelerating the adoption of our technology
around the world. We currently offer thousands of courses
covering all of Oracles product offerings. Our training is
provided primarily through public and private instructor-led
classroom events, but is also made available through a variety
of online courses and self paced media training on CD-ROMs. In
addition, we also offer a certification program certifying
database administrators, developers and implementers. Oracle
University also offers User Adoption Services designed to
provide comprehensive training services to help customers get
the most out of their investment in Oracle. Education revenues
represented 2% of total revenues in fiscal 2007, 2006 and 2005.
Marketing
and Sales
Sales
Distribution Channels
We directly market and sell our products and services primarily
through our subsidiary sales and service organizations. In the
United States our sales and service employees are based in our
headquarters and in field offices throughout the United States.
Outside the United States, our international subsidiaries
license and support our products in their local countries as
well as within other foreign countries where we do not operate
through a direct sales subsidiary.
7
We also market our products worldwide through indirect channels.
The companies that comprise our indirect channel network are
members of the Oracle PartnerNetwork. The Oracle PartnerNetwork
is a global program that manages our business relationships with
a large, broad- based network of companies, including
independent software vendors, system integrators and resellers
who deliver innovative solutions and services based upon our
products. By offering our partners access to our premier
products, educational information, technical services, marketing
and sales support, the OPN program extends our market reach by
providing our partners with the resources they need to be
successful in delivering solutions to customers globally.
International
Markets
We sell our products and provide services worldwide. Our
geographic coverage allows us to draw on business and technical
expertise from a worldwide workforce, provides stability to our
operations and revenue streams to offset geography-specific
economic trends and offers us an opportunity to take advantage
of new markets for products. A summary of our domestic and
international revenues and long-lived assets is set forth in
Note 15 of Notes to Consolidated Financial Statements.
Cyclicality
and Seasonality
General economic conditions have an impact on our business and
financial results. The markets in which we sell our products and
services have, at times, experienced weak economic conditions
that have negatively affected revenues. Our quarterly results
reflect distinct seasonality in the sale of our products and
services, as our revenues are typically highest in our fourth
fiscal quarter and lowest in our first fiscal quarter. See
Quarterly Results of Operations in Item 7 for a
more complete description of the cyclicality and seasonality of
our revenues and expenses.
Customers
Our customer base consists of a significant number of businesses
of many sizes and industries, government agencies, educational
institutions and resellers. No single customer accounted for 10%
or more of revenues in fiscal 2007, 2006 or 2005.
Competition
The enterprise software industry is intensely competitive and
evolving rapidly. We compete in various segments of this
industry including database software, middleware (business
intelligence, application integration, portal server, J2EE
application server, development tools and identity management),
collaboration, development tools, enterprise applications,
consulting/systems integration and operating systems, among
others. Total cost of ownership, performance, functionality,
ease of use, standards-compliance, product reliability, security
and quality of technical support are key competitive factors
that face us in each of the areas in which we compete. Our
customers are also demanding less complexity and lower cost in
the implementation, sourcing, integration and ongoing
maintenance of their enterprise software, which has led
increasingly to our product offerings (database, middleware and
applications) being viewed as a stack of software
designed to work together. Our product sales (and the relative
strength of our products versus our competitors) are also
affected by the broader platform competition between
industry standard Java (J2EE) and Microsoft Corporations
.NET programming environments and by operating system
competition between Windows Server, Unix (Sun Solaris, HP-UX and
IBM AIX) and Linux. Open source alternatives to commercial
software, such as MySQL AB in database, Red Hat, Inc. (JBoss) in
middleware, and SugarCRM Inc. in applications, are also
impacting the competitive environment. These products are
typically offered free of charge and are readily available over
the internet. Finally, on demand offerings, such as
those from salesforce.com, continue to alter the competitive
landscape.
In the sale of database software and related tools, scalability,
reliability, availability and security are key competitive
differentiators for us. Our competitors include International
Business Machines Corporation (IBM), Microsoft, Sybase, Inc.,
NCR Corporations Teradata division, SAS Institute, Inc.,
Informatica Corporation, and the open source databases, MySQL
and PostgreSQL, among others. Our ability to continually
innovate and differentiate our database offering has enabled us
to maintain our leading position in database software over our
competitors.
8
In the sale of middleware products, our offerings include
business intelligence, application integration, business process
management (BPM), service oriented architecture, portal, J2EE
application server, development tools and identity management
software. Our ability to offer a full range of rich
functionality in a standards-based, open architecture has been a
key competitive differentiator. Our competitors include IBM,
Microsoft, BEA Systems, Inc., SAP AG, Sun Microsystems Inc.,
Sybase and open source vendors such as Red Hat (JBoss), Apache
Geronimo and ObjectWeb, as well as other competitors in each
element of our packaged functions. Business intelligence
competitors include Actuate Corporation, Business Objects S.A.,
Cognos Incorporated, MicroStrategy, Inc., SAS Institute, TIBCO
Software, Inc. (Spotfire), open source vendors Netezza
Corporation, and others. Application server competitors include
Borland Software Corporation, Fujitsu Software Corporation,
Hitachi Software Engineering Co., Ltd., Adobe Systems
Incorporated and others. Enterprise Application Integration
competitors include Software AG (webMethods), TIBCO, IONA
Technologies PLC, Sonic Software Corporation, Sun Microsystems
and others. BPM competitors include Lombardi Software, Inc.,
Savvion, Inc., Pegasystems Inc. and others. Enterprise portal
vendors include Vignette Corporation, Novell, Inc., Fujitsu, and
others. Identity management vendors include IBM, CA, Inc., Sun
Microsystems and Hewlett-Packard Company, among others. Open
source vendors Red Hat and Novell are also increasingly bundling
middleware functionality with their respective Linux
distributions. Our middleware solutions have experienced rapid
growth in recent years relative to our competitors. In the sale
of collaboration products, we compete primarily with Microsoft
(Exchange/Outlook), IBM (Domino/Notes), Novell (Groupwise) and
Cisco Systems, Inc. (WebEx). In addition, we compete in the
related content management markets with EMC Corporation
(Documentum), IBM (FileNet), Percussion Software, Inc. and
Vignette, among others.
In the sale of development tools, ease of use,
standards-compliance and the level of abstraction (automated
code generation) are key competitive differentiators. We compete
against IBM (WebSphere Studio), Microsoft 8 (VisualStudio.NET),
Sun Microsystems (Sun Studio), Sybase (PowerBuilder) and others,
including Eclipse Foundation, Inc. (Eclipse), an open source
vendor. The success of our development tools is closely related
to the relative popularity of our platform (database and
middleware) compared to our competitors, as well as the larger
competition between Java and Microsofts .NET.
The sale of applications software, in particular, is changing
rapidly due to the development and deployment of service
oriented architectures and web services, application integration
middleware as well as software as a service
offerings, such as those from salesforce.com and RightNow
Technologies Inc. in CRM applications. As a result of our
acquisitions of PeopleSoft and Siebel, we presently offer
several product lines, which are suited for different needs of
customers in different industries. We compete against SAP,
Lawson Software, Inc., Infor Global Solutions GmbH (SSA Global
Technologies, Extensity), Microsoft Dynamics (Great Plains,
Solomon, Axapta, Navision), Sage, Inc. and many other
application providers. These include numerous point solution
providers such as Epicor Software Corporation (accounting),
SunGard Data Systems Inc. (treasury), Kronos Incorporated (time
and attendance), Taleo Corporation (recruitment), Callidus
Software Inc. (compensation), Automatic Data Processing, Inc.
(HR, payroll and business process outsourcing), Ariba, Inc.
(procurement), i2 Technologies, Inc. (supply chain
management), IBM (MRO Software) (enterprise asset management),
DSCI Corporation (logistics), Broadvision, Inc. (marketing),
Kana Software, Inc. (analytics), salesforce.com (sales force
automation) and Amdocs Limited (customer service). In addition,
we compete with numerous specialized applications providers
focused in specific vertical industries, such as financial
services, retail and telecommunications. SAP is a major
competitor in every industry vertical. Specialized industry
vertical solutions such as retail and banking are also
influenced heavily by the presence of customized solutions and
in-house development.
With SOA, our packaged applications also compete with custom
solutions either developed in-house or by large systems
integrators such as Accenture Ltd. or IBM Global Services. Our
pre-packaged applications also compete against business process
outsourcers including ADP, Fidelity Investments, Ceridian
Corporation, Hewitt-Cyborg Limited and others. Our application
products are architected around a single database model, which
we believe is a key differentiator between our most significant
competitors and us.
In the sale of operating systems, we introduced a support and
service offering for Red Hats open source Linux operating
system in fiscal 2007. This puts us in direct competition with
Red Hat, Novell, Canonical Ltd. (Ubuntu) and others in the sale
of support for the Linux operating system; with IBM, Sun, H-P
and others in the sale of Unix operating systems; and with
Microsoft in the sale of Windows server operating systems.
9
In the sale of consulting and systems integration services, we
both partner with and compete against Accenture, Electronic Data
Systems Corporation, IBM Global Services, Bearing Point, Inc.,
CapGemini Group and many others.
Research
and Development
We develop the majority of our products internally. In addition,
we have acquired technology through business acquisitions. We
also purchase or license intellectual property rights in certain
circumstances. Internal development allows us to maintain
technical control over the design and development of our
products. We have a number of United States and foreign patents
and pending applications that relate to various aspects of our
products and technology. While we believe that our patents have
value, no single patent is essential to us or to any of our
principal business segments.
Research and development expenditures were $2.2 billion,
$1.9 billion and $1.5 billion, or 12%, 13% and 13% of
total revenues, in fiscal 2007, 2006 and 2005, respectively. As
a percentage of new software license revenues, research and
development expenditures were 37%, 38% and 37% in fiscal 2007,
2006 and 2005, respectively. Rapid technological advances in
hardware and software development, evolving standards in
computer hardware and software technology, changing customer
needs and frequent new product introductions and enhancements
characterize the software markets in which we compete. We plan
on continuing to dedicate a significant amount of resources to
research and development efforts to maintain and improve our
current product offerings including our database, middleware and
applications software.
Employees
As of May 31, 2007, we employed 74,674 full-time
employees, including 16,902 in sales and marketing, 6,775 in
license updates and product support, 25,068 in services, 18,130
in research and development and 7,799 in general and
administrative positions. Of these employees, 25,990 were
located in the United States and 48,684 were employed
internationally. None of our employees in the United States is
represented by a labor union; however, in certain international
subsidiaries workers councils represent our employees.
Available
Information
Our Annual Report on
Form 10-K,
Quarterly Reports on
Form 10-Q,
Current Reports on
Form 8-K
and amendments to reports filed pursuant to Sections 13(a)
and 15(d) of the Securities Exchange Act of 1934, as amended,
are available, free of charge, on our Investor Relations web
site at www.oracle.com/investor as soon as reasonably
practicable after we electronically file such material with, or
furnish it to, the Securities and Exchange Commission. The
information posted on our web site is not incorporated into this
Annual Report.
10
Executive
Officers and Significant Employees of the Registrant
Our executive officers and significant employees are listed
below.
|
|
|
Name
|
|
Office(s)
|
|
Lawrence J. Ellison
|
|
Chief Executive Officer and
Director
|
Jeffrey O. Henley
|
|
Chairman of the Board of Directors
|
Safra A. Catz
|
|
President, Chief Financial Officer
and Director
|
Charles E. Phillips, Jr.
|
|
President and Director
|
Keith G. Block
|
|
Executive Vice President, North
America Sales and Consulting
|
Sergio Giacoletto
|
|
Executive Vice President, Europe,
Middle East and Africa Sales and Consulting
|
Juergen Rottler
|
|
Executive Vice President, Oracle
Support and Oracle On Demand
|
Charles A. Rozwat
|
|
Executive Vice President, Server
Technologies
|
Derek H. Williams
|
|
Executive Vice President, Asia
Pacific Sales and Consulting
|
John Wookey
|
|
Senior Vice President,
Applications Development
|
Daniel Cooperman
|
|
Senior Vice President, General
Counsel and Secretary
|
William Corey West
|
|
Vice President, Corporate
Controller and Chief Accounting Officer
|
Mr. Ellison, 62, has been Chief Executive Officer and a
Director since he founded Oracle in June 1977. He served as
Chairman of the Board from May 1995 to January 2004.
Mr. Henley, 62, has served as the Chairman of the Board
since January 2004 and as a director since June 1995. He served
as an Executive Vice President and Chief Financial Officer from
March 1991 to July 2004. He also serves as a director of
CallWave, Inc.
Ms. Catz, 45, has been Chief Financial Officer since
November 2005 and a President since January 2004. She has served
as a Director since October 2001. She was Interim Chief
Financial Officer from April 2005 until July 2005. She served as
an Executive Vice President from November 1999 to January 2004
and Senior Vice President from April 1999 to October 1999.
Mr. Phillips, 48, has been a President and has served as a
Director since January 2004. He served as Executive Vice
President, Strategy, Partnerships, and Business Development,
from May 2003 to January 2004. Prior to joining us,
Mr. Phillips was with Morgan Stanley & Co.
Incorporated, a global investment bank, where he was a Managing
Director from November 1995 to May 2003 and a Principal from
December 1994 to November 1995. From 1986 to 1994,
Mr. Phillips worked at various investment banking firms on
Wall Street. Prior to that, Mr. Phillips served as a
Captain in the United States Marine Corps as an information
technology officer. Mr. Phillips also serves as a director
of Morgan Stanley and Viacom Inc.
Mr. Block, 46, has been Executive Vice President, North
America Sales and Consulting since September 2002 and Executive
Vice President, North America Consulting since February 2002. He
served as Senior Vice President of North America Commercial
Consulting and Global Service Lines from June 1999 until January
2002. He served as Senior Vice President of the Commercial
Consulting Practice from April 1999 until May 1999.
Mr. Block was Group Vice President, East Consulting from
June 1997 until March 1999. Prior to joining us in 1986,
Mr. Block was a Senior Consultant at Booz, Allen and
Hamilton. Mr. Giacoletto, 57, has been Executive Vice
President, Europe, Middle East and Africa Sales and Consulting
since June 2000 and Senior Vice President, Business Solutions
since November 1998. He was Vice President, Alliances and
Technology from March 1997 to November 1998. Before joining us,
he had been President of AT&T Solutions for Europe since
August 1994. Previously, he spent 20 years with Digital
Equipment Corporation in various positions in European marketing
and services.
11
Mr. Rottler, 40, has been Executive Vice President, Oracle
Support and Oracle On Demand since September 2004. Prior to
joining us, he served as Senior Vice President, Public Sector,
Customer Solutions Group at Hewlett-Packard Company (HP), from
December 2003 to September 2004, where he was responsible for
HPs worldwide Public Sector, Health and Education
business. Mr. Rottler was Vice President, HP Services
Worldwide Sales and Marketing from May 2003 to December 2003,
Vice President, HP Services Worldwide Marketing, Strategy and
Alliances from May 2002 to May 2003 and Vice President and
General Manager, HP Services North America from April 2000 to
May 2002.
Mr. Rozwat, 59, has been Executive Vice President, Server
Technologies since November 1999 and served as Senior Vice
President, Database Server from December 1996 to October 1999.
He served as Vice President of Development from December 1994 to
November 1996. Prior to joining us, he spent 17 years in
various positions at Digital Equipment Corporation.
Mr. Williams, 62, has been Executive Vice President, Asia
Pacific Sales and Consulting since October 2000 and Senior Vice
President, Asia Pacific from July 1993 to October 2000. He
served as Vice President, Asia Pacific from April 1991 to July
1993. Mr. Williams joined Oracle United Kingdom in October
1988 and served as Regional Director, Strategic Accounts from
October 1988 to April 1991.
Mr. Wookey, 48, has been Senior Vice President,
Applications Development since April 2000. Mr. Wookey
served as Senior Vice President, Financial Applications Products
from April 1999 to January 2000 and Vice President, Financial
Applications Products from June 1995 to April 1999. Prior to
joining us, he spent eight years as Vice President of
Development at Ross Systems, Inc.
Mr. Cooperman, 56, has been Senior Vice President, General
Counsel and Secretary since February 1997. Prior to joining us,
he had been associated with the law firm of McCutchen, Doyle,
Brown & Enersen (which is now Bingham McCutchen LLP)
since October 1977, and had served as a partner since June 1983.
From September 1995 until February 1997, Mr. Cooperman was
Chair of the law firms Business and Transactions Group and
from April 1989 through September 1995, he served as the
Managing Partner of the law firms San Jose office.
Mr. West, 45, has been Vice President, Corporate Controller
and Chief Accounting Officer since April 2007. He served as
Intuit Inc.s Director of Accounting from August 2005 to
March 2007, as The Gap, Inc.s Assistant Controller from
April 2005 to August 2005, and as Vice President, Finance, at
Cadence Design Systems, Inc.s product business from June
2001 to April 2005. From January 2001 to June 2001, he was Vice
President, Finance and Corporate Controller at Adecco, Inc. and
from October 1998 to November 2000 he served in various
positions with Resource Phoenix.com, most recently as its
President and Chief Operating Officer. Mr. West spent
14 years, from December 1984 to October 1998, with Arthur
Andersen LLP, most recently as a partner.
12
We operate in a rapidly changing economic and technological
environment that presents numerous risks, many of which are
driven by factors that we cannot control or predict. The
following discussion, as well as our Critical Accounting
Policies and Estimates discussion in Item 7,
highlights some of these risks.
Economic, political and market conditions can adversely
affect our revenue growth and
profitability. Our business is influenced by
a range of factors that are beyond our control and that we have
no comparative advantage in forecasting. These include:
|
|
|
|
|
general economic and business conditions;
|
|
|
|
the overall demand for enterprise software and services;
|
|
|
|
governmental budgetary constraints or shifts in government
spending priorities; and
|
|
|
|
general political developments.
|
A general weakening of the global economy, or a curtailment in
government or corporate spending, could delay and decrease
customer purchases. In addition, the war on terrorism, the war
in Iraq and the potential for other hostilities in various parts
of the world, potential public health crises, as well as natural
disasters, continue to contribute to a climate of economic and
political uncertainty that could adversely affect our revenue
growth and results of operations. These factors generally have
the strongest effect on our sales of software licenses, and to a
lesser extent, also affect our renewal rates for software
license updates and product support.
We may fail to achieve our financial forecasts due to
inaccurate sales forecasts or other
factors. Our revenues, and particularly our
new software license revenues, are difficult to forecast, and as
a result our quarterly operating results can fluctuate
substantially. We use a pipeline system, a common
industry practice, to forecast sales and trends in our business.
Our sales personnel monitor the status of all proposals and
estimate when a customer will make a purchase decision and the
dollar amount of the sale. These estimates are aggregated
periodically to generate a sales pipeline. Our pipeline
estimates can prove to be unreliable both in a particular
quarter and over a longer period of time, in part because the
conversion rate of the pipeline into contracts can
be very difficult to estimate. A contraction in the conversion
rate, or in the pipeline itself, could cause us to plan or
budget incorrectly and adversely affect our business or results
of operations. In particular, a slowdown in information
technology spending or economic conditions generally can reduce
the conversion rate in particular periods as purchasing
decisions are delayed, reduced in amount or cancelled. The
conversion rate can also be affected by the tendency of some of
our customers to wait until the end of a fiscal period in the
hope of obtaining more favorable terms, which can also impede
our ability to negotiate and execute these contracts in a timely
manner. In addition, for newly acquired companies, we have
limited ability to predict how their pipelines will convert into
sales or revenues for one or two quarters following the
acquisition and their conversion rate post-acquisition may be
quite different from their historical conversion rate. Because a
substantial portion of our new software license revenue
contracts is completed in the latter part of a quarter, and our
cost structure is largely fixed in the short term, revenue
shortfalls tend to have a disproportionately negative impact on
our profitability. A delay in even a small number of large new
software license transactions could cause our quarterly new
software licenses revenues to fall significantly short of our
predictions.
Our success depends upon our ability to develop new
products and services, integrate acquired products and services
and enhance our existing products and
services. Rapid technological advances and
evolving standards in computer hardware, software development
and communications infrastructure, changing and increasingly
sophisticated customer needs and frequent new product
introductions and enhancements characterize the enterprise
software market in which we compete. If we are unable to develop
new products and services, or to enhance and improve our
products and support services in a timely manner or to position
and/or price
our products and services to meet market demand, customers may
not buy new software licenses or renew software license updates
and product support. In addition, information technology
standards from both consortia and formal standards-setting
forums as well as de facto marketplace standards are rapidly
evolving. We cannot provide any assurance that the standards on
which we choose to develop new products will allow us to compete
effectively for business opportunities in emerging areas.
13
We are developing a next generation applications platform that
is planned to combine the best features, flows and usability
traits of our legacy and acquired applications. We have also
announced that we intend to extend the life of many of our
acquired applications and will continue to provide long-term
support for our acquired products, both of which require us to
dedicate resources. If we do not develop and release these new
or enhanced products and services within the anticipated time
frames, if there is a delay in market acceptance of a new,
enhanced or acquired product line or service, if we do not
timely optimize complementary product lines and services or if
we fail to adequately integrate, support or enhance acquired
application lines or services, our business may be adversely
affected.
Acquisitions present many risks, and we may not realize
the financial and strategic goals that were contemplated at the
time of any transaction. In the past three
fiscal years, we have invested over $25 billion, in the
aggregate, to acquire a number of companies, products, services
and technologies. An active acquisition program is an important
element of our overall corporate strategy and we expect to
continue to make similar acquisitions in the future. Risks we
may face in connection with our acquisition program include:
|
|
|
|
|
our ongoing business may be disrupted and our managements
attention may be diverted by acquisition, transition or
integration activities;
|
|
|
|
an acquisition may not further our business strategy as we
expected, or we may pay more than the acquired company or assets
are worth;
|
|
|
|
our due diligence process may fail to identify all of the
problems, liabilities or other shortcomings or challenges of an
acquired company or technology, including issues with the
companys intellectual property, product quality or product
architecture, revenue recognition or other accounting practices
or employee, customer or partner issues;
|
|
|
|
we may not realize the anticipated increase in our revenues if a
larger than predicted number of customers decline to renew
software license updates and product support, if we are unable
to sell the acquired products to our customer base or if
contract models of an acquired company do not allow us to
recognize revenues on a timely basis;
|
|
|
|
we may assume pre-existing contractual relationships of acquired
companies that we would not have otherwise entered into, and
exiting or modifying such relationships may be costly to us or
disruptive to customers;
|
|
|
|
we may face litigation or other claims in connection with, or
may inherit claims or litigation risk as a result of, an
acquisition, including claims from terminated employees,
customers or other third parties;
|
|
|
|
our relationship with current and new employees, customers,
partners and distributors could be impaired;
|
|
|
|
we may have difficulty incorporating acquired technologies or
products with our existing product lines and maintaining uniform
standards, controls, procedures and policies;
|
|
|
|
we may have multiple and overlapping product lines as a result
of our acquisitions that are offered, priced and supported
differently, which could cause customer confusion and delays;
|
|
|
|
we may have higher than anticipated costs in continuing support
and development of acquired products;
|
|
|
|
we may assume pre-existing liabilities, whether known or
unknown, of acquired companies which could be material;
|
|
|
|
we may be unable to obtain required approvals from governmental
authorities under competition and antitrust laws on a timely
basis, if it all, which could, among other things, prevent us
from completing a transaction;
|
|
|
|
we may have to delay or not proceed with a substantial
acquisition if we cannot obtain the necessary funding to
complete the acquisition in a timely manner;
|
|
|
|
our use of cash to pay for acquisitions may limit other
potential uses of our cash, including stock repurchases and
retirement of outstanding indebtedness;
|
14
|
|
|
|
|
we may significantly increase our interest expense, leverage and
debt service requirements if we incur additional debt to pay for
an acquisition; result of unforeseen difficulties in our
integration activities;
|
|
|
|
we may have legal and tax exposures or lose anticipated tax
benefits as a result of unforeseen difficulties in our
integration activities;
|
|
|
|
we may be unable to obtain timely approvals from, or may
otherwise have certain limitations, restrictions, penalties or
other sanctions imposed on us by, worker councils or similar
bodies under applicable employment laws as a result of an
acquisition, which could adversely affect our integration plans
in certain jurisdictions; and
|
|
|
|
to the extent that we issue a significant amount of equity
securities in connection with future acquisitions, existing
stockholders may be diluted and earnings per share may decrease.
|
The occurrence of any of these risks could have a material
adverse effect on our business, results of operations, financial
condition or cash flows, particularly in the case of a larger
acquisition or several concurrent acquisitions.
We may not be able to protect our intellectual property
rights. We rely on copyright, trademark,
patent and trade secret laws, confidentiality procedures,
controls and contractual commitments to protect our intellectual
property rights. Despite our efforts, these protections may be
limited. Unauthorized third parties may try to copy or reverse
engineer portions of our products or otherwise obtain and use
our intellectual property. Any patents owned by us may be
invalidated, circumvented or challenged. Any of our pending or
future patent applications, whether or not being currently
challenged, may not be issued with the scope of the claims we
seek, if at all. In addition, the laws of some countries do not
provide the same level of protection of our intellectual
property rights as do the laws and courts of the United States.
If we cannot protect our intellectual property rights against
unauthorized copying or use, or other misappropriation, we may
not remain competitive.
Third parties may claim infringement or misuse of
intellectual property rights and/ or breach of license agreement
provisions. We periodically receive notices
from others claiming infringement, or other misuse of their
intellectual property rights
and/or
breach of our agreements with them. We expect the number of such
claims will increase as the number of products and competitors
in our industry segments grows, the functionality of products
overlap, the use and support of third-party code (including open
source code) becomes more prevalent in the software industry,
and the volume of issued software patents continues to increase.
Responding to any such claim, regardless of its validity, could:
|
|
|
|
|
be time-consuming, costly
and/or
result in litigation;
|
|
|
|
divert managements time and attention from developing our
business;
|
|
|
|
require us to pay monetary damages or enter into royalty and
licensing agreements that we would not normally find acceptable;
|
|
|
|
require us to stop selling or to redesign certain of our
products;
|
|
|
|
require us to release source code to third parties, possibly
under open source license terms;
|
|
|
|
require us to satisfy indemnification obligations to our
customers; or
|
|
|
|
otherwise adversely affect our business, results of operations,
financial condition or cash flows.
|
A patent infringement case is discussed under Note 21 in
our Notes to Consolidated Financial Statements.
We may need to change our pricing models to compete
successfully. The intensely competitive
markets in which we compete can put pressure on us to reduce our
prices. If our competitors offer deep discounts on certain
products or services, we may need to lower prices or offer other
favorable terms in order to compete successfully. Any such
changes would likely reduce margins and could adversely affect
operating results. Our software license updates and product
support fees are generally priced as a percentage of our new
license fees. Our competitors may offer a lower percentage
pricing on product updates and support, which could put pressure
on us to further discount our new license prices. Any
broad-based change to our prices and pricing policies could
cause new software license and services revenues to decline or
be delayed as our sales force implements and our customers
adjust to the new pricing
15
policies. Some of our competitors may bundle software products
for promotional purposes or as a long-term pricing strategy or
provide guarantees of prices and product implementations. These
practices could, over time, significantly constrain the prices
that we can charge for our products. If we do not adapt our
pricing models to reflect changes in customer use of our
products, our new software license revenues could decrease.
Additionally, increased distribution of applications through
application service providers may reduce the average price for
our products or adversely affect other sales of our products,
reducing new software license revenues unless we can offset
price reductions with volume increases or lower spending. The
increase in open source software distribution may also cause us
to change our pricing models.
We may be unable to compete effectively in a range of
markets within the highly competitive software industry.
Many vendors develop and market databases, internet
application server products, application development tools,
business applications, collaboration products and business
intelligence products that compete with our offerings. In
addition, several companies offer business process outsourcing
(BPO) as a competitive alternative to buying software and
customer interest in BPO solutions is increasing. Some of these
competitors have greater financial or technical resources than
we do. Our competitors that offer business applications and
application server products may influence a customers
purchasing decision for the underlying database in an effort to
persuade potential customers not to acquire our products. We
could lose market share if our competitors introduce new
competitive products, add new functionality, acquire competitive
products, reduce prices or form strategic alliances with other
companies. Vendors that offer BPO solutions may persuade our
customers not to purchase our products. We may also face
increasing competition from open source software initiatives, in
which competitors may provide software and intellectual property
free. Existing or new competitors could gain market share in any
of our markets at our expense.
Our periodic sales force restructurings can be
disruptive. We continue to rely heavily on
our direct sales force. We have in the past restructured or made
other adjustments to our sales force in response to management
changes, product changes, performance issues, acquisitions and
other internal and external considerations. In the past, sales
force restructurings have generally resulted in a temporary lack
of focus and reduced productivity; these effects could recur in
connection with future acquisitions and other restructurings and
our revenues could be negatively affected.
Disruptions of our indirect sales channel could affect our
future operating results. Our indirect
channel network is comprised primarily of resellers, system
integrators/implementers, consultants, education providers,
internet service providers, network integrators and independent
software vendors. Our relationships with these channel
participants are important elements of our marketing and sales
efforts. Our financial results could be adversely affected if
our contracts with channel participants were terminated, if our
relationships with channel participants were to deteriorate, if
any of our competitors enter into strategic relationships with
or acquire a significant channel participant or if the financial
condition of our channel participants were to weaken. There can
be no assurance that we will be successful in maintaining,
expanding or developing our relationships with channel
participants. If we are not successful, we may lose sales
opportunities, customers and market share.
Charges to earnings resulting from past acquisitions may
adversely affect our operating results. Under
purchase accounting, we allocate the total purchase price to an
acquired companys net tangible assets, intangible assets
and in-process research and development based on their fair
values as of the date of the acquisition and record the excess
of the purchase price over those fair values as goodwill.
Managements estimates of fair value are based upon
assumptions believed to be reasonable but which are inherently
uncertain. Going forward, the following factors could result in
material charges that would adversely affect our results:
|
|
|
|
|
impairment of goodwill or intangible assets;
|
|
|
|
identification of assumed contingent liabilities subsequent to
the finalization of the purchase price allocation; and
|
|
|
|
charges to income to eliminate certain Oracle pre-merger
activities that duplicate those of the acquired company or to
reduce our cost structure.
|
Charges to earnings associated with acquisitions include
amortization of intangible assets, in-process research and
development as well as other acquisition related charges,
restructuring and stock-based compensation associated
16
with assumed stock awards. Charges to earnings in any given
period could differ substantially from other periods based on
the timing and size of our future acquisitions and the extent of
integration activities. See Item 7, Managements
Discussion and Analysis of Financial Condition and Results of
OperationsSupplemental Disclosure Related to Acquisition
Accounting and Stock-Based Compensation for additional
information about charges to earnings associated with our recent
acquisitions.
We expect to continue to incur additional costs associated with
combining the operations of our previously acquired companies,
which may be substantial. Additional costs may include costs of
employee redeployment, relocation and retention, including
salary increases or bonuses, accelerated amortization of
deferred equity compensation and severance payments,
reorganization or closure of facilities, taxes and termination
of contracts that provide redundant or conflicting services.
Some of these costs may have to be accounted for as expenses
that would decrease our net income and earnings per share for
the periods in which those adjustments are made.
Our international sales and operations subject us to
additional risks that can adversely affect our operating
results. We derive a substantial portion of
our revenues, and have significant operations, outside of the
United States. Our international operations include software
development, sales, customer support and shared administrative
service centers. We are subject to a variety of risks, including
those related to general economic conditions in each country or
region, regulatory changes, political unrest, terrorism and the
potential for other hostilities and public health risks,
particularly in areas in which we have significant operations.
We face challenges in managing an organization operating in
various countries, which can entail longer payment cycles and
difficulties in collecting accounts receivable, overlapping tax
regimes, fluctuations in currency exchange rates, difficulties
in transferring funds from certain countries and reduced
protection for intellectual property rights in some countries.
We must comply with a variety of international laws and
regulations, including trade restrictions, local labor
ordinances, changes in tariff rates and import and export
licensing requirements. Our success depends, in part, on our
ability to anticipate these risks and manage these difficulties.
We are a majority shareholder of i-flex solutions limited, a
publicly traded Indian software company focused on the banking
industry. As the majority shareholder of an international
entity, we are faced with several additional risks, including
being subject to local securities regulations and being unable
to exert full control or obtain financial and other information
on a timely basis.
We may experience foreign currency gains and
losses. We conduct a portion of our business
in currencies other than the United States dollar. Our revenues
and operating results are adversely affected when the dollar
strengthens relative to other currencies and are positively
affected when the dollar weakens. Changes in the value of major
foreign currencies, particularly the Euro, Japanese Yen and
British Pound relative to the United States dollar can
significantly affect revenues and our operating results.
Our foreign currency transaction gains and losses, primarily
related to sublicense fees and other agreements among us and our
subsidiaries and distributors, are charged against earnings in
the period incurred. We enter into foreign exchange forward
contracts to hedge certain transaction and translation exposures
in major currencies, but we will continue to experience foreign
currency gains and losses in certain instances where it is not
possible or cost effective to hedge foreign currencies.
Oracle On Demand and CRM On Demand may not be
successful. We offer Oracle On Demand
outsourcing services for our applications and database
technology, delivered either at our data center facilities or at
a site of our customers choosing. We also offer CRM On
Demand, which is a service offering that provides our customers
with our Siebel CRM software functionality delivered via a
hosted solution that we manage. These business models continue
to evolve and we may not be able to compete effectively,
generate significant revenues or develop them into profitable
businesses. We incur expenses associated with the
infrastructures and marketing of our Oracle On Demand and CRM On
Demand businesses in advance of our ability to recognize the
revenues associated with our subscription-based contracts. These
businesses are subject to a variety of risks including:
|
|
|
|
|
demand for these services may not meet our expectations;
|
|
|
|
we may not be able to operate these businesses at an acceptable
profit level;
|
17
|
|
|
|
|
we manage critical customer applications, data and other
confidential information through Oracle On Demand and CRM On
Demand; accordingly, we face increased exposure to significant
damage claims and risk to future business prospects in the event
of system failures or inadequate disaster recovery or
misappropriation of customer confidential information;
|
|
|
|
we may face regulatory exposure in certain areas such as data
privacy, data security and export compliance, as well as
workforce reduction claims as a result of customers transferring
their information technology functions to us;
|
|
|
|
the laws and regulations applicable to hosted service providers
are unsettled, particularly in the areas of privacy and security
and use of offshore resources; changes in these laws could
affect our ability to provide services from or to some locations
and could increase both the costs and risks associated with
providing the services;
|
|
|
|
demand for these services may be affected by customer and media
concerns about security risks
and/or use
of outsourced services providers more generally; and
|
|
|
|
our offerings may require large fixed costs such as for data
centers, computers, network infrastructure and security and we
may not be able to generate sufficient revenues to offset these
costs and generate acceptable operating margins from these
offerings.
|
We may be unable to hire enough qualified employees or we
may lose key employees. We rely on the
continued service of our senior management, including our Chief
Executive Officer, members of our executive team and other key
employees and the hiring of new qualified employees. In the
software industry, there is substantial and continuous
competition for highly skilled business, product development,
technical and other personnel. In addition, acquisitions could
cause us to lose key personnel of the acquired companies or at
Oracle. We may experience increased compensation costs that are
not offset by either improved productivity or higher prices. We
may not be successful in recruiting new personnel and in
retaining and motivating existing personnel. With rare
exceptions, we do not have long-term employment or
non-competition agreements with our employees. Members of our
senior management team have left Oracle over the years for a
variety of reasons, and we cannot assure you that there will not
be additional departures, which may be disruptive to our
operations.
We continually focus on improving our cost structure by hiring
personnel in countries where advanced technical expertise is
available at lower costs. When we make adjustments to our
workforce, we may incur expenses associated with workforce
reductions that delay the benefit of a more efficient workforce
structure. We may also experience increased competition for
employees in these countries as the trend toward globalization
continues which may affect our employee retention efforts
and/or
increase our expenses in an effort to offer a competitive
compensation program.
Part of our total compensation program includes stock options.
Stock options are an important tool in attracting and retaining
employees in our industry. If our stock price performs poorly it
may adversely affect our ability to retain or attract employees.
In addition, because we now expense all stock-based
compensation, we may in the future change our stock-based and
other compensation practices. Some of the changes we are
considering include the reduction in the number of employees
granted options, a reduction in the number of options granted
and a change to alternative forms of stock-based compensation.
Any changes in our compensation practices or changes made by
competitors could affect our ability to retain and motivate
existing personnel and recruit new personnel.
We might experience significant errors or security flaws
in our products and services. Despite testing
prior to their release, software products frequently contain
errors or security flaws, especially when first introduced or
when new versions are released. The detection and correction of
any security flaws can be time consuming and costly. Errors in
our software products could affect the ability of our products
to work with other hardware or software products, could delay
the development or release of new products or new versions of
products and could adversely affect market acceptance of our
products. If we experience errors or delays in releasing new
products or new versions of products, we could lose revenues. In
addition, we run our own business operations, Oracle On Demand,
and other outsourcing, support and consulting services, on our
products and networks and any security flaws, if exploited,
could affect our ability to conduct business operations. End
users, who rely on our products and services for applications
that are critical to their businesses, may have a greater
sensitivity to product errors and security
18
vulnerabilities than customers for software products generally.
Software product errors and security flaws in our products or
services could expose us to product liability, performance
and/or
warranty claims as well as harm our reputation, which could
impact our future sales of products and services. In addition,
we may be legally required to publicly report security breaches
of our services, which could adversely impact future business
prospects for those services.
We may not receive significant revenues from our current
research and development efforts for several years, if at
all. Developing and localizing software is
expensive and the investment in product development often
involves a long payback cycle. We have made and expect to
continue to make significant investments in software research
and development and related product opportunities. Accelerated
product introductions and short product life cycles require high
levels of expenditures for research and development that could
adversely affect our operating results if not offset by revenue
increases. We believe that we must continue to dedicate a
significant amount of resources to our research and development
efforts to maintain our competitive position. However, we do not
expect to receive significant revenues from these investments
for several years if at all.
Our sales to government clients subject us to risks
including early termination, audits, investigations, sanctions
and penalties. We derive revenues from
contracts with the United States government, state and local
governments and their respective agencies, which may terminate
most of these contracts at any time, without cause.
There is increased pressure for governments and their agencies,
both domestically and internationally, to reduce spending. Our
federal government contracts are subject to the approval of
appropriations being made by the United States Congress to fund
the expenditures under these contracts. Similarly, our contracts
at the state and local levels are subject to government funding
authorizations.
Additionally, government contracts are generally subject to
audits and investigations which could result in various civil
and criminal penalties and administrative sanctions, including
termination of contracts, refund of a portion of fees received,
forfeiture of profits, suspension of payments, fines and
suspensions or debarment from future government business.
Business disruptions could affect our operating
results. A significant portion of our
research and development activities and certain other critical
business operations is concentrated in a few geographic areas.
We are a highly automated business and a disruption or failure
of our systems could cause delays in completing sales and
providing services, including some of our On Demand offerings. A
major earthquake, fire or other catastrophic event that results
in the destruction or disruption of any of our critical business
or information technology systems could severely affect our
ability to conduct normal business operations and as a result
our future operating results could be materially and adversely
affected.
Adverse litigation results could affect our
business. We are subject to various legal
proceedings. Litigation can be lengthy, expensive, and
disruptive to our operations and results cannot be predicted
with certainty. An adverse decision could result in monetary
damages or injunctive relief that could affect our business,
operating results or financial condition. Additional information
regarding certain of the lawsuits we are involved in is
discussed under Note 21 in our Notes to Consolidated
Financial Statements.
PeopleSofts Customer Assurance Program may expose us
to substantial liabilities if triggered. 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 its
acquisition of PeopleSoft, with a contingent obligation to make
payments to PeopleSoft customers should Oracle fail to take
certain business actions for a fixed period of time subsequent
to the acquisition. 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. 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. PeopleSoft used six different
standard versions of the CAP over the
18-month
period commencing June 2003. PeopleSoft ceased using the CAP on
December 29, 2004, the date on which we acquired a
controlling interest in PeopleSoft. We have concluded that, as
of the date of the PeopleSoft acquisition, the penalty
provisions under the CAP represented a contingent liability of
Oracle. The aggregate potential CAP obligation as of
May 31,
19
2007 was $3.2 billion. Unless the CAP provisions are
removed from these licensing arrangements, we do not expect the
aggregate potential CAP obligation to decline substantially
until fiscal year 2008 when a significant number of these
provisions begin to expire. The last CAP obligation will expire
on December 31, 2008. 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 product
line will trigger an obligation to make any payment pursuant to
the CAP.
In addition, while no assurance can be given as to the ultimate
outcome of 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 Oracle under the CAP terms. While we have taken
extensive steps to assure customers that we intend to continue
developing and supporting the PeopleSoft and JD Edwards product
lines and as of May 31, 2007 we have not received any
claims for CAP payments, PeopleSoft customers may assert claims
for CAP payments.
We may have exposure to additional tax
liabilities. As a multinational corporation,
we are subject to income taxes as well as non-income based
taxes, in both the United States and various foreign
jurisdictions. Significant judgment is required in determining
our worldwide provision for income taxes and other tax
liabilities.
In the ordinary course of a global business, there are many
intercompany transactions and calculations where the ultimate
tax determination is uncertain. We are regularly under audit by
tax authorities. Our intercompany transfer pricing is currently
being reviewed by the IRS and by foreign tax jurisdictions and
will likely be subject to additional audits in the future. We
previously negotiated three unilateral Advance Pricing
Agreements with the IRS that cover many of our intercompany
transfer pricing issues and preclude the IRS from making a
transfer pricing adjustment within the scope of these
agreements. However, these agreements, which are effective for
fiscal years through May 31, 2006, do not cover all
elements of our transfer pricing and do not bind tax authorities
outside the United States. We have finalized one bilateral
Advance Pricing Agreement and currently are negotiating an
additional bilateral agreement to cover the period from
June 1, 2001 through May 31, 2008. There can be no
guarantee that such negotiations will result in an agreement.
Although we believe that our tax estimates are reasonable, we
cannot assure you that the final determination of tax audits or
tax disputes will not be different from what is reflected in our
historical income tax provisions and accruals.
We are also subject to non-income taxes, such as payroll, sales,
use, value-added, net worth, property and goods and services
taxes, in both the United States and various foreign
jurisdictions. We are regularly under audit by tax authorities
with respect to these non-income taxes and may have exposure to
additional non-income tax liabilities. Our acquisition
activities have increased our non-income tax exposures.
There are risks associated with our outstanding
indebtedness. As of May 31, 2007, we had
an aggregate of $6.3 billion of outstanding indebtedness
that will mature between 2009 and 2016 and we may incur
additional indebtedness in the future. Our ability to pay
interest and repay the principal for our indebtedness is
dependent upon our ability to manage our business operations and
the other factors discussed in this section. There can be no
assurance that we will be able to manage any of these risks
successfully. In addition, changes by any rating agency to our
outlook or credit rating could negatively affect the value and
liquidity of both our debt and equity securities.
Our stock price could become more volatile and your
investment could lose value. All of the
factors discussed in this section could affect our stock price.
The timing of announcements in the public market regarding new
products, product enhancements or technological advances by our
competitors or us, and any announcements by us of acquisitions,
major transactions, or management changes could also affect our
stock price. Our stock price is subject to speculation in the
press and the analyst community, changes in recommendations or
earnings estimates by financial analysts, changes in
investors or analysts valuation measures for our
stock, our credit ratings and market trends unrelated to our
performance. A significant drop in our stock price could also
expose us to the risk of securities class actions lawsuits,
which could result in substantial costs and divert
managements attention and resources, which could adversely
affect our business.
|
|
Item 1B.
|
Unresolved
Staff Comments
|
None.
20
Our properties consist of owned and leased office facilities for
sales, support, research and development, consulting and
administrative personnel. Our headquarters facility consists of
approximately 3.8 million square feet in Redwood City,
California. We also own or lease office facilities for current
use consisting of approximately 13.5 million square feet in
various other locations in the United States and abroad. Due to
our restructuring and merger integration activities over the
past three fiscal years, we have vacated approximately
3.4 million square feet or 19.7% of total owned and leased
space. This additional space is sublet or being actively
marketed for sublease or disposition.
|
|
Item 3.
|
Legal
Proceedings
|
The material set forth in Note 21 of Notes to Consolidated
Financial Statements in Item 15 of this Annual Report on
Form 10-K
is incorporated herein by reference.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
None.
21
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
Our common stock is traded on the NASDAQ Global Select Market
under the symbol ORCL and has been traded on NASDAQ
since our initial public offering in 1986. According to the
records of our transfer agent, we had 21,443 stockholders of
record as of May 31, 2007. The majority of our shares are
held in approximately 1.2 million customer accounts held by
brokers and other institutions on behalf of stockholders.
However, we believe that the number of total stockholders is
less than 1.2 million due to stockholders with accounts at
more than one brokerage. The following table sets forth the low
and high sale price of our common stock, based on the last daily
sale, in each of our last eight fiscal quarters.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2007
|
|
|
Fiscal 2006
|
|
|
|
Low Sale
|
|
|
High Sale
|
|
|
Low Sale
|
|
|
High Sale
|
|
|
|
Price
|
|
|
Price
|
|
|
Price
|
|
|
Price
|
|
|
Fourth Quarter
|
|
$
|
16.37
|
|
|
$
|
19.42
|
|
|
$
|
12.42
|
|
|
$
|
14.93
|
|
Third Quarter
|
|
$
|
16.29
|
|
|
$
|
19.28
|
|
|
$
|
12.18
|
|
|
$
|
13.12
|
|
Second Quarter
|
|
$
|
15.50
|
|
|
$
|
19.66
|
|
|
$
|
11.98
|
|
|
$
|
13.64
|
|
First Quarter
|
|
$
|
13.15
|
|
|
$
|
15.81
|
|
|
$
|
12.34
|
|
|
$
|
14.05
|
|
Our policy has been to reinvest earnings to fund future growth,
acquisitions and to repurchase our common stock pursuant to a
program approved by our Board of Directors. Accordingly, we have
not paid cash dividends and do not anticipate declaring cash
dividends on our common stock in the foreseeable future,
although our Board of Directors regularly reviews this matter.
For equity compensation plan information, please refer to
Item 12 in Part III of this Annual Report on
Form 10-K.
Stock
Repurchase Programs
In 1992, our Board of Directors approved a program to repurchase
shares of our common stock to reduce the dilutive effect of our
stock option and stock purchase plans. The Board has expanded
the repurchase program several times by either increasing the
authorized number of shares to be repurchased or by authorizing
a fixed dollar amount expansion. From the inception of the stock
repurchase program to May 31, 2007, a total of
2.0 billion shares have been repurchased for approximately
$24.7 billion. In April 2007, our Board expanded our
repurchase program by $4.0 billion and, as of May 31,
2007, approximately $4.2 billion was available to
repurchase shares of our common stock pursuant to the stock
repurchase program.
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.
22
The following table summarizes the stock repurchase activity for
the three months ending May 31, 2007 and the approximate
dollar value of shares that may yet be purchased pursuant to our
share repurchase programs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
|
|
|
|
|
|
|
Shares Purchased as
|
|
Approximate Dollar
|
|
|
Total Number
|
|
Average Price
|
|
Part of Publicly
|
|
Value of Shares that
|
|
|
of Shares
|
|
Paid Per
|
|
Announced
|
|
May Yet Be Purchased
|
(in millions, except per share amounts)
|
|
Purchased
|
|
Share
|
|
Programs
|
|
Under the
Programs(1)
|
|
March 1, 2007 -
March 31, 2007
|
|
|
19.8
|
|
$
|
17.32
|
|
|
19.8
|
|
$
|
864.9
|
April 1, 2007 -
April 30, 2007
|
|
|
16.7
|
|
$
|
18.73
|
|
|
16.7
|
|
$
|
4,552.3
|
May 1, 2007 -
May 31, 2007
|
|
|
18.0
|
|
$
|
19.02
|
|
|
18.0
|
|
$
|
4,209.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
54.5
|
|
$
|
18.32
|
|
|
54.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
In April 2007, our Board of Directors authorized the expansion
of our repurchase program by $4.0 billion. |
Stock
Performance Graphs and Cumulative Total Return
The graph below compares the cumulative total stockholder return
on our common stock with the cumulative total return on the
S&Ps 500 Index and the Dow Jones U.S. Software
Index for each of the last five fiscal years ended May 31,
2007, assuming an investment of $100 at the beginning of such
period and the reinvestment of any dividends. The comparisons in
the graphs below are based upon historical data and are not
indicative of, nor intended to forecast, future performance of
our common stock.
COMPARISON
OF 5-YEAR
CUMULATIVE TOTAL RETURN*
AMONG
ORACLE CORPORATION, THE S&P 500 INDEX
AND THE DOW JONES U.S. SOFTWARE INDEX
* $100
INVESTED ON MAY 31, 2002 IN STOCK OR
INDEX-INCLUDING REINVESTMENT OF DIVIDENDS.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5/02
|
|
|
5/03
|
|
|
5/04
|
|
|
5/05
|
|
|
5/06
|
|
|
5/07
|
|
Oracle Corporation
|
|
|
100.00
|
|
|
|
164.27
|
|
|
|
143.94
|
|
|
|
161.62
|
|
|
|
179.55
|
|
|
|
244.70
|
|
S&P 500 Index
|
|
|
100.00
|
|
|
|
91.94
|
|
|
|
108.79
|
|
|
|
117.75
|
|
|
|
127.92
|
|
|
|
157.08
|
|
Dow Jones U.S. Software Index
|
|
|
100.00
|
|
|
|
102.44
|
|
|
|
111.89
|
|
|
|
122.40
|
|
|
|
116.41
|
|
|
|
154.75
|
|
23
|
|
Item 6.
|
Selected
Financial Data
|
The following table sets forth selected financial data as of and
for the last five fiscal years. This selected financial data
should be read in conjunction with the consolidated financial
statements and related notes included in Item 15 of this
Form 10-K.
In the last three fiscal years, we have invested over
$25 billion, in the aggregate, for our acquisitions,
including PeopleSoft, Siebel and Hyperion. The results of our
acquired companies have been included in our consolidated
financial statements since their respective dates of acquisition.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the Year Ended May 31,
|
|
(in millions, except per share amounts)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
Consolidated Statements of
Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
17,996
|
|
|
$
|
14,380
|
|
|
$
|
11,799
|
|
|
$
|
10,156
|
|
|
$
|
9,475
|
|
Operating income
|
|
$
|
5,974
|
|
|
$
|
4,736
|
|
|
$
|
4,022
|
|
|
$
|
3,864
|
|
|
$
|
3,440
|
|
Net income
|
|
$
|
4,274
|
|
|
$
|
3,381
|
|
|
$
|
2,886
|
|
|
$
|
2,681
|
|
|
$
|
2,307
|
|
Earnings per sharebasic
|
|
$
|
0.83
|
|
|
$
|
0.65
|
|
|
$
|
0.56
|
|
|
$
|
0.51
|
|
|
$
|
0.44
|
|
Earnings per sharediluted
|
|
$
|
0.81
|
|
|
$
|
0.64
|
|
|
$
|
0.55
|
|
|
$
|
0.50
|
|
|
$
|
0.43
|
|
Basic weighted average common
shares outstanding
|
|
|
5,170
|
|
|
|
5,196
|
|
|
|
5,136
|
|
|
|
5,215
|
|
|
|
5,302
|
|
Diluted weighted average common
shares outstanding
|
|
|
5,269
|
|
|
|
5,287
|
|
|
|
5,231
|
|
|
|
5,326
|
|
|
|
5,418
|
|
Consolidated Balance Sheets
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital
|
|
$
|
3,496
|
|
|
$
|
5,044
|
(1)
|
|
$
|
385
|
(2)
|
|
$
|
7,064
|
|
|
$
|
5,069
|
|
Total assets
|
|
$
|
34,572
|
(3)
|
|
$
|
29,029
|
(3)
|
|
$
|
20,687
|
(3)
|
|
$
|
12,763
|
|
|
$
|
10,967
|
|
Short-term borrowings and current
portion of long-term debt
|
|
$
|
1,358
|
(4)
|
|
$
|
159
|
|
|
$
|
2,693
|
(4)
|
|
$
|
9
|
|
|
$
|
153
|
|
Long-term debt, net of current
portion
|
|
$
|
6,235
|
(1)
|
|
$
|
5,735
|
(1)
|
|
$
|
159
|
|
|
$
|
163
|
|
|
$
|
175
|
|
Stockholders equity
|
|
$
|
16,919
|
|
|
$
|
15,012
|
|
|
$
|
10,837
|
|
|
$
|
7,995
|
|
|
$
|
6,320
|
|
|
|
|
(1) |
|
Total working capital increased as of May 31, 2006
primarily due to the issuance of $5.75 billion in long-term
senior notes and increased cash flows from operations. We
redeemed $1.5 billion of this long-term indebtedness and
issued $2.0 billion of new long-term senior notes in fiscal
2007. See Note 5 of Notes to Consolidated Financial
Statements for additional information on our borrowings. |
|
(2) |
|
Total working capital decreased as of May 31, 2005
primarily due to cash paid to acquire PeopleSoft and an increase
in our short-term borrowings. |
|
(3) |
|
Total assets increased as of May 31, 2007, 2006 and 2005
primarily due to goodwill and intangible assets arising from the
acquisitions of Hyperion in fiscal 2007, Siebel in fiscal 2006
and PeopleSoft in fiscal 2005. See Note 2 of Notes to
Consolidated Financial Statements for additional information on
our acquisitions. |
|
(4) |
|
Short-term borrowings increased in fiscal 2007 due to amounts
borrowed under our commercial paper program. Short-term
borrowings increased in fiscal 2005 due to amounts borrowed
under our commercial paper program and a loan facility borrowed
by Oracle Technology Company, a wholly-owned subsidiary. We
repaid these 2005 borrowings in fiscal 2006. |
24
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
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 United States dollars, we conduct a
significant number of transactions in currencies other than
United States 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 license revenues and (2) software
license updates and product support revenues. 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 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 analysis of new software revenues on a trailing
4-quarter
period provides more visibility into the underlying fundamental
performance of our software revenues than analysis of quarterly
revenues. New software license revenues represented 33% of our
total revenues in fiscal 2007. Our new software license margins
have been 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 for our products and services
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.
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 fiscal 2007, we also introduced Oracle
Unbreakable Linux Support, which provides enterprise level
support for the Linux operating system. 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 influenced by three
factors: (1) the support contract base of companies
acquired, (2) the renewal rate of the support contract base
and (3) the amount of new support contracts sold in
connection with the sale of new software licenses.
Software license updates and product support revenues, which
represent approximately 46% of our total revenues in fiscal
2007, are our highest margin business unit. Support margins
during fiscal 2007 were 90%, and accounted for 76% 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:
|
|
|
|
|
Acquisitions over the past three years have significantly
increased our support contract base, as well as the portfolio of
products available to be licensed.
|
25
|
|
|
|
|
Substantially all customers purchase license updates and product
support 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 the
support contract base.
|
|
|
|
Substantially all of our customers, including customers from
acquired companies, renew their support contracts when eligible
for renewal.
|
We record adjustments to reduce support obligations assumed in
business acquisitions to their estimated fair value 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
$212 million, $391 million and $320 million in
fiscal 2007, 2006 and 2005, 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 revenues. Our services business, which represents 21%
of our total revenues in fiscal 2007, has significantly lower
margins than our software business.
Consulting: Consulting revenues have
increased primarily due to consulting services provided by
i-flex as well as 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
corresponding period in the prior year over the past several
quarters.
On Demand: On Demand includes Oracle On
Demand, CRM on Demand and Advanced Customer Services. We believe
that our On Demand offerings provide an additional opportunity
for customers to lower their total cost of ownership and can
therefore provide us with a competitive advantage. We have made
and plan to continue to make investments in Oracle On Demand and
CRM On Demand to support current and future revenue growth,
which has negatively impacted On Demand margins and we expect
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 by
personnel reductions in our customers information
technology departments, tighter controls over discretionary
spending and greater use of outsourcing solutions. Despite these
trends, we expect education revenues to increase in fiscal year
2008, primarily due to an increase in customer training on the
use of our acquired application products and increases in
license revenues from our database and middleware products.
Acquisitions
An active acquisition program is an important element of our
corporate strategy. In the last three fiscal years, we have
invested over $25 billion, in the aggregate, to acquire
companies, products, services and technologies, including the
acquisitions of 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.
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 2 of
26
our Notes to Condensed Consolidated Financial Statements for
additional information related to our recent and pending
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
|
|
|
|
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.
Revenue
Recognition
We derive revenues from the following sources:
(1) software, which includes new software license and
software license updates and product support revenues, and
(2) services, which include consulting, On Demand and
education revenues.
New software license revenues represent fees earned from
granting customers licenses to use our database, middleware and
applications software, and exclude revenues derived from
software license updates, which are included in software license
updates and product support. While the basis for software
license revenue recognition is substantially governed by the
provisions of Statement of Position
No. 97-2,
Software Revenue Recognition, issued by the American
Institute of Certified Public Accountants, we exercise judgment
and use estimates in connection with the determination of the
amount of software and services revenues to be recognized in
each accounting period.
For software license arrangements that do not require
significant modification or customization of the underlying
software, we recognize new software license revenue when:
(1) we enter into a legally binding arrangement with a
customer for the license of software; (2) we deliver the
products; (3) customer payment is deemed fixed or
27
determinable and free of contingencies or significant
uncertainties; and (4) collection is probable.
Substantially all of our new software license revenues are
recognized in this manner.
The vast majority of our software license arrangements include
software license updates and product support, which are
recognized ratably over the term of the arrangement, typically
one year. Software license updates provide customers with rights
to unspecified software product upgrades, maintenance releases
and patches released during the term of the support period.
Product support includes internet access to technical content,
as well as internet and telephone access to technical support
personnel located in our global support centers. Software
license updates and product support are generally priced as a
percentage of the net new software license fees. Substantially
all of our customers purchase both software license updates and
product support when they acquire new software licenses. In
addition, substantially all of our customers renew their
software license updates and product support contracts annually.
Many of our software arrangements include consulting
implementation services sold separately under consulting
engagement contracts. Consulting revenues from these
arrangements are generally accounted for separately from new
software license revenues because the arrangements qualify as
service transactions as defined in
SOP 97-2.
The more significant factors considered in determining whether
the revenue should be accounted for separately include the
nature of services (i.e., consideration of whether the services
are essential to the functionality of the licensed product),
degree of risk, availability of services from other vendors,
timing of payments and impact of milestones or acceptance
criteria on the realizability of the software license fee.
Revenues for consulting services are generally recognized as the
services are performed. If there is a significant uncertainty
about the project completion or receipt of payment for the
consulting services, revenue is deferred until the uncertainty
is sufficiently resolved. We estimate the proportional
performance on contracts with fixed or not to exceed
fees on a monthly basis utilizing hours incurred to date as a
percentage of total estimated hours to complete the project. We
recognize no more than 90% of the milestone or total contract
amount until project acceptance is obtained. If we do not have a
sufficient basis to measure progress towards completion, revenue
is recognized when we receive final acceptance from the
customer. When total cost estimates exceed revenues, we accrue
for the estimated losses immediately using cost estimates that
are based upon an average fully burdened daily rate applicable
to the consulting organization delivering the services. The
complexity of the estimation process and factors relating to the
assumptions, risks and uncertainties inherent with the
application of the proportional performance method of accounting
affects the amounts of revenue and related expenses reported in
our consolidated financial statements. A number of internal and
external factors can affect our estimates, including labor
rates, utilization and efficiency variances and specification
and testing requirement changes.
If an arrangement does not qualify for separate accounting of
the software license and consulting transactions, then new
software license revenue is generally recognized together with
the consulting services based on contract accounting using
either the percentage-of-completion or completed-contract
method. Contract accounting is applied to any arrangements:
(1) that include milestones or customer specific acceptance
criteria that may affect collection of the software license
fees; (2) where services include significant modification
or customization of the software; (3) where significant
consulting services are provided for in the software license
contract without additional charge or are substantially
discounted; or (4) where the software license payment is
tied to the performance of consulting services.
On Demand is comprised of 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, 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 are earned by providing customers
configuration and performance analysis, personalized support and
annual
on-site
technical services. Revenue from On Demand services is
recognized over the term of the service period, which is
generally one year.
Education revenues include instructor-led, media-based and
internet-based training in the use of our products. Education
revenues are recognized as the classes or other education
offerings are delivered.
For arrangements with multiple elements, we allocate revenue to
each element of a transaction based upon its fair value as
determined by vendor specific objective evidence.
Vendor specific objective evidence of fair value for all
28
elements of an arrangement is based upon the normal pricing and
discounting practices for those products and services when sold
separately and for software license updates and product support
services, is additionally measured by the renewal rate offered
to the customer. We may modify our pricing practices in the
future, which could result in changes in our vendor specific
objective evidence of fair value for these undelivered elements.
As a result, our future revenue recognition for multiple element
arrangements could differ significantly from our historical
results.
We defer revenue for any undelivered elements, and recognize
revenue when the product is delivered or over the period in
which the service is performed, in accordance with our revenue
recognition policy for such element. If we cannot objectively
determine the fair value of any undelivered element included in
bundled software and service arrangements, we defer revenue
until all elements are delivered and services have been
performed, or until fair value can objectively be determined for
any remaining undelivered elements. When the fair value of a
delivered element has not been established, we use the residual
method to record revenue if the fair value of all undelivered
elements is determinable. Under the residual method, the fair
value of the undelivered elements is deferred and the remaining
portion of the arrangement fee is allocated to the delivered
elements and is recognized as revenue.
Substantially all of our software license arrangements do not
include acceptance provisions. However, if acceptance provisions
exist as part of public policy, for example in agreements with
government entities when acceptance periods are required by law,
or within previously executed terms and conditions that are
referenced in the current agreement and are short-term in
nature, we provide for a sales return allowance in accordance
with FASB Statement No. 48, Revenue Recognition when
Right of Return Exists. If acceptance provisions are
long-term in nature or are not included as standard terms of an
arrangement or if we cannot reasonably estimate the incidence of
returns, revenue is recognized upon the earlier of receipt of
written customer acceptance or expiration of the acceptance
period.
We also evaluate arrangements with governmental entities
containing fiscal funding or termination for
convenience provisions, when such provisions are required
by law, to determine the probability of possible cancellation.
We consider multiple factors, including the history with the
customer in similar transactions, the essential use
of the software licenses and the planning, budgeting and
approval processes undertaken by the governmental entity. If we
determine upon execution of these arrangements that the
likelihood of cancellation is remote, we then recognize revenue
once all of the criteria described above have been met. If such
a determination cannot be made, revenue is recognized upon the
earlier of cash receipt or approval of the applicable funding
provision by the governmental entity.
We assess whether fees are fixed or determinable at the time of
sale and recognize revenue if all other revenue recognition
requirements are met. Our standard payment terms are
net 30; however, terms may vary based on the country in
which the agreement is executed. Payments that are due within
six months are generally deemed to be fixed or determinable
based on our successful collection history on such arrangements,
and thereby satisfy the required criteria for revenue
recognition.
While most of our arrangements include short-term payment terms,
we have a standard practice of providing long-term financing to
credit worthy customers through our financing division. Since
fiscal 1989, when our financing division was formed, we have
established a history of collection, without concessions, on
these receivables with payment terms that generally extend up to
five years from the contract date. Provided all other
revenue recognition criteria have been met, we recognize new
software license revenues for these arrangements upon delivery,
net of any payment discounts from financing transactions. We
have generally sold receivables financed through our financing
division on a non-recourse basis to third party financing
institutions. We account for the sale of these receivables as
true sales as defined in FASB Statement
No. 140, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities.
Our customers include several of our suppliers and on rare
occasion, we have purchased goods or services for our operations
from these vendors at or about the same time that we have
licensed our software to these same companies (a
Concurrent Transaction). Software license agreements
that occur within a three-month time period from the date we
have purchased goods or services from that same customer are
reviewed for appropriate accounting treatment and disclosure.
When we acquire goods or services from a customer, we negotiate
the purchase separately from any software license transaction,
at terms we consider to be at arms length, and settle the
purchase in cash. We
29
recognize new software license revenue from Concurrent
Transactions if all of our revenue recognition criteria are met
and the goods and services acquired are necessary for our
current operations.
Business
Combinations
In accordance with business combination accounting, we allocate
the purchase price of acquired companies to the tangible and
intangible assets acquired and liabilities assumed as well as to
in-process research and development based on their estimated
fair values. We engage third-party appraisal firms to assist
management in determining the fair values of certain assets
acquired and liabilities assumed. Such valuations require
management to make significant estimates and assumptions,
especially with respect to intangible assets.
Management makes estimates of fair value based upon assumptions
believed to be reasonable. These estimates are based on
historical experience and information obtained from the
management of the acquired companies and are inherently
uncertain. Critical estimates in valuing certain of the
intangible assets include but are not limited to: future
expected cash flows from license sales, maintenance agreements,
consulting contracts, customer contracts and acquired developed
technologies and patents; expected costs to develop the
in-process research and development into commercially viable
products and estimated cash flows from the projects when
completed; the acquired companys brand and market
position, as well as assumptions about the period of time the
acquired brand will continue to be used in the combined
companys product portfolio; and discount rates.
Unanticipated events and circumstances may occur which may
affect the accuracy or validity of such assumptions, estimates
or actual results.
In connection with purchase price allocations, we estimate the
fair value of the support obligations assumed in connection with
acquisitions. The estimated fair value of the support
obligations is determined utilizing a cost
build-up
approach. The cost
build-up
approach determines fair value by estimating the costs related
to fulfilling the obligations plus a normal profit margin. The
estimated costs to fulfill the support obligations are based on
the historical direct costs related to providing the support
services and to correct any errors in the software products
acquired. We do not include any costs associated with selling
efforts or research and development or the related fulfillment
margins on these costs. Profit associated with selling effort is
excluded because the acquired entities would have concluded the
selling effort on the support contracts prior to the acquisition
date. The estimated research and development costs are not
included in the fair value determination, as these costs are not
deemed to represent a legal obligation at the time of
acquisition. 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 obligation.
As a result, we did not recognize software license updates and
product support revenues related to support contracts in the
amount of $212 million, $391 million and
$320 million that would have been otherwise recorded by
acquired businesses as independent entities in fiscal 2007, 2006
and 2005, respectively. Historically, substantially all of our
customers, including customers from acquired companies, renew
their contracts when the contract is eligible for renewal. To
the extent these underlying support contracts are renewed, we
will recognize the revenues for the full value of the support
contracts over the support periods, the majority of which are
one year. Had we included our estimated selling and research and
development activities, and the associated margin for
unspecified product upgrades and enhancements to be provided
under our assumed support arrangements, the fair value of the
support obligations would have been significantly higher than
what we have recorded and we would have recorded a higher amount
of software license updates and product support revenue
historically and in future periods related to these assumed
contracts.
Other significant estimates associated with the accounting for
acquisitions include restructuring costs. Restructuring costs
are primarily comprised of severance costs, costs of
consolidating duplicate facilities and contract termination
costs. Restructuring expenses are based upon plans that have
been committed to by management but which are subject to
refinement. To estimate restructuring expenses, management
utilizes assumptions of the number of employees that would be
involuntarily terminated and of future costs to operate and
eventually vacate duplicate facilities. Estimated restructuring
expenses may change as management executes the approved plan.
Decreases to the cost estimates of executing the currently
approved plans associated with pre-merger activities of the
companies we acquire are recorded as an adjustment to goodwill
indefinitely, whereas increases to the estimates are recorded as
an adjustment to goodwill during the purchase price allocation
period (generally within one year of the acquisition date) and
as operating expenses thereafter.
30
For a given acquisition, we may identify certain pre-acquisition
contingencies. If, during the purchase price allocation period,
we are able to determine the fair value of a pre-acquisition
contingency, we will include that amount in the purchase price
allocation. If, as of the end of the purchase price allocation
period, we are unable to determine the fair value of a
pre-acquisition contingency, we will evaluate whether to include
an amount in the purchase price allocation based on whether it
is probable a liability had been incurred and whether an amount
can be reasonably estimated. With the exception of unresolved
tax matters, after the end of the purchase price allocation
period, any adjustment to amounts recorded for a pre-acquisition
contingency will be included in our operating results in the
period in which the adjustment is determined.
Goodwill
We review goodwill for impairment annually and whenever events
or changes in circumstances indicate its carrying value may not
be recoverable in accordance with FASB Statement No. 142,
Goodwill and Other Intangible Assets. The provisions of
Statement 142 require that a two-step impairment test be
performed on goodwill. In the first step, we compare the fair
value of each reporting unit to its carrying value. Our
reporting units are consistent with the reportable segments
identified in Note 15 of the Notes to Consolidated
Financial Statements. If the fair value of the reporting unit
exceeds the carrying value of the net assets assigned to that
unit, goodwill is considered not impaired and we are not
required to perform further testing. If the carrying value of
the net assets assigned to the reporting unit exceeds the fair
value of the reporting unit, then we must perform the second
step of the impairment test in order to determine the implied
fair value of the reporting units goodwill. If the
carrying value of a reporting units goodwill exceeds its
implied fair value, then we would record an impairment loss
equal to the difference.
Determining the fair value of a reporting unit involves the use
of significant estimates and assumptions. These estimates and
assumptions include revenue growth rates and operating margins
used to calculate projected future cash flows, risk-adjusted
discount rates, future economic and market conditions and
determination of appropriate market comparables. We base our
fair value estimates on assumptions we believe to be reasonable
but that are unpredictable and inherently uncertain. Actual
future results may differ from those estimates. In addition, we
make certain judgments and assumptions in allocating shared
assets and liabilities to determine the carrying values for each
of our reporting units. Our most recent annual goodwill
impairment analysis, which was performed during the fourth
quarter of fiscal 2007, did not result in an impairment charge.
Accounting
for Income Taxes
Significant judgment is required in determining our worldwide
income tax provision. In the ordinary course of a global
business, there are many transactions and calculations where the
ultimate tax outcome is uncertain. Some of these uncertainties
arise as a consequence of revenue sharing and cost reimbursement
arrangements among related entities, the process of identifying
items of revenue and expense that qualify for preferential tax
treatment, and segregation of foreign and domestic income and
expense to avoid double taxation. Although we believe that our
estimates are reasonable, the final tax outcome of these matters
could be different from that which is reflected in our
historical income tax provisions and accruals. Such differences
could have a material effect on our income tax provision and net
income in the period in which such determination is made.
Our effective tax rate includes the impact of certain
undistributed foreign earnings for which no U.S. taxes have
been provided because such earnings are planned to be
indefinitely reinvested outside the United States. Remittances
of foreign earnings to the U.S. are planned based on
projected cash flow, working capital and investment needs of
foreign and domestic operations. Based on these assumptions, we
estimate the amount that will be distributed to the
U.S. and provide U.S. federal taxes on these amounts.
Material changes in our estimates could impact our effective tax
rate.
We record a valuation allowance to reduce our deferred tax
assets to the amount that is more likely than not to be
realized. In order for us to realize our deferred tax assets, we
must be able to generate sufficient taxable income in those
jurisdictions where the deferred tax assets are located. We
consider future market growth, forecasted earnings, future
taxable income, the mix of earnings in the jurisdictions in
which we operate and prudent and feasible tax planning
strategies in determining the need for a valuation allowance. In
the event we were to determine that we would not be able to
realize all or part of our net deferred tax assets in the
future, an adjustment to the deferred tax
31
assets would be charged to earnings in the period in which we
make such determination. Likewise, if we later determine that it
is more likely than not that the net deferred tax assets would
be realized, we would reverse the applicable portion of the
previously provided valuation allowance.
We calculate our current and deferred tax provision based on
estimates and assumptions that could differ from the actual
results reflected in income tax returns filed during the
subsequent year. Adjustments based on filed returns are
generally recorded in the period when the tax returns are filed
and the global tax implications are known.
The amount of income tax we pay is subject to ongoing audits by
federal, state and foreign tax authorities, which often result
in proposed assessments. Our estimate of the potential outcome
for any uncertain tax issue is highly judgmental. We believe we
have adequately provided for any reasonably foreseeable outcome
related to these matters. However, our future results may
include favorable or unfavorable adjustments to our estimated
tax liabilities in the period the assessments are made or
resolved, audits are closed or when statutes of limitation on
potential assessments expire. Additionally, the jurisdictions in
which our earnings or deductions are realized may differ from
our current estimates. As a result, our effective tax rate may
fluctuate significantly on a quarterly basis.
As part of our accounting for business combinations, some of the
purchase price is allocated to goodwill and intangible assets.
Impairment charges associated with goodwill are generally not
tax deductible and will result in an increased effective income
tax rate in the quarter the impairment is recorded. Amortization
expenses associated with acquired intangible assets are
generally not tax deductible pursuant to our existing tax
structure; however, deferred taxes have been recorded for
non-deductible amortization expense as part of the purchase
price allocation. We have taken into account the allocation of
these identified intangibles among different taxing
jurisdictions, including those with nominal or zero percent tax
rates, in establishing the related deferred tax liabilities.
Income tax contingencies existing as of the acquisition dates of
the acquired companies are evaluated quarterly and any
adjustments are recorded as an adjustment to goodwill.
In fiscal 2008, we will adopt FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes, an interpretation
of FASB Statement No. 109. Please refer to Note 1
of Notes to Consolidated Financial Statements in Item 15 of
this Annual Report on
Form 10-K
for further discussion.
Legal
and Other Contingencies
We are currently involved in various claims and legal
proceedings. Quarterly, we review the status of each significant
matter and assess our potential financial exposure. If the
potential loss from any claim or legal proceeding is considered
probable and the amount can be reasonably estimated, we accrue a
liability for the estimated loss. Significant judgment is
required in both the determination of probability and the
determination as to whether an exposure is reasonably estimable.
Because of uncertainties related to these matters, accruals are
based only on the best information available at the time. As
additional information becomes available, we reassess the
potential liability related to our pending claims and litigation
and may revise our estimates. Such revisions in the estimates of
the potential liabilities could have a material impact on our
results of operations and financial position.
As a result of our acquisition of PeopleSoft in fiscal 2005, we
inherited contingent liabilities resulting from a program
PeopleSoft had implemented prior to the consummation of our
acquisition of PeopleSoft (referred to as the customer
assurance program or CAP). See Note 16 of
Notes to Consolidated Financial Statements for further
information.
Stock-Based
Compensation
On June 1, 2006, we adopted Statement No. 123 (revised
2004), Share-Based Payment, under the modified
prospective method. Statement 123R generally requires
share-based payments to employees to be recognized in our
consolidated statements of operations based on their fair
values. Prior to June 1, 2006, we accounted for our
stock-based compensation plans under the intrinsic value method
of accounting as defined by Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees and
applied the disclosure provisions of Statement No. 123,
Accounting for Stock-Based Compensation, as amended.
Under Opinion 25, we generally did not recognize any
compensation expense for stock options as the exercise price of
our options was equivalent to the market price of our common
stock on the date of grant. Substantially all of our stock-based
compensation expense
32
recognized under Opinion 25 related to options assumed from
acquisitions. For pro forma disclosures, the estimated fair
values for options granted and options assumed were amortized
using the accelerated expense attribution method. In addition,
we reduced pro forma stock compensation expense for actual
forfeitures in the periods they occurred. In March 2005, the
Securities and Exchange Commission issued Staff Accounting
Bulletin (SAB) No. 107, which provides supplemental
implementation guidance for Statement 123R. We have applied
the provisions of SAB 107 in our adoption of
Statement 123R. See Note 7 of Notes to Consolidated
Financial Statements for information on the impact of our
adoption of Statement 123R and the assumptions we use to
calculate the fair value of share-based employee compensation.
Upon our adoption of Statement 123R, we were required to
estimate the awards that we ultimately expect to vest and to
reduce stock-based compensation expense for the effects of
estimated forfeitures of awards over the expense recognition
period. Although we estimated forfeitures based on historical
experience, forfeitures in the future may differ. Under
Statement 123R, the forfeiture rate must be revised if
actual forfeitures differ from our original estimates. Also in
connection with our adoption of Statement 123R, we elected
to recognize awards granted after our adoption date under the
straight-line amortization method.
We estimate the fair value of employee stock options using a
Black-Scholes valuation model. The fair value of an award is
affected by our stock price on the date of grant as well as
other assumptions including the estimated volatility of our
stock price over the term of the awards and the estimated period
of time that we expect employees to hold their stock options.
The risk-free interest rate assumption is based upon United
States treasury interest rates appropriate for the expected life
of the awards. We use the implied volatility of our publicly
traded stock options in order to estimate future stock price
trends as we believe that implied volatility is more
representative of future stock price trends than historical
volatility. In order to determine the estimated period of time
that we expect employees to hold their stock options, we have
used historical rates of employee groups by job classification.
Our expected dividend rate is zero since we do not currently pay
cash dividends on our common stock and do not anticipate doing
so in the foreseeable future.
We record deferred tax assets for stock-based awards that result
in deductions on our income tax returns, based on the amount of
stock-based compensation recognized and the statutory tax rate
in the jurisdiction in which we will receive a tax deduction.
Differences between the deferred tax assets recognized for
financial reporting purposes and the actual tax deduction
reported on our income tax returns are recorded in additional
paid-in capital. If the tax deduction is less than the deferred
tax asset, such shortfalls reduce our pool of excess tax
benefits. If the pool of excess tax benefits is reduced to zero,
then subsequent shortfalls would increase our income tax
expense. Our pool of excess tax benefits is computed in
accordance with the alternative transition method as prescribed
under FASB Staff Position
FAS 123R-3,
Transition Election to Accounting for the Tax Effects of
Share-Based Payment Awards.
The accounting guidance under Statement 123R is relatively
new and several interpretations have been released since the
pronouncement has been issued. Additional interpretations may be
released and the application of these principles may be subject
to further refinement over time. In addition, to the extent we
change the terms of our employee stock-based compensation
programs, refine different assumptions in future periods such as
forfeiture rates that differ from our estimates and implement
the change in our expense attribution method from accelerated to
straight-line, which we elected when adopting
Statement 123R, the stock-based compensation expense that
we record in future periods may differ significantly from what
we have recorded during our fiscal 2007 reporting periods.
Allowances
for Doubtful Accounts and Returns
We make judgments as to our ability to collect outstanding
receivables and provide allowances for the portion of
receivables when collection becomes doubtful. Provisions are
made based upon a specific review of all significant outstanding
invoices. For those invoices not specifically reviewed,
provisions are provided at differing rates, based upon the age
of the receivable, the collection history associated with the
geographic region that the receivable was recorded and current
economic trends. If the historical data we use to calculate the
allowance for doubtful accounts does not reflect the future
ability to collect outstanding receivables, additional
provisions for doubtful accounts may be needed and the future
results of operations could be materially affected.
33
We also record a provision for estimated sales returns and
allowances on product and service related sales. These estimates
are based on historical sales returns, the volume and size of
our larger transactions and other known factors. If the
historical data we use to calculate these estimates do not
properly reflect future returns, then a change in the allowances
would be made in the period in which such a determination is
made and revenues in that period could be materially affected.
Results
of Operations
The comparability of our operating results in fiscal 2007
compared to fiscal 2006 is impacted by our acquisition of Siebel
in the third quarter of fiscal 2006, the consolidation of i-flex
beginning June 1, 2006 (beginning of fiscal 2007) and,
to a lesser extent, the acquisition of Hyperion in our fourth
quarter of fiscal 2007. The comparability of our operating
results in fiscal 2006 compared to fiscal 2005 is also impacted
by acquisitions, principally our acquisition of PeopleSoft in
the third quarter of fiscal 2005, and, to a lesser extent, the
acquisitions of Siebel in the third quarter of fiscal 2006 and
Retek, Inc. in the fourth quarter of fiscal 2005.
In our discussion of changes in our results of operations from
fiscal 2007 compared to fiscal 2006, and fiscal 2006 compared to
fiscal 2005, we quantify the contribution of our acquired
products to growth in new software license revenues, the amount
of revenues associated with software license updates and product
support as well as On Demand services, and present supplemental
disclosure related to acquisition accounting and stock-based
compensation where applicable. Although certain revenue
contributions from our acquisitions are quantifiable, we are
unable to identify the following:
|
|
|
|
|
The contribution of consulting and education services revenues
from acquired companies in fiscal 2007 and 2006 (with the
exception of i-flex and Hyperion consulting revenues and
Hyperion education revenues for which we disclose the impact in
fiscal 2007 in comparison to fiscal 2006) as the
significant majority of these services have been fully
integrated into our existing operations.
|
|
|
|
The contribution of expenses associated with acquired products
and services in fiscal 2007 and 2006 (with the exception of
certain i-flex and Hyperion operating expenses for which we
disclose the impact in fiscal 2007 in comparison to fiscal
2006) as the significant majority of these services 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.
|
|
|
|
The significant majority of our acquisitions in the periods
presented did not result 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 annual 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 information, current and
comparative prior period results for entities reporting in
currencies other than United States dollars are converted into
United States dollars at the exchange rate in effect on
May 31, 2006, which was the
34
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 May 31, 2007
and May 31, 2006, our financial statements would reflect
revenues of $1.35 million in fiscal 2007 (using 1.35 as the
exchange rate) and $1.27 million in fiscal 2006 (using 1.27
as the exchange rate). The constant currency presentation would
translate the fiscal 2007 results using the fiscal 2006 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended May 31,
|
|
|
|
|
Percent Change
|
|
|
|
Percent Change
|
|
|
(Dollars in millions)
|
|
2007
|
|
Actual
|
|
Constant
|
|
2006
|
|
Actual
|
|
Constant
|
|
2005
|
|
Total Revenues by
Geography:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
9,460
|
|
|
24%
|
|
|
23%
|
|
$
|
7,652
|
|
|
32%
|
|
|
31%
|
|
$
|
5,798
|
EMEA(1)
|
|
|
6,037
|
|
|
28%
|
|
|
20%
|
|
|
4,708
|
|
|
10%
|
|
|
15%
|
|
|
4,288
|
Asia Pacific
|
|
|
2,499
|
|
|
24%
|
|
|
21%
|
|
|
2,020
|
|
|
18%
|
|
|
21%
|
|
|
1,713
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
17,996
|
|
|
25%
|
|
|
22%
|
|
|
14,380
|
|
|
22%
|
|
|
23%
|
|
|
11,799
|
Total Operating
Expenses
|
|
|
12,022
|
|
|
25%
|
|
|
22%
|
|
|
9,644
|
|
|
24%
|
|
|
25%
|
|
|
7,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating
Margin
|
|
$
|
5,974
|
|
|
26%
|
|
|
21%
|
|
$
|
4,736
|
|
|
18%
|
|
|
20%
|
|
$
|
4,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating
Margin%
|
|
|
33%
|
|
|
|
|
|
|
|
|
33%
|
|
|
|
|
|
|
|
|
34%
|
% Revenues by
Geography:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
|
53%
|
|
|
|
|
|
|
|
|
53%
|
|
|
|
|
|
|
|
|
49%
|
EMEA
|
|
|
34%
|
|
|
|
|
|
|
|
|
33%
|
|
|
|
|
|
|
|
|
36%
|
Asia Pacific
|
|
|
13%
|
|
|
|
|
|
|
|
|
14%
|
|
|
|
|
|
|
|
|
15%
|
Total Revenues by
Business:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
|
|
$
|
14,211
|
|
|
23%
|
|
|
20%
|
|
$
|
11,541
|
|
|
23%
|
|
|
24%
|
|
$
|
9,421
|
Services
|
|
|
3,785
|
|
|
33%
|
|
|
29%
|
|
|
2,839
|
|
|
19%
|
|
|
21%
|
|
|
2,378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
17,996
|
|
|
25%
|
|
|
22%
|
|
$
|
14,380
|
|
|
22%
|
|
|
23%
|
|
$
|
11,799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Revenues by
Business:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
|
|
|
79%
|
|
|
|
|
|
|
|
|
80%
|
|
|
|
|
|
|
|
|
80%
|
Services
|
|
|
21%
|
|
|
|
|
|
|
|
|
20%
|
|
|
|
|
|
|
|
|
20%
|
|
|
|
(1) |
|
Comprised of Europe, the Middle East and Africa |
Fiscal 2007 Compared to Fiscal 2006: Total
revenues increased in fiscal 2007 due to increased demand for
our products and services offerings, strong sales execution, and
incremental revenues from our acquisitions. Total revenues were
positively affected by foreign currency rate fluctuations of
3 percentage points in fiscal 2007 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 27% to the growth in
total revenues, software license updates and product support
revenues contributed 47% and services contributed 26%. Excluding
the effect of currency rate fluctuations, the Americas
contributed 56% to the increase in total revenues, EMEA
contributed 30% and Asia Pacific contributed 14%.
Excluding the effect of currency rate fluctuations, the increase
in operating expenses is primarily due to higher salary and
employee benefits associated with increased headcount levels
(primarily resulting from our acquisitions in fiscal 2007 and
fiscal 2006), as well as higher commissions and travel and
entertainment expenses associated with both increased revenues
and headcount levels. In addition, operating expenses also
increased in fiscal 2007 due to higher amortization costs of
intangible assets and stock-based compensation expenses related
to our adoption of Statement 123R. Operating expenses were
negatively affected by foreign currency rate fluctuations of
3 percentage
35
points. The aforementioned increases in operating expenses were
partially offset by lower restructuring expenses and the
settlement of a pre-acquisition PeopleSoft related contingency
that benefited our operating expenses (see Acquisition Related
Charges discussion below).
Operating margins as a percentage of total revenues were flat in
fiscal 2007 and were favorably affected by foreign currency rate
fluctuations of 5 percentage points. Our revenues grew at a
faster rate than our operating expenses, excluding amortization
costs of intangible assets and stock-based compensation
expenses. The increases in those cost categories offset the
slower growth in other operating expenses.
International operations will continue to provide a significant
portion of our total revenues. As a result, total revenues and
expenses will be affected by changes in the relative strength of
the United States dollar against certain major international
currencies.
Fiscal 2006 Compared to Fiscal 2005: Total
revenues increased in fiscal 2006 due to strong sales execution,
incremental revenues from acquisitions and a strengthening in
our competitive position. Excluding the effect of currency rate
fluctuations, software license updates and product support
revenues contributed 50% to the growth in total revenues, new
software licenses contributed 32% and services revenues
contributed 18%. Excluding the effects of currency rate
fluctuations, the Americas contributed 65% to the increase in
total revenues, EMEA contributed 22% and Asia Pacific
contributed 13%. Total revenues in the Americas, specifically in
the United States, increased at a faster rate than in other
regions primarily due to the relative geographical mix of
revenues from our acquired companies.
Operating expenses were favorably affected by 1 percentage
point as a result of the strengthening of the United States
dollar relative to other major international currencies.
Excluding the effect of currency rate fluctuations, the increase
in operating expenses is primarily due to higher headcount
levels and associated personnel related costs in sales and
marketing, consulting and research and development, higher
commissions due to the increase in revenues and greater
amortization of intangible assets, offset partially by lower
restructuring and acquisition related expenses. Operating
margins as a percentage of total revenues decreased slightly in
fiscal 2006 due to higher costs associated with acquisitions,
principally amortization of intangible assets.
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.
You should review the introduction under Results of
Operations (above) for a discussion of the inherent
limitations in comparing pre- and post-acquisition information.
36
Our results of operations include the following business
combination accounting entries and expenses related to
acquisitions as well as other expenses including stock-based
compensation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended May 31,
|
|
(in millions)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Support deferred
revenue(1)
|
|
$
|
212
|
|
|
$
|
391
|
|
|
$
|
320
|
|
Amortization of intangible
assets(2)
|
|
|
878
|
|
|
|
583
|
|
|
|
219
|
|
Acquisition related
charges(3)(5)
|
|
|
140
|
|
|
|
137
|
|
|
|
208
|
|
Restructuring(4)
|
|
|
19
|
|
|
|
85
|
|
|
|
147
|
|
Stock-based
compensation(5)
|
|
|
198
|
|
|
|
31
|
|
|
|
25
|
|
Income tax
effect(6)
|
|
|
(414
|
)
|
|
|
(362
|
)
|
|
|
(264
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,033
|
|
|
$
|
865
|
|
|
$
|
655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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
$212 million, $391 million and $320 million in
fiscal 2007, fiscal 2006 and fiscal 2005, respectively.
Approximately $120 million of estimated software license
updates and product support revenues related to support
contracts assumed will not be recognized in fiscal 2008 that
would have otherwise been recognized by the acquired businesses
as independent entitles, 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 acquisitions, primarily PeopleSoft, Siebel,
Hyperion and i-flex. Estimated future amortization expense
related to intangible assets is as follows (in millions): |
|
|
|
|
|
|
|
Year Ended
|
|
|
|
May 31,
|
|
|
2008
|
|
$
|
1,114
|
|
2009
|
|
|
1,101
|
|
2010
|
|
|
976
|
|
2011
|
|
|
756
|
|
2012
|
|
|
620
|
|
Thereafter
|
|
|
1,397
|
|
|
|
|
|
|
Total
|
|
$
|
5,964
|
|
|
|
|
|
|
|
|
|
(3) |
|
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. For fiscal
2007, acquisition related charges also included a
$52 million benefit related to the settlement of a
pre-acquisition lawsuit filed against PeopleSoft on behalf of
the U.S. government. |
|
(4) |
|
Restructuring expenses relate to Oracle employee severance and
facility closures in connection with restructuring plans
initiated in the third quarters of fiscal 2006 and 2005. In
fiscal 2007, our restructuring expenses relate to notifications
made pursuant to the Fiscal 2006 Oracle Restructuring Plan. |
37
|
|
|
(5) |
|
Stock-based compensation is included in the following operating
expense line items of our consolidated statements of operations
(in millions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended May 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Sales and marketing
|
|
$
|
38
|
|
|
$
|
8
|
|
|
$
|
6
|
|
Software license updates and
product support
|
|
|
11
|
|
|
|
3
|
|
|
|
2
|
|
Cost of services
|
|
|
15
|
|
|
|
7
|
|
|
|
7
|
|
Research and development
|
|
|
85
|
|
|
|
13
|
|
|
|
10
|
|
General and administrative
|
|
|
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
198
|
|
|
|
31
|
|
|
|
25
|
|
Acquisition related charges
|
|
|
9
|
|
|
|
18
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
207
|
|
|
$
|
49
|
|
|
$
|
72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 these options. |
|
|
|
We adopted Statement 123R on June 1, 2006 under the
modified prospective method. Statement 123R requires us to
record non-cash operating expenses associated with stock option
awards at their estimated fair values. Prior to our
Statement 123R adoption, we were required to record
stock-based compensation expenses at intrinsic values.
Accordingly, prior to our adoption of Statement 123R,
substantially all of our stock-based compensation expense
related to options assumed from acquisitions. In accordance with
the modified prospective method, our financial statements for
prior periods have not been restated to reflect, and do not
include, the changes in methodology to expense options at fair
values in accordance with Statement 123R. As of
May 31, 2007, the unrecognized compensation expense related
to stock options expected to vest was approximately
$356 million and is expected to be recognized over a
weighted average period of 1.3 years. See Note 7 of
Notes to our Consolidated Financial Statements for additional
information regarding our adoption of Statement 123R. |
|
(6) |
|
The income tax effects on purchase accounting adjustments and
other significant expenses including stock-based compensation
were calculated based on our effective tax rates of 28.6%, 29.7%
and 28.8% in fiscal 2007, 2006 and 2005, respectively |
38
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended May 31,
|
|
|
|
|
Percent Change
|
|
|
|
Percent Change
|
|
|
(Dollars in millions)
|
|
2007
|
|
Actual
|
|
Constant
|
|
2006
|
|
Actual
|
|
Constant
|
|
2005
|
|
New Software License
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
2,751
|
|
|
18%
|
|
|
18%
|
|
$
|
2,323
|
|
|
29%
|
|
|
27%
|
|
$
|
1,805
|
EMEA
|
|
|
2,043
|
|
|
24%
|
|
|
16%
|
|
|
1,650
|
|
|
10%
|
|
|
14%
|
|
|
1,505
|
Asia Pacific
|
|
|
1,088
|
|
|
17%
|
|
|
15%
|
|
|
932
|
|
|
19%
|
|
|
22%
|
|
|
781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
5,882
|
|
|
20%
|
|
|
17%
|
|
|
4,905
|
|
|
20%
|
|
|
21%
|
|
|
4,091
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and
marketing(1)
|
|
|
3,869
|
|
|
22%
|
|
|
18%
|
|
|
3,169
|
|
|
27%
|
|
|
27%
|
|
|
2,505
|
Stock-based compensation
|
|
|
38
|
|
|
388%
|
|
|
388%
|
|
|
8
|
|
|
33%
|
|
|
33%
|
|
|
6
|
Amortization of intangible
assets(2)
|
|
|
354
|
|
|
70%
|
|
|
70%
|
|
|
208
|
|
|
251%
|
|
|
251%
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
4,261
|
|
|
26%
|
|
|
23%
|
|
|
3,385
|
|
|
32%
|
|
|
33%
|
|
|
2,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Margin
|
|
$
|
1,621
|
|
|
7%
|
|
|
3%
|
|
$
|
1,520
|
|
|
0%
|
|
|
2%
|
|
$
|
1,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Margin %
|
|
|
28%
|
|
|
|
|
|
|
|
|
31%
|
|
|
|
|
|
|
|
|
37%
|
% Revenues by
Geography:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
|
47%
|
|
|
|
|
|
|
|
|
47%
|
|
|
|
|
|
|
|
|
44%
|
EMEA
|
|
|
35%
|
|
|
|
|
|
|
|
|
34%
|
|
|
|
|
|
|
|
|
37%
|
Asia Pacific
|
|
|
18%
|
|
|
|
|
|
|
|
|
19%
|
|
|
|
|
|
|
|
|
19%
|
Revenues by
Product:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Database and middleware
|
|
$
|
4,119
|
|
|
15%
|
|
|
12%
|
|
$
|
3,566
|
|
|
9%
|
|
|
11%
|
|
$
|
3,265
|
Applications
|
|
|
1,716
|
|
|
32%
|
|
|
29%
|
|
|
1,303
|
|
|
66%
|
|
|
67%
|
|
|
785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues by product
|
|
|
5,835
|
|
|
20%
|
|
|
17%
|
|
|
4,869
|
|
|
20%
|
|
|
21%
|
|
|
4,050
|
Other revenues
|
|
|
47
|
|
|
31%
|
|
|
29%
|
|
|
36
|
|
|
-13%
|
|
|
-12%
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total new software license revenues
|
|
$
|
5,882
|
|
|
20%
|
|
|
17%
|
|
$
|
4,905
|
|
|
20%
|
|
|
21%
|
|
$
|
4,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Revenues by
Product:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Database and middleware
|
|
|
71%
|
|
|
|
|
|
|
|
|
73%
|
|
|
|
|
|
|
|
|
81%
|
Applications
|
|
|
29%
|
|
|
|
|
|
|
|
|
27%
|
|
|
|
|
|
|
|
|
19%
|
|
|
|
(1) |
|
Excluding stock-based compensation |
|
(2) |
|
Included as a component of Amortization of Intangible
Assets in our consolidated statements of operations |
Fiscal 2007 Compared to Fiscal 2006: Excluding
the effect of currency rate fluctuations, new software license
revenues grew in all major product lines and across all
geographies. Database and middleware revenues contributed 57% to
the increase in new software license revenues, while
applications revenues contributed 43%. The Americas contributed
50%, EMEA contributed 33% and Asia Pacific contributed 17% to
the increase in new software license revenues.
39
Excluding the effect of currency rate fluctuations, database and
middleware revenues grew 12% as a result of a gain in market
share, increased demand for our database and middleware products
as well as incremental revenues from acquired companies. Siebel
products contributed incremental revenues of $48 million,
Stellent products $26 million, Hyperion products
$16 million and other recently acquired products
$19 million to the total database and middleware revenue
growth in fiscal 2007.
On a constant currency basis, applications revenues increased
29% as a result of a gain in market share resulting from a
strengthening of our competitive position in the applications
market due to improved product features and functionality and
incremental revenues from acquired companies. Siebel products
contributed incremental revenues of $130 million, i-flex
products $50 million, Hyperion products $27 million,
Portal products $22 million, Demantra products
$21 million and other recently acquired products
$22 million to total applications revenue growth.
New software license revenues earned from transactions over
$0.5 million grew by 24% in fiscal 2007 and increased from
45% of new software license revenues in fiscal 2006 to 46% in
fiscal 2007.
Excluding the effect of currency rate fluctuations, sales and
marketing expenses increased in fiscal 2007 primarily due to
higher personnel related expenses associated with increased
headcount, as well as higher commissions expenses associated
with both increased revenues and headcount levels. Total new
software license margin as a percentage of revenues declined as
expenses, including amortization costs of intangible assets,
grew at a faster rate than revenues.
Fiscal 2006 Compared to Fiscal 2005: Excluding
the effect of currency rate fluctuations, new software license
revenues increased due to strong sales execution in all product
lines. Applications revenues contributed 60% to the increase in
new software license revenues, while database and middleware
revenues contributed 40%. Additionally, new software license
revenues increased in all geographic regions. Excluding the
effect of currency rate fluctuations, the Americas contributed
57%, EMEA contributed 23% and Asia Pacific contributed 20% to
the increase in new software license revenues. New software
license revenues in the Americas, specifically in the United
States, increased at a faster rate than in other regions
primarily due to the relative geographical mix of revenues and
location of sales personnel from our acquired companies.
Excluding the effect of currency rate fluctuations, database and
middleware revenues grew 11% driven by increased demand for
database option products, and gain in market share in the
application server market as a result of better sales execution
and more competitive features and functionality. Siebel products
contributed $34 million to the growth in database and
middleware revenues.
Excluding the effect of currency rate fluctuations, applications
revenues increased 67% as a result of increased demand for our
applications products, including products from acquired
companies, better sales execution as a result of segmenting our
sales force by product and a strengthening of our competitive
position in the applications market, particularly in the United
States and EMEA. PeopleSoft products contributed
$220 million to the growth in applications revenue in
fiscal 2006, Siebel products contributed $103 million and
Retek products contributed $41 million.
New software license revenues earned from transactions over
$0.5 million increased from 40% of new software license
revenues in fiscal 2005 to 45% in fiscal 2006.
Excluding the effect of currency rate fluctuations, sales and
marketing expenses increased due to higher commission expenses
resulting from the growth in new software license revenues,
higher personnel related expenditures primarily associated with
our expanded sales force from acquired companies and higher
advertising expenses. The total new software license margin as a
percentage of revenues decreased primarily due to incremental
amortization of intangible assets and higher compensation
expenses.
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
40
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended May 31,
|
|
|
|
|
Percent Change
|
|
|
|
Percent Change
|
|
|
(Dollars in millions)
|
|
2007
|
|
Actual
|
|
Constant
|
|
2006
|
|
Actual
|
|
Constant
|
|
2005
|
|
Software License Updates and
Product Support Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
4,698
|
|
|
24%
|
|
|
23%
|
|
$
|
3,790
|
|
|
37%
|
|
|
36%
|
|
$
|
2,759
|
EMEA
|
|
|
2,653
|
|
|
29%
|
|
|
21%
|
|
|
2,052
|
|
|
10%
|
|
|
15%
|
|
|
1,866
|
Asia Pacific
|
|
|
978
|
|
|
23%
|
|
|
22%
|
|
|
794
|
|
|
13%
|
|
|
16%
|
|
|
705
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
8,329
|
|
|
25%
|
|
|
22%
|
|
|
6,636
|
|
|
25%
|
|
|
26%
|
|
|
5,330
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software license updates and
product
support(1)
|
|
|
831
|
|
|
16%
|
|
|
12%
|
|
|
716
|
|
|
16%
|
|
|
17%
|
|
|
616
|
Stock-based compensation
|
|
|
11
|
|
|
306%
|
|
|
306%
|
|
|
3
|
|
|
15%
|
|
|
15%
|
|
|
2
|
Amortization of intangible
assets(2)
|
|
|
470
|
|
|
34%
|
|
|
34%
|
|
|
351
|
|
|
178%
|
|
|
178%
|
|
|
127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
1,312
|
|
|
23%
|
|
|
21%
|
|
|
1,070
|
|
|
44%
|
|
|
45%
|
|
|
745
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Margin
|
|
$
|
7,017
|
|
|
26%
|
|
|
23%
|
|
$
|
5,566
|
|
|
21%
|
|
|
23%
|
|
$
|
4,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Margin %
|
|
|
84%
|
|
|
|
|
|
|
|
|
84%
|
|
|
|
|
|
|
|
|
86%
|
% Revenues by
Geography:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
|
57%
|
|
|
|
|
|
|
|
|
57%
|
|
|
|
|
|
|
|
|
52%
|
EMEA
|
|
|
32%
|
|
|
|
|
|
|
|
|
31%
|
|
|
|
|
|
|
|
|
35%
|
Asia Pacific
|
|
|
11%
|
|
|
|
|
|
|
|
|
12%
|
|
|
|
|
|
|
|
|
13%
|
|
|
|
(1) |
|
Excluding stock-based compensation |
|
(2) |
|
Included as a component of Amortization of Intangible
Assets in our consolidated statements of operations |
Fiscal 2007 Compared to Fiscal 2006: Excluding
the effect of currency rate fluctuations, software license
updates and product support revenues increased as a result of
the addition of software license updates and product support
revenues associated with new software license revenues
recognized during the fourth quarter of fiscal 2006 and over the
course of fiscal 2007, 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 59%, EMEA contributed 29%
and Asia Pacific contributed 12% to the increase in software
license updates and product support revenues.
Software license updates and product support revenues in fiscal
2007 include incremental revenues of $310 million from
Siebel, $37 million from i-flex, $19 million from
Hyperion, and $55 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 $212 million, $391 million
and $320 million that would have been otherwise recorded by
our acquired businesses as independent entities, were not
recognized in fiscal 2007, 2006 and 2005, 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, higher
amortization expenses resulting from additional intangible
assets acquired during fiscal 2007 and fiscal 2006 and higher
stock-based compensation expenses. Software license updates and
product support expenses
41
include $16 million in incremental expenses from i-flex and
Hyperion. Total software license updates and product support
margin as a percentage of revenues was flat as intangible asset
amortization expense and stock-based compensation grew much
faster than revenues and offset the lower growth in other
operating expenses.
Fiscal 2006 Compared to Fiscal 2005: Excluding
the effect of currency rate fluctuations, software license
updates and product support revenues increased for similar
reasons as noted above. Software license updates and product
support revenues in fiscal 2006 include incremental revenues of
$797 million from PeopleSoft contracts and $90 million
from Siebel contracts. Excluding the effect of currency rate
fluctuations, the Americas contributed 72% to the growth in
software license updates and product support revenues, EMEA
contributed 20% and Asia Pacific contributed 8%. Software
license updates and product support revenues in the Americas,
specifically in the United States, increased at a faster rate
than in other regions primarily due to the relative geographical
mix of revenues and existing support contract bases of our
acquired companies.
Software license updates and product support expenses increased
primarily due to higher salary and benefits associated with
increased headcount to support the expansion of our customer
base and higher bonuses as a result of increased revenue levels.
The software license updates and product support margin as a
percentage of revenues decreased primarily due to incremental
amortization of intangible assets.
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended May 31,
|
|
|
|
|
Percent Change
|
|
|
|
Percent Change
|
|
|
(Dollars in millions)
|
|
2007
|
|
Actual
|
|
Constant
|
|
2006
|
|
Actual
|
|
Constant
|
|
2005
|
|
Consulting
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
1,534
|
|
|
33%
|
|
|
32%
|
|
$
|
1,157
|
|
|
21%
|
|
|
20%
|
|
$
|
956
|
EMEA
|
|
|
1,033
|
|
|
34%
|
|
|
24%
|
|
|
771
|
|
|
8%
|
|
|
13%
|
|
|
716
|
Asia Pacific
|
|
|
302
|
|
|
57%
|
|
|
52%
|
|
|
192
|
|
|
39%
|
|
|
42%
|
|
|
138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
2,869
|
|
|
35%
|
|
|
31%
|
|
|
2,120
|
|
|
17%
|
|
|
19%
|
|
|
1,810
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
services(1)
|
|
|
2,477
|
|
|
32%
|
|
|
27%
|
|
|
1,878
|
|
|
21%
|
|
|
22%
|
|
|
1,549
|
Stock-based compensation
|
|
|
9
|
|
|
36%
|
|
|
36%
|
|
|
7
|
|
|
9%
|
|
|
9%
|
|
|
6
|
Amortization of intangible
assets(2)
|
|
|
30
|
|
|
585%
|
|
|
579%
|
|
|
4
|
|
|
226%
|
|
|
226%
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
2,516
|
|
|
33%
|
|
|
29%
|
|
|
1,889
|
|
|
21%
|
|
|
23%
|
|
|
1,556
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Margin
|
|
$
|
353
|
|
|
53%
|
|
|
47%
|
|
$
|
231
|
|
|
-9%
|
|
|
-7%
|
|
$
|
254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Margin %
|
|
|
12%
|
|
|
|
|
|
|
|
|
11%
|
|
|
|
|
|
|
|
|
14%
|
% Revenues by
Geography:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
|
53%
|
|
|
|
|
|
|
|
|
55%
|
|
|
|
|
|
|
|
|
53%
|
EMEA
|
|
|
36%
|
|
|
|
|
|
|
|
|
36%
|
|
|
|
|
|
|
|
|
39%
|
Asia Pacific
|
|
|
11%
|
|
|
|
|
|
|
|
|
9%
|
|
|
|
|
|
|
|
|
8%
|
|
|
|
(1) |
|
Excluding stock-based compensation |
|
(2) |
|
Included as a component of Amortization of Intangible
Assets in our consolidated statements of operations |
Fiscal 2007 Compared to Fiscal 2006: Excluding
the effect of currency rate fluctuations, consulting revenues
increased primarily due to an increase in application product
implementations resulting from higher new application software
license revenues over the last year, $359 million of
incremental revenues from i-flex, which we
42
acquired at the beginning of fiscal 2007, and $16 million
of incremental revenues from Hyperion. Excluding the effect of
currency rate fluctuations, the Americas contributed 55%, EMEA
contributed 29% and Asia Pacific contributed 16% to the increase
in consulting revenues.
Excluding the effect of currency rate fluctuations, consulting
expenses increased as a result of higher personnel related
expenses attributed to higher headcount levels and third-party
contractor expenses. Consulting expenses include
$281 million of incremental expenses from i-flex and
$17 million from Hyperion. Total consulting margin as a
percentage of revenues increased primarily due to higher margins
contributed by i-flex.
Fiscal 2006 Compared to Fiscal 2005: The
increase in consulting revenues is primarily due to an increase
in application product implementations and billable hours
primarily provided by consultants who were formerly employed by
our acquired companies. Excluding the effect of currency rate
fluctuations, the Americas contributed 56% to the growth in
consulting revenues, EMEA contributed 26% and Asia Pacific
contributed 18%.
Consulting expenses increased as a result of higher salary and
benefit expenses due to additional resources we acquired as part
of our acquisitions and increased external contractor costs due
to employee attrition. The total consulting margin as a
percentage of revenues declined in fiscal 2006 in comparison to
fiscal 2005 as a result of additional consulting expenses
attributed to headcount levels and external contractor related
expenditures.
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 and
hardware and facilities costs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended May 31,
|
|
|
|
|
|
Percent Change
|
|
|
|
Percent Change
|
|
|
(Dollars in millions)
|
|
2007
|
|
|
Actual
|
|
Constant
|
|
2006
|
|
Actual
|
|
Constant
|
|
2005
|
|
On Demand
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
313
|
|
|
|
35%
|
|
|
35%
|
|
$
|
231
|
|
|
41%
|
|
|
40%
|
|
$
|
165
|
EMEA
|
|
|
176
|
|
|
|
49%
|
|
|
39%
|
|
|
118
|
|
|
26%
|
|
|
32%
|
|
|
93
|
Asia Pacific
|
|
|
68
|
|
|
|
46%
|
|
|
42%
|
|
|
48
|
|
|
13%
|
|
|
12%
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
557
|
|
|
|
40%
|
|
|
37%
|
|
|
397
|
|
|
32%
|
|
|
33%
|
|
|
299
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
services(1)
|
|
|
574
|
|
|
|
49%
|
|
|
45%
|
|
|
385
|
|
|
52%
|
|
|
53%
|
|
|
253
|
Stock-based compensation
|
|
|
4
|
|
|
|
*
|
|
|
*
|
|
|
|
|
|
*
|
|
|
*
|
|
|
|
Amortization of intangible
assets(2)
|
|
|
14
|
|
|
|
365%
|
|
|
365%
|
|
|
3
|
|
|
*
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
592
|
|
|
|
52%
|
|
|
47%
|
|
|
388
|
|
|
53%
|
|
|
53%
|
|
|
253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Margin
|
|
$
|
(35
|
)
|
|
|
-553%
|
|
|
-512%
|
|
$
|
9
|
|
|
-83%
|
|
|
-76%
|
|
$
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Margin %
|
|
|
-6%
|
|
|
|
|
|
|
|
|
|
2%
|
|
|
|
|
|
|
|
|
15%
|
% Revenues by
Geography:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
|
56%
|
|
|
|
|
|
|
|
|
|
58%
|
|
|
|
|
|
|
|
|
55%
|
EMEA
|
|
|
32%
|
|
|
|
|
|
|
|
|
|
30%
|
|
|
|
|
|
|
|
|
31%
|
Asia Pacific
|
|
|
12%
|
|
|
|
|
|
|
|
|
|
12%
|
|
|
|
|
|
|
|
|
14%
|
|
|
|
(1) |
|
Excluding stock-based compensation |
|
(2) |
|
Included as a component of Amortization of Intangible
Assets in our consolidated statements of operations |
|
* |
|
Not meaningful |
43
Fiscal 2007 Compared to Fiscal 2006: Excluding
the effect of currency rate fluctuations, 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. Advanced Customer Services revenues
contributed 46% of the growth, while Oracle On Demand and CRM On
Demand contributed 33% and 21%, respectively. Excluding the
effect of currency rate fluctuations, the Americas contributed
55%, EMEA contributed 32% and Asia Pacific contributed 13% to
the increase in On Demand revenues. Advanced Customer Services
revenues included $50 million of incremental revenues from
Siebel in fiscal 2007 while CRM On Demand revenues included
$31 million.
Excluding the effect of currency rate fluctuations, On Demand
expenses increased due to higher personnel related expenditures,
higher amortization expenses resulting from intangible assets,
as well as higher technology infrastructure related costs to
support the expansion of our customer base. CRM On Demand
expense growth reflects a full year of expenses related to our
Siebel CRM On Demand employees (in comparison to only four
months in fiscal 2006). Total On Demand margin as a percentage
of revenues decreased, primarily driven by more rapid growth in
personnel related expenses in comparison to revenues, and to a
lesser extent, growth in technology infrastructure related
expenditures in Oracle On Demand and CRM On Demand as well as
amortization of intangible assets. Advanced Customer Services
operating margins remained flat compared with the prior year
while operating losses in both Oracle On Demand and CRM On
Demand increased.
Fiscal 2006 Compared to Fiscal 2005: On Demand
revenues increased in fiscal 2006 due to the expansion of our
subscription base in Oracle On Demand services, including
incremental revenues from Siebel of $9 million, as well as
higher revenues from Advanced Customer Services, including
incremental revenues from Siebel of $17 million and
PeopleSoft of $9 million. Excluding the effect of currency
rate fluctuations, the Americas contributed 65% to the increase
in On Demand revenues, EMEA contributed 30% and Asia Pacific
contributed 5%.
On Demand expenses increased due to higher personnel related
expenditures in both our Oracle On Demand and Advanced Customer
Services businesses as a result of additional resources acquired
from Siebel as well as higher computer and technology related
charges and external contractor costs in our Oracle On Demand
business. The total On Demand margin as a percentage of revenues
declined due to lower margins associated with the CRM On Demand
offering as well as additional expenditures incurred to support
planned future growth.
44
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended May 31,
|
|
|
|
|
Percent Change
|
|
|
|
Percent Change
|
|
|
(Dollars in millions)
|
|
2007
|
|
Actual
|
|
Constant
|
|
2006
|
|
Actual
|
|
Constant
|
|
2005
|
|
Education
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
164
|
|
|
9%
|
|
|
8%
|
|
$
|
151
|
|
|
34%
|
|
|
32%
|
|
$
|
113
|
EMEA
|
|
|
132
|
|
|
13%
|
|
|
6%
|
|
|
117
|
|
|
8%
|
|
|
13%
|
|
|
108
|
Asia Pacific
|
|
|
63
|
|
|
16%
|
|
|
14%
|
|
|
54
|
|
|
13%
|
|
|
15%
|
|
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
359
|
|
|
11%
|
|
|
8%
|
|
|
322
|
|
|
20%
|
|
|
21%
|
|
|
269
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
services(1)
|
|
|
283
|
|
|
15%
|
|
|
11%
|
|
|
246
|
|
|
10%
|
|
|
11%
|
|
|
224
|
Stock-based compensation
|
|
|
2
|
|
|
*
|
|
|
*
|
|
|
|
|
|
-100%
|
|
|
-100%
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
285
|
|
|
16%
|
|
|
12%
|
|
|
246
|
|
|
10%
|
|
|
11%
|
|
|
225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Margin
|
|
$
|
74
|
|
|
-2%
|
|
|
-5%
|
|
$
|
76
|
|
|
69%
|
|
|
73%
|
|
$
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Margin %
|
|
|
21%
|
|
|
|
|
|
|
|
|
24%
|
|
|
|
|
|
|
|
|
16%
|
% Revenues by
Geography:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
|
46%
|
|
|
|
|
|
|
|
|
47%
|
|
|
|
|
|
|
|
|
42%
|
EMEA
|
|
|
37%
|
|
|
|
|
|
|
|
|
36%
|
|
|
|
|
|
|
|
|
40%
|
Asia Pacific
|
|
|
17%
|
|
|
|
|
|
|
|
|
17%
|
|
|
|
|
|
|
|
|
18%
|
|
|
|
(1) |
|
Excluding stock-based compensation |
|
* |
|
Not meaningful |
Fiscal 2007 Compared to Fiscal 2006: Excluding
the effect of currency rate fluctuations, education revenues
grew primarily due to an increase in customer training on the
use of our application products, as well as $5 million of
incremental revenues from our acquisition of Hyperion. The
Americas contributed 46%, EMEA contributed 26% and Asia Pacific
contributed 28% to the increase in education revenues.
Excluding the effects of currency rate fluctuations, education
expenses increased due to incremental headcount and associated
personnel related expenditures, as well as higher third party
contractor and royalty fees associated with increased revenues.
Education expenses also include $3 million of incremental
expenses from Hyperion. Total education margin as a percentage
of revenues decreased as expenses grew at a higher rate than
revenues.
Fiscal 2006 Compared to Fiscal 2005: Education
revenues increased due to an increase in customer training on
the use of our acquired applications products. Excluding the
effect of currency rate fluctuations, the Americas contributed
64%, EMEA contributed 24% and Asia Pacific contributed 12% to
the overall increase in education revenues.
Education expenses increased due to incremental headcount and
associated personnel related expenditures related to Siebel
education employees and higher external contractor costs.
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.
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended May 31,
|
|
|
|
|
Percent Change
|
|
|
|
Percent Change
|
|
|
(Dollars in millions)
|
|
2007
|
|
Actual
|
|
Constant
|
|
2006
|
|
Actual
|
|
Constant
|
|
2005
|
|
Research and
development(1)
|
|
$
|
2,110
|
|
|
14%
|
|
|
11%
|
|
$
|
1,859
|
|
|
25%
|
|
|
24%
|
|
$
|
1,481
|
Stock-based compensation
|
|
|
85
|
|
|
541%
|
|
|
541%
|
|
|
13
|
|
|
31%
|
|
|
31%
|
|
|
10
|
Amortization of intangible
assets(2)
|
|
|
10
|
|
|
-47%
|
|
|
-47%
|
|
|
17
|
|
|
-49%
|
|
|
-38%
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
$
|
2,205
|
|
|
17%
|
|
|
16%
|
|
$
|
1,889
|
|
|
24%
|
|
|
24%
|
|
$
|
1,523
|
% of Total
Revenues
|
|
|
12%
|
|
|
|
|
|
|
|
|
13%
|
|
|
|
|
|
|
|
|
13%
|
|
|
|
(1) |
|
Excluding stock-based compensation |
|
(2) |
|
Included as a component of Amortization of Intangible
Assets in our consolidated statements of operations |
Fiscal 2007 Compared to Fiscal 2006: Excluding
the effect of currency rate fluctuations, research and
development expenses increased due to higher salary and benefits
expenses associated with higher headcount levels, increased
stock-based compensation expenses due to the adoption of
Statement 123R and increased external contractor expenses.
Research and development expenses include incremental expenses
of $25 million from i-flex and $19 million from
Hyperion. Research and development headcount increased by
approximately 3,600 employees, consisting of a 33% increase
in personnel in our applications products divisions and a 14%
increase in personnel in our database and middleware products
division. The increase in applications headcount includes
approximately 1,200 employees acquired from i-flex and 200
from Hyperion, while the increase in database and middleware
headcount includes approximately 400 employees acquired
from Hyperion.
Fiscal 2006 Compared to Fiscal 2005: Research
and development headcount increased by approximately 1,300,
which represented a 13% increase in personnel in our database
and middleware products division and a 5% increase in personnel
in our applications products division. The increase in database
and middleware headcount was primarily due to hiring of
resources outside the United States, while the increase in
applications headcount was primarily due to Siebel resources
acquired. Research and development expenses increased due to
incremental salary and benefits for the additional headcount,
higher discretionary bonus expenditures and higher facility and
technology costs, partially offset by lower external contractor
costs.
General and Administrative
Expenses: General and administrative expenses
primarily consist of personnel related expenditures for
information technology, finance, legal and human resources
support functions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended May 31,
|
|
|
|
|
Percent Change
|
|
|
|
Percent Change
|
|
|
(Dollars in millions)
|
|
2007
|
|
Actual
|
|
Constant
|
|
2006
|
|
Actual
|
|
Constant
|
|
2005
|
|
General and
Administrative(1)
|
|
$
|
643
|
|
|
16%
|
|
|
13%
|
|
$
|
555
|
|
|
1%
|
|
|
3%
|
|
$
|
550
|
Stock-based compensation
|
|
|
49
|
|
|
*
|
|
|
*
|
|
|
|
|
|
*
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
$
|
692
|
|
|
25%
|
|
|
22%
|
|
$
|
555
|
|
|
1%
|
|
|
3%
|
|
$
|
550
|
% of Total
Revenues
|
|
|
4%
|
|
|
|
|
|
|
|
|
4%
|
|
|
|
|
|
|
|
|
5%
|
|
|
|
(1) |
|
Excluding stock-based compensation |
|
* |
|
Not meaningful |
Fiscal 2007 Compared to Fiscal 2006: Excluding
the effect of currency rate fluctuations, general and
administrative expenses increased during fiscal 2007 as a result
of higher personnel related costs associated with increased
headcount to support our expanding operations, the recognition
of stock-based compensation expenses due to the adoption of
Statement 123R and increased professional services fees,
primarily litigation related expenses. General and
administrative expenses include incremental expenses of
$25 million from i-flex and $10 million from Hyperion.
46
Fiscal 2006 Compared to Fiscal 2005: Excluding
the effect of currency rate fluctuations, general and
administrative expenses increased slightly due to higher
litigation expenses and increased salary costs, partially offset
by lower bonus expenditures.
Amortization
of Intangible Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended May 31,
|
(Dollars in millions)
|
|
2007
|
|
Change
|
|
2006
|
|
Change
|
|
2005
|
|
Software support agreements and
related relationships
|
|
$
|
321
|
|
|
33%
|
|
$
|
241
|
|
|
174%
|
|
$
|
88
|
Developed technology
|
|
|
355
|
|
|
72%
|
|
|
206
|
|
|
140%
|
|
|
86
|
Core technology
|
|
|
133
|
|
|
46%
|
|
|
91
|
|
|
203%
|
|
|
30
|
Customer contracts
|
|
|
44
|
|
|
47%
|
|
|
30
|
|
|
200%
|
|
|
10
|
Trademarks
|
|
|
25
|
|
|
67%
|
|
|
15
|
|
|
200%
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortization of intangible
assets
|
|
$
|
878
|
|
|
51%
|
|
$
|
583
|
|
|
166%
|
|
$
|
219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2007 Compared to Fiscal
2006: Amortization of intangible assets increased
due to the amortization of purchased intangibles from Hyperion,
Siebel (a full year of amortization in fiscal 2007 in comparison
to four months in fiscal 2006), i-flex and other acquisitions
that we consummated in the past two fiscal years. See
Note 14 of Notes to Consolidated Financial Statements for
additional information regarding our intangible assets
(including weighted average useful lives) and related
amortization expenses.
Fiscal 2006 Compared to Fiscal
2005: Amortization of intangible assets increased
due to amortization of purchased intangibles from Siebel and
other acquisitions in fiscal 2006 as well as a full year of
amortization in fiscal 2006 related to PeopleSoft intangibles
acquired compared with only five months of amortization in
fiscal 2005.
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 expenses 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 terms of these
options.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended May 31,
|
(Dollars in millions)
|
|
2007
|
|
|
Change
|
|
2006
|
|
Change
|
|
2005
|
|
In-process research and development
|
|
$
|
151
|
|
|
|
94%
|
|
$
|
78
|
|
|
70%
|
|
$
|
46
|
Transitional employee related
expenses
|
|
|
24
|
|
|
|
-20%
|
|
|
30
|
|
|
-42%
|
|
|
52
|
Stock-based compensation
|
|
|
9
|
|
|
|
-50%
|
|
|
18
|
|
|
-62%
|
|
|
47
|
Professional fees
|
|
|
8
|
|
|
|
-27%
|
|
|
11
|
|
|
-83%
|
|
|
63
|
PeopleSoft pre-acquisition legal
contingency accrual
|
|
|
(52
|
)
|
|
|
*
|
|
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total acquisition related charges
|
|
$
|
140
|
|
|
|
2%
|
|
$
|
137
|
|
|
-34%
|
|
$
|
208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2007 Compared to Fiscal
2006: Acquisition related charges increased
primarily due to in-process research and development charges
resulting from our acquisitions of Hyperion, i-flex and others
in fiscal 2007. This increase was offset by a $52 million
benefit related to the settlement of a lawsuit filed in October
2003 against PeopleSoft on behalf of the U.S. government,
prior to our acquisition of PeopleSoft. The lawsuit alleged
PeopleSoft made defective pricing disclosures to the General
Services Administration. This lawsuit represented a
pre-acquisition contingency that we identified and assumed in
connection with our acquisition of PeopleSoft. On
October 10, 2006, we agreed to pay the U.S. government
approximately $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 for a pre-acquisition contingency is to be included as
an element of net income in the period of settlement, versus an
adjustment to the original purchase price allocation. Since the
purchase price allocation period for PeopleSoft ended in our
third quarter of fiscal 2006, the favorable difference of
$52 million between the estimated
47
exposure recorded for this lawsuit during the purchase price
allocation period and the actual settlement amount has been
included in our consolidated statement of operations for fiscal
2007.
Fiscal 2006 Compared to Fiscal
2005: Acquisition related charges decreased due
to lower professional fees, stock-based compensation charges and
lower transitional employee costs, partially offset by higher
in-process research and development charges primarily related to
the Siebel acquisition.
Restructuring: Restructuring expenses
consist of Oracle employee severance costs and Oracle duplicate
facilities closures which were initiated to improve our cost
structure as a result of acquisitions. For additional
information regarding the Oracle restructuring plans, as well as
restructuring activities of our acquired companies, please see
Note 3 of Notes to Consolidated Financial Statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended May 31,
|
(Dollars in millions)
|
|
2007
|
|
Change
|
|
2006
|
|
Change
|
|
2005
|
|
Severance costs
|
|
$
|
19
|
|
|
-78%
|
|
$
|
85
|
|
|
-33%
|
|
$
|
126
|
Excess facilities
|
|
|
|
|
|
*
|
|
|
|
|
|
-100%
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring charges
|
|
$
|
19
|
|
|
-78%
|
|
$
|
85
|
|
|
-42%
|
|
$
|
147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2007 Compared to Fiscal
2006: Restructuring expenses decreased as our
management did not initiate and communicate any plans to
restructure our Oracle-based operations during fiscal 2007.
Restructuring expenses in fiscal 2007 relate to notifications
made pursuant to the Fiscal 2006 Oracle Restructuring Plan.
Fiscal 2006 Compared to Fiscal
2005: Restructuring expenses decreased in fiscal
2006 due to lower headcount terminations and related severance
costs. Additionally, the restructuring program in fiscal 2005
included $21 million of facility exit and termination costs.
Interest
Expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended May 31,
|
|
|
|
|
Percent Change
|
|
|
|
Percent Change
|
|
|
(Dollars in millions)
|
|
2007
|
|
Actual
|
|
Constant
|
|
2006
|
|
Actual
|
|
Constant
|
|
2005
|
|
Interest expense
|
|
$
|
343
|
|
|
103%
|
|
|
104%
|
|
$
|
169
|
|
|
25%
|
|
|
26%
|
|
$
|
135
|
Fiscal 2007 Compared to Fiscal 2006: Interest
expense increased in fiscal 2007 due to higher average
borrowings in fiscal 2007 related to our $5.75 billion
aggregate principal amount of senior notes issued in January
2006 (of which $1.5 billion was redeemed by us in May
2007), our $2.1 billion of commercial paper issuances (of
which approximately $1.4 billion remained outstanding as of
May 31, 2007) and our $2.0 billion of senior
notes issued in May 2007.
Fiscal 2006 Compared to Fiscal 2005: Interest
expense increased in fiscal 2006 compared to fiscal 2005 due to
higher average borrowings related to the $5.75 billion
senior notes issued in January 2006 as well as outstanding
balances under our commercial paper program and unsecured loan
facility, both of which were repaid in fiscal 2006.
Non-Operating Income,
net: Non-operating income, net consists
primarily of interest income, net foreign currency exchange
gains (losses), net investment gains related to marketable
securities and other investments as well as the minority
interests share in the net profits of i-flex and Oracle
Japan.
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended May 31,
|
|
|
|
|
|
|
Percent Change
|
|
|
|
|
Percent Change
|
|
|
|
(Dollars in millions)
|
|
2007
|
|
|
Actual
|
|
Constant
|
|
2006
|
|
|
Actual
|
|
Constant
|
|
2005
|
|
|
Interest income
|
|
$
|
295
|
|
|
|
74%
|
|
|
72%
|
|
$
|
170
|
|
|
|
-8%
|
|
|
-8%
|
|
$
|
185
|
|
Foreign currency gains (losses)
|
|
|
45
|
|
|
|
15%
|
|
|
19%
|
|
|
39
|
|
|
|
-368%
|
|
|
-374%
|
|
|
(14
|
)
|
Net investment gains related to
equity securities
|
|
|
22
|
|
|
|
-11%
|
|
|
-10%
|
|
|
25
|
|
|
|
1301%
|
|
|
1292%
|
|
|
2
|
|
Minority interest
|
|
|
(71
|
)
|
|
|
72%
|
|
|
70%
|
|
|
(41
|
)
|
|
|
-2%
|
|
|
-2%
|
|
|
(42
|
)
|
Other
|
|
|
64
|
|
|
|
28%
|
|
|
22%
|
|
|
50
|
|
|
|
52%
|
|
|
52%
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-operating income, net
|
|
$
|
355
|
|
|
|
46%
|
|
|
45%
|
|
$
|
243
|
|
|
|
49%
|
|
|
50%
|
|
$
|
164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2007 Compared to Fiscal
2006: Non-operating income, net increased in
fiscal 2007 primarily due to higher interest income attributable
to an increase in average interest rates (the weighted average
interest rate earned on cash, cash equivalents and marketable
securities increased from 3.04% in fiscal 2006 to 3.97% in
fiscal 2007), partially offset by higher minority
interests share in the net profits of i-flex and Oracle
Japan.
Fiscal 2006 Compared to Fiscal
2005: Non-operating income, net increased in
fiscal 2006 as a result of higher foreign currency gains on our
Japanese net investment hedge and the Chinese currency
revaluation, $14 million of equity in earnings associated
with our interest in i-flex and higher gains on sales of equity
securities. Interest income decreased slightly due to lower
average cash, cash equivalents and marketable securities
balances, partially offset by higher interest rates. The
weighted average interest rate earned on cash, cash equivalents
and marketable securities increased from 1.93% in fiscal 2005 to
3.04% in fiscal 2006.
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended May 31,
|
(Dollars in millions)
|
|
2007
|
|
Change
|
|
2006
|
|
Change
|
|
2005
|
|
Provision for income taxes
|
|
$
|
1,712
|
|
|
20%
|
|
$
|
1,429
|
|
|
23%
|
|
$
|
1,165
|
Effective tax
rate
|
|
|
28.6%
|
|
|
|
|
|
29.7%
|
|
|
|
|
|
28.8%
|
Fiscal 2007 Compared to Fiscal 2006: Provision
for income taxes increased in fiscal 2007 primarily due to
higher earnings before tax, partially offset by a lower
effective tax rate. Our effective tax rate for fiscal 2007 was
slightly lower than in fiscal 2006 primarily due to additional
research and development tax credits as well as agreements
reached with foreign tax authorities on certain tax positions.
Fiscal 2006 Compared to Fiscal 2005: Provision
for income taxes increased in fiscal 2006 due to higher earnings
before tax and a higher effective tax rate. The increase in the
effective tax rate in fiscal 2006 is primarily attributable to a
higher percentage of earnings in high tax jurisdictions as
compared with other lower tax rate jurisdictions. In addition,
we did not benefit from certain non-recurring tax events in
fiscal 2006 that occurred in fiscal 2005, including the
settlement of audits and expiration of statutes of limitations
on certain tax assessments and the
true-up of
estimated tax accruals upon the filing of our prior year tax
returns. We also incurred higher non-deductible in-process
research and development charges in fiscal 2006.
Liquidity
and Capital Resources
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 31,
|
(Dollars in millions)
|
|
2007
|
|
Change
|
|
2006
|
|
Change
|
|
2005
|
|
Working capital
|
|
$
|
3,496
|
|
|
-31%
|
|
$
|
5,044
|
|
|
1,210%
|
|
$
|
385
|
Cash, cash equivalents and
marketable securities
|
|
$
|
7,020
|
|
|
-8%
|
|
$
|
7,605
|
|
|
59%
|
|
$
|
4,771
|
49
Working capital: The decrease in
working capital in fiscal 2007 was primarily a result of cash
used to pay for our acquisitions and stock repurchases,
partially offset by increases in operating cash flows from
higher sales volumes, proceeds received from employee stock
option exercises and an increase in our long-term borrowings.
The increase in working capital in fiscal 2006 is primarily due
to our issuance of $5.75 billion long-term senior notes in
January 2006 as well as greater cash flows from operations from
higher sales volumes, partially offset by cash used to pay for
acquisitions, stock repurchases, and the reduction of our other
debt obligations.
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
$5.0 billion held by our foreign subsidiaries as of
May 31, 2007. The decrease in cash, cash equivalents and
marketable securities is a result of cash used to pay for
acquisitions and stock repurchases, partially offset by an
increase in our operating cash flows from higher sales volumes,
increases in our short-term and long-term borrowings and
proceeds from stock option exercises.
Days sales outstanding, which is calculated by dividing period
end accounts receivable by average daily sales for the quarter,
was 62 days at May 31, 2007 compared with 55 days
at May 31, 2006. The days sales outstanding calculation
excludes the adjustment to reduce software license updates and
product support revenues related to adjusting the carrying value
for deferred support revenues acquired to fair value. Our
increase in days sales outstanding is primarily due to higher
days sales outstanding from acquired companies, as well as
differences in the timing of completion of certain sales
transactions between years.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended May 31,
|
|
(Dollars in millions)
|
|
2007
|
|
|
Change
|
|
2006
|
|
|
Change
|
|
2005
|
|
|
Cash provided by operating
activities
|
|
$
|
5,520
|
|
|
|
22%
|
|
$
|
4,541
|
|
|
|
28%
|
|
$
|
3,552
|
|
Cash used for investing activities
|
|
$
|
(4,971
|
)
|
|
|
48%
|
|
$
|
(3,359
|
)
|
|
|
-42%
|
|
$
|
(5,753
|
)
|
Cash (used for) provided by
financing activities
|
|
$
|
(1,139
|
)
|
|
|
-175%
|
|
$
|
1,527
|
|
|
|
-19%
|
|
$
|
1,884
|
|
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 agreements are generally
received by 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.
Fiscal 2007 Compared to Fiscal 2006: Cash
flows provided by operating activities increased in fiscal 2007
primarily due to higher net income before non-cash charges,
partially offset by increased accounts receivables due to fourth
quarter fiscal 2007 revenue growth, cash payments to terminate
leases associated with excess facilities assumed in the Siebel
acquisition, an increase in cash interest payments resulting
from higher average borrowings and the settlement of a
pre-acquisition lawsuit filed against PeopleSoft.
Fiscal 2006 Compared to Fiscal 2005: Cash
flows provided by operating activities increased in fiscal 2006
primarily due to higher sales volumes and higher net income,
excluding non-cash charges, partially offset by increased
accounts receivables due to fourth quarter fiscal 2006 revenue
growth.
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.
Fiscal 2007 Compared to Fiscal 2006: Cash used
for investing activities increased in fiscal 2007 due to an
increase in cash used for acquisitions, net of cash acquired. We
paid cash to purchase a number of companies in fiscal 2007
including Hyperion, Stellent, MetaSolv, and Portal Software, and
to purchase additional equity securities in i-flex. Cash
outflows in fiscal 2006 primarily relate to our acquisition of
Siebel and our equity investment purchases in i-flex.
50
Fiscal 2006 Compared to Fiscal 2005: Cash used
for investing activities decreased in fiscal 2006 primarily due
to lower cash payments for acquisitions, net of cash acquired,
as well as proceeds from property sales. Investing cash outflows
in fiscal 2005 include cash paid for our acquisition of
PeopleSoft, whereas investing cash outflows in fiscal 2006
primarily relate to our acquisition of Siebel and our equity
investment purchases in i-flex.
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.
Fiscal 2007 Compared to Fiscal 2006: Net cash
used for financing activities in fiscal 2007 primarily relates
to an increase in stock repurchases and lower borrowings net of
repayments when compared with the prior year. At May 31,
2007 we had approximately $4.2 billion available for share
repurchases pursuant to a program authorized by our Board of
Directors and we intend to continue to repurchase shares
pursuant to this program.
Fiscal 2006 Compared to Fiscal 2005: Cash
provided by financing activities decreased in fiscal 2006
primarily due to higher stock repurchases, partially offset by
higher net borrowings. We increased our share repurchases in
fiscal 2006 due to the issuance of approximately
141 million shares of common stock in connection with our
Siebel acquisition.
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 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended May 31,
|
|
(Dollars in millions)
|
|
2007
|
|
|
Change
|
|
2006
|
|
|
Change
|
|
2005
|
|
|
Cash provided by operating
activities
|
|
$
|
5,520
|
|
|
|
22%
|
|
$
|
4,541
|
|
|
|
28%
|
|
$
|
3,552
|
|
Capital
expenditures(1)
|
|
$
|
(319
|
)
|
|
|
35%
|
|
$
|
(236
|
)
|
|
|
26%
|
|
$
|
(188
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Free cash flow
|
|
$
|
5,201
|
|
|
|
21%
|
|
$
|
4,305
|
|
|
|
28%
|
|
$
|
3,364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
4,274
|
|
|
|
26%
|
|
$
|
3,381
|
|
|
|
17%
|
|
$
|
2,886
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Free cash flow as a percent of net
income
|
|
|
122%
|
|
|
|
|
|
|
127%
|
|
|
|
|
|
|
117%
|
|
|
|
|
(1) |
|
Represents capital expenditures as reported in cash flows from
investing activities in our consolidated statements of cash
flows presented in accordance with U.S. generally accepted
accounting principles. |
Long-Term
Customer Financing
In fiscal 2007, 2006 and 2005, $891 million,
$618 million and $456 million or approximately 15%,
13% and 11%, respectively, of our new software license revenues
were financed through our financing division. 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.
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 certainty regarding the timing and
amounts of payments. We have presented below a summary of the
most
51
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 May 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ending May 31,
|
(Dollars in millions)
|
|
Total
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
2012
|
|
Thereafter
|
|
Principal payments on short-term
borrowings and long-term
debt(1)
|
|
$
|
7,611
|
|
$
|
1,361
|
|
$
|
1,000
|
|
$
|
1,000
|
|
$
|
2,250
|
|
$
|
|
|
$
|
2,000
|
Capital
leases(2)
|
|
|
3
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest payments on short-term
borrowings and long-term
debt(1)
|
|
|
1,658
|
|
|
325
|
|
|
321
|
|
|
269
|
|
|
218
|
|
|
105
|
|
|
420
|
Operating
leases(3)
|
|
|
1,448
|
|
|
339
|
|
|
301
|
|
|
242
|
|
|
162
|
|
|
124
|
|
|
280
|
Purchase
obligations(4)
|
|
|
292
|
|
|
73
|
|
|
196
|
|
|
3
|
|
|
3
|
|
|
3
|
|
|
14
|
Funding
commitments(5)
|
|
|
3
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
11,015
|
|
$
|
2,104
|
|
$
|
1,818
|
|
$
|
1,514
|
|
$
|
2,633
|
|
$
|
232
|
|
$
|
2,714
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Short-term borrowings and long-term debt consists of the
following as of May 31, 2007: |
|
|
|
|
|
|
|
Principal Balance
|
|
|
Commercial paper notes (effective
interest rate of 5.33)%
|
|
$
|
1,355
|
|
Floating rate senior notes due May
2009 (effective interest rate of 5.38)%
|
|
|
1,000
|
|
Floating rate senior notes due May
2010 (effective interest rate of 5.42)%
|
|
|
1,000
|
|
5.00% senior notes due
January 2011, net of discount of $6
|
|
|
2,244
|
|
5.25% senior notes due
January 2016, net of discount of $9
|
|
|
1,991
|
|
Other
|
|
|
3
|
|
|
|
|
|
|
Total borrowings
|
|
$
|
7,593
|
|
|
|
|
|
|
|
|
|
(1) |
|
Interest payments were calculated based on terms of the related
agreements and include estimates based on the effective interest
rates as of May 31, 2007 for variable rate borrowings. See
Note 5 of Notes to Consolidated Financial Statements for
additional information related to our borrowings. |
|
(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 $364 million in facility obligations,
net of estimated sublease income and other costs, in accrued
restructuring for these locations in our consolidated balance
sheet at May 31, 2007. |
|
(4) |
|
Represents amounts associated with agreements that are
enforceable, legally binding and specify terms, including: fixed
or minimum quantities to be purchased; fixed, minimum or
variable price provisions; and the approximate timing of the
payment. |
|
(5) |
|
Represents the maximum additional capital we may need to
contribute toward our venture fund investments which are payable
upon demand. |
In May 2007, we entered into an agreement to acquire Agile
Software Corporation, a leading provider of product lifecycle
management software, for $8.10 per share in cash, or
approximately $495 million. The merger is subject to
stockholder and regulatory approval and other customary closing
conditions and is expected to close in mid to late July 2007.
This commitment is not reflected in the above table.
52
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 are material to investors.
Recent
Financing Activities
Commercial
Paper Program
In February 2006, we entered into dealer agreements with various
financial institutions and an Issuing and Paying Agency
Agreement with JPMorgan Chase Bank, National Association,
relating to a $3.0 billion commercial paper program
(CP Program). Under the CP Program, we may issue and
sell unsecured short-term promissory notes pursuant to a private
placement exemption from the registration requirements under
federal and state securities laws. In fiscal 2007, we issued
approximately $2.1 billion of short-term promissory notes
(Commercial Paper Notes) pursuant to our CP Program, of
which $1.4 billion remained outstanding and
$1.6 billion remained as additional capacity under our
CP Program as of May 31, 2007. The maturities of the
Commercial Paper Notes ranged between two weeks and three months
and the weighted average yield, including issuance costs, was
5.33% at May 31, 2007. We did not have any outstanding
borrowings under our CP Program at May 31, 2006.
Senior
Notes Payable
In May 2007, we issued $2.0 billion of floating rate senior
notes, of which $1.0 billion is due May 2009 (New 2009
Notes) and $1.0 billion is due May 2010 (2010 Notes). We
issued the New 2009 Notes and 2010 Notes to fund the redemption
of the $1.5 billion of senior floating rate notes that we
issued in fiscal 2006 (see below) and for general corporate
purposes. The New 2009 Notes and 2010 Notes bear interest at a
rate of three-month USD LIBOR plus 0.02% and 0.06%,
respectively, and interest is payable quarterly. The New 2009
Notes and 2010 Notes may not be redeemed prior to their maturity.
In January 2006, we issued $5.75 billion of senior notes
consisting of $1.5 billion of floating rate senior notes
due 2009 (Original 2009 Notes), $2.25 billion of
5.00% senior notes due 2011 (2011 Notes) and
$2.0 billion of 5.25% senior notes due 2016 (2016
Notes and together with the Original 2009 Notes and the 2011
Notes, Original Senior Notes) to finance the Siebel acquisition
and for general corporate purposes. On June 16, 2006, we
completed a registered exchange offer of the Original Senior
Notes for registered senior notes with substantially identical
terms to the Original Senior Notes.
In May 2007 we redeemed the Original 2009 Notes for their
principal amount plus accrued and unpaid interest. Our 2011
Notes and 2016 Notes may also be redeemed at any time, subject
to payment of a make-whole premium. The 2011 Notes and 2016
Notes bear interest at the rate of 5.00% and 5.25% per year,
respectively. Interest is payable semi-annually for the 2011
notes and 2016 notes.
The effective interest yields of the New 2009 Notes, 2010 Notes,
2011 Notes and 2016 Notes (collectively, the Senior Notes) at
May 31, 2007 were 5.38%, 5.42%, 5.09% and 5.33%,
respectively.
The Senior Notes rank pari passu with the Commercial Paper Notes
and all existing and future senior indebtedness of Oracle
Corporation. All existing and future liabilities of the
subsidiaries of Oracle Corporation will be effectively senior to
the Senior Notes and the Commercial Paper Notes.
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
acquisitions, including the Agile acquisition, 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.
Quarterly
Results of Operations
Quarterly revenues and expenses have historically been affected
by a variety of seasonal factors, including sales compensation
plans. These seasonal factors are common in the software
industry. These factors have caused a
53
decrease in our first quarter revenues as compared to revenues
in the immediately preceding fourth quarter, which historically
has been the highest revenue quarter. We expect this trend to
continue in the first quarter of fiscal 2008. In addition, our
European operations generally provide lower revenues in our
first fiscal quarter because of the reduced economic activity in
Europe during the summer.
The following table sets forth selected unaudited quarterly
information for our last eight fiscal quarters. We believe that
all necessary adjustments, which consisted only of normal
recurring adjustments, have been included in the amounts stated
below to present fairly the results of such periods when read in
conjunction with the consolidated financial statements and
related notes included elsewhere in this Annual Report on
Form 10-K.
The sum of the quarterly financial information may vary from the
annual data due to rounding.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2007 Quarter Ended (Unaudited)
|
|
(in millions, except per share amounts)
|
|
August 31
|
|
|
November 30
|
|
|
February 28
|
|
|
May 31
|
|
|
Revenues
|
|
$
|
3,591
|
|
|
$
|
4,163
|
|
|
$
|
4,414
|
|
|
$
|
5,828
|
|
Gross profit
|
|
$
|
1,666
|
|
|
$
|
2,024
|
|
|
$
|
2,197
|
|
|
$
|
3,143
|
|
Operating income
|
|
$
|
943
|
|
|
$
|
1,357
|
|
|
$
|
1,394
|
|
|
$
|
2,281
|
|
Net income
|
|
$
|
670
|
|
|
$
|
967
|
|
|
$
|
1,033
|
|
|
$
|
1,604
|
|
Earnings per sharebasic
|
|
$
|
0.13
|
|
|
$
|
0.19
|
|
|
$
|
0.20
|
|
|
$
|
0.31
|
|
Earnings per sharediluted
|
|
$
|
0.13
|
|
|
$
|
0.18
|
|
|
$
|
0.20
|
|
|
$
|
0.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2006 Quarter Ended (Unaudited)
|
|
(in millions, except per share amounts)
|
|
August 31
|
|
|
November 30
|
|
|
February 28
|
|
|
May 31
|
|
|
Revenues
|
|
$
|
2,768
|
|
|
$
|
3,292
|
|
|
$
|
3,470
|
|
|
$
|
4,851
|
|
Gross profit
|
|
$
|
1,311
|
|
|
$
|
1,705
|
|
|
$
|
1,779
|
|
|
$
|
2,606
|
|
Operating income
|
|
$
|
712
|
|
|
$
|
1,116
|
|
|
$
|
1,052
|
|
|
$
|
1,857
|
|
Net income
|
|
$
|
519
|
|
|
$
|
798
|
|
|
$
|
765
|
|
|
$
|
1,300
|
|
Earnings per sharebasic
|
|
$
|
0.10
|
|
|
$
|
0.15
|
|
|
$
|
0.15
|
|
|
$
|
0.25
|
|
Earnings per sharediluted
|
|
$
|
0.10
|
|
|
$
|
0.15
|
|
|
$
|
0.14
|
|
|
$
|
0.24
|
|
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 for each of the last three full fiscal years has been
less than 2.0% and has averaged 1.7% per year. The potential
dilution percentage is calculated as the new option grants for
the year (including options assumed in acquisitions), net of
options forfeited by employees leaving the company, divided by
the total outstanding shares at the beginning of the year. 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 May 31, 2007, 12% 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 May 31, 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 8.5%.
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 of up to
100,000 shares to non-executive officers and employees.
54
Options activity from June 1, 2004 through May 31,
2007 is summarized as follows:
|
|
|
|
|
|
|
(Shares
|
|
|
|
in millions)
|
|
|
Options outstanding at
May 31, 2004
|
|
|
440
|
|
Options granted
|
|
|
171
|
|
Options assumed
|
|
|
204
|
|
Options exercised
|
|
|
(264
|
)
|
Forfeitures and cancellations
|
|
|
(117
|
)
|
|
|
|
|
|
Options outstanding at
May 31, 2007
|
|
|
434
|
|
|
|
|
|
|
Average annualized options
granted, net of forfeitures
|
|
|
86
|
|
Average annualized stock
repurchases
|
|
|
165
|
|
Shares outstanding at May 31,
2007
|
|
|
5,107
|
|
Weighted-average shares
outstanding from June 1, 2004 through May 31, 2007
|
|
|
5,168
|
|
Options outstanding as a percent
of shares outstanding at May 31, 2007
|
|
|
8.5%
|
|
In the money options outstanding
(based on our May 31, 2007 stock price) as a percent of
shares outstanding at May 31, 2007
|
|
|
7.5%
|
|
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 May 31, 2007
|
|
|
1.7%
|
|
Average annualized options granted
and assumed, net of forfeitures and after stock repurchases, as
a percent of average shares outstanding from June 1, 2004
through May 31, 2007
|
|
|
-1.5%
|
|
Our Compensation Committee approves the annual organization-wide
option grants to selected employees during the ten
business-day
period following the two business days after the announcement of
our fiscal year-end earnings report.
New
Accounting Pronouncements
For information with respect to new accounting pronouncements
and the impact of these pronouncements on our consolidated
financial statements, see Note 1 of Notes to Consolidated
Financial Statements.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
Interest Income Rate Risk. In the first
quarter of fiscal 2007, we began designating newly acquired
fixed income investments as available-for-sale. As a result of
the available-for-sale designation, all securities purchased
after May 31, 2006 are recorded on the balance sheet at
fair market value. As of May 31, 2007, substantially all
investments held are classified as available-for-sale.
We generally purchase investments with relatively short
maturities. Therefore, interest rate movements generally do not
materially affect the valuation of our investments. Auction rate
securities are reported on the balance sheet at par value, which
equals market value, as the rate on such securities re-sets
generally every 7 to 28 days. Changes in the overall level
of interest rates affect our interest income that is generated
from our investments. For fiscal 2007, total interest income was
$295 million with investments yielding an average 3.97% on
a worldwide basis. This interest rate level was up approximately
93 basis points from 3.04% for fiscal 2006. If overall
interest rates fell by a similar amount (93 basis points)
in fiscal 2008, our interest income would decline by
approximately $70 million, assuming consistent investment
levels. The table below presents the cash, cash equivalent and
marketable securities balances
55
and the related weighted average interest rates for our
investment portfolio at May 31, 2007. The cash, cash
equivalent and marketable securities balances approximate fair
value at May 31, 2007:
|
|
|
|
|
|
|
|
|
Amortized
|
|
Weighted Average
|
(Dollars in millions)
|
|
Principal Amount
|
|
Interest Rate
|
|
Cash and cash equivalents
|
|
$
|
6,218
|
|
|
4.08%
|
Marketable securities
|
|
|
802
|
|
|
2.89%
|
|
|
|
|
|
|
|
Total cash, cash equivalents and
marketable securities
|
|
$
|
7,020
|
|
|
3.95%
|
|
|
|
|
|
|
|
The following table includes the United States 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.
|
|
|
|
|
|
Amortized
|
|
|
Principal
|
|
|
Amount at
|
|
|
May 31,
|
(in millions)
|
|
2007
|
|
Euro
|
|
$
|
892
|
Japanese Yen
|
|
|
681
|
British Pound
|
|
|
371
|
Chinese Renminbi
|
|
|
336
|
Canadian Dollar
|
|
|
237
|
Australian Dollar
|
|
|
218
|
South African Rand
|
|
|
118
|
Other currencies
|
|
|
1,359
|
|
|
|
|
Total cash, cash equivalents and
marketable securities denominated in foreign currencies
|
|
$
|
4,212
|
|
|
|
|
Interest Expense Rate Risk. Borrowings
as of May 31, 2007 were $7.6 billion, consisting of
$5.6 billion of fixed rate borrowings and $2.0 billion
of variable rate borrowings. Our variable rate borrowings were
as follows at May 31, 2007:
|
|
|
|
|
|
|
(Dollars in millions)
|
|
Borrowings
|
|
Effective Interest Rate
|
|
Floating rate senior notes due May
2009(1)
|
|
$
|
1,000
|
|
|
5.38%
|
Floating rate senior notes due May
2010(1)
|
|
|
1,000
|
|
|
5.42%
|
|
|
|
|
|
|
|
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. |
Interest expense for fiscal 2007 was $343 million. Based on
effective interest rates at May 31, 2007, a 50 basis
point increase in interest rates on our borrowings subject to
variable interest rate fluctuations would increase our interest
expense by approximately $17 million annually.
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 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
56
(losses) included in non-operating income, net in the
accompanying consolidated statements of operations were
$17 million, $15 million and $(28) million in
fiscal 2007, 2006 and 2005, respectively. The unrealized gains
(losses) of our outstanding foreign currency forward contracts
were $5 million and $(0.3) million at May 31,
2007 and 2006, respectively.
The tables below present the notional amounts (at contract
exchange rates) and the weighted average contractual foreign
currency exchange rates for the outstanding forward contracts as
of May 31, 2007. Notional weighted average exchange rates
listed in the tables below are quoted using market conventions.
All of our forward contracts mature within one year with the
substantial majority maturing within 90 days or less as of
May 31, 2007.
Tables of
Forward Contracts:
United
States Dollar Foreign Exchange Contracts
|
|
|
|
|
|
|
|
|
|
|
|
Exchange
|
|
Exchange
|
|
Notional
|
|
|
Foreign Currency
|
|
U.S. Dollars for
|
|
Weighted Average
|
|
|
for U.S. Dollars
|
|
Foreign Currency
|
|
Exchange Rate
|
(Dollars in millions)
|
|
(Notional Amount)
|
|
(Notional Amount)
|
|
(Market Convention)
|
|
Functional Currency:
|
|
|
|
|
|
|
|
|
|
Australian Dollar
|
|
$
|
11
|
|
$
|
5
|
|
|
0.82
|
British Pound
|
|
|
|
|
|
6
|
|
|
1.98
|
Canadian Dollar
|
|
|
30
|
|
|
7
|
|
|
1.07
|
Chilean Peso
|
|
|
3
|
|
|
|
|
|
526.10
|
Chinese Renminbi
|
|
|
177
|
|
|
|
|
|
7.57
|
Columbian Peso
|
|
|
6
|
|
|
|
|
|
1,925.00
|
Indian Rupee
|
|
|
29
|
|
|
123
|
|
|
45.82
|
Israel Shekel
|
|
|
|
|
|
4
|
|
|
4.01
|
Japanese Yen
|
|
|
25
|
|
|
|
|
|
120.22
|
Korean Won
|
|
|
18
|
|
|
|
|
|
926.90
|
Mexican Peso
|
|
|
7
|
|
|
|
|
|
10.84
|
New Zealand Dollar
|
|
|
4
|
|
|
|
|
|
0.72
|
Philippine Peso
|
|
|
14
|
|
|
|
|
|
46.12
|
Saudi Arabian Riyal
|
|
|
32
|
|
|
|
|
|
3.75
|
Singapore Dollar
|
|
|
2
|
|
|
84
|
|
|
1.52
|
South African Rand
|
|
|
12
|
|
|
|
|
|
7.19
|
Taiwan Dollar
|
|
|
4
|
|
|
|
|
|
32.79
|
Thai Baht
|
|
|
7
|
|
|
|
|
|
33.50
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
381
|
|
$
|
229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57
Euro
Foreign Exchange Contracts
|
|
|
|
|
|
|
|
|
|
|
|
Exchange
|
|
Exchange
|
|
Notional
|
|
|
Foreign Currency
|
|
Euros for
|
|
Weighted Average
|
|
|
for Euros
|
|
Foreign Currency
|
|
Exchange Rate
|
(Euros in millions)
|
|
(Notional Amount)
|
|
(Notional Amount)
|
|
(Market Convention)
|
|
Functional Currency:
|
|
|
|
|
|
|
|
|
|
Swiss Franc
|
|
|
5
|
|
|
|
|
|
1.64
|
Danish Krone
|
|
|
3
|
|
|
|
|
|
7.45
|
British Pound
|
|
|
42
|
|
|
|
|
|
0.68
|
Indian Rupee
|
|
|
|
|
|
4
|
|
|
54.31
|
Israeli Shekel
|
|
|
4
|
|
|
|
|
|
5.44
|
Norwegian Krone
|
|
|
4
|
|
|
|
|
|
8.11
|
Polish Zloty
|
|
|
5
|
|
|
|
|
|
3.83
|
Saudi Arabian Riyal
|
|
|
3
|
|
|
|
|
|
5.07
|
Slovakian Koruna
|
|
|
1
|
|
|
|
|
|
34.08
|
Swedish Krona
|
|
|
5
|
|
|
|
|
|
9.26
|
United States Dollar
|
|
|
19
|
|
|
|
|
|
1.35
|
South African Rand
|
|
|
27
|
|
|
|
|
|
9.73
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
118
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Investment Risk. Periodically, 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 prior to tax effects were
$45 million, $23 million and $(23) million in
fiscal 2007, 2006 and 2005, respectively. The net gain on
investment hedges reported in non-operating income, net were
$28 million, $24 million and $14 million in
fiscal 2007, 2006 and 2005, respectively.
At May 31, 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. The fair value of our Yen investment
hedge was $0.2 million at May 31, 2007 and 2006. As of
May 31, 2007, the Yen investment hedge has a notional
amount of $548 million and an exchange rate of 120.22 Yen
for each United States dollar.
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
The response to this item is submitted as a separate section of
this Annual Report on
Form 10-K.
See Part IV, Item 15.
|
|
Item 9.
|
Changes
In and Disagreements with Accountants on Accounting and
Financial Disclosure
|
Not applicable.
58
|
|
Item 9A.
|
Controls
and Procedures
|
Evaluation
of Disclosure Controls and Procedures
As of the end of the period covered by this Annual Report on
Form 10-K,
we carried out an evaluation under the supervision and with the
participation of our Disclosure Committee and our management,
including the Chief Executive Officer and the Chief Financial
Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures pursuant to Exchange Act
Rules 13a-15(e)
and
15d-15(e).
Disclosure controls are procedures that are designed to ensure
that information required to be disclosed in our reports filed
under the Securities Exchange Act of 1934, or the Exchange Act,
such as this Annual Report on
Form 10-K,
is recorded, processed, summarized and reported within the time
periods specified by the Securities and Exchange Commission.
Disclosure controls are also designed to ensure that such
information is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial
Officer, as appropriate to allow timely decisions regarding
required disclosure. Our quarterly evaluation of disclosure
controls includes an evaluation of some components of our
internal control over financial reporting. We also perform a
separate annual evaluation of internal control over financial
reporting for the purpose of providing the management report
below.
The evaluation of our disclosure controls included a review of
their objectives and design, our implementation of the controls
and the effect of the controls on the information generated for
use in this Annual Report on
Form 10-K.
In the course of the controls evaluation, we reviewed data
errors or control problems identified and sought to confirm that
appropriate corrective actions, including process improvements,
were being undertaken. This type of evaluation is performed on a
quarterly basis so that the conclusions of management, including
our Chief Executive Officer and Chief Financial Officer,
concerning the effectiveness of the disclosure controls can be
reported in our periodic reports on
Form 10-Q
and
Form 10-K.
Many of the components of our disclosure controls are also
evaluated on an ongoing basis by both our internal audit and
finance organizations. The overall goals of these various
evaluation activities are to monitor our disclosure controls and
to modify them as necessary. We intend to maintain the
disclosure controls as dynamic systems that we adjust as
circumstances merit.
Based upon that evaluation, our Chief Executive Officer and
Chief Financial Officer concluded that our disclosure controls
and procedures were effective as of the end of the period
covered by this report.
Managements
Report on Internal Control over Financial
Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term
is defined in Exchange Act
Rules 13a-15(f)
and
15d-15(f).
Under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief
Financial Officer, we conducted an evaluation of the
effectiveness of our internal control over financial reporting
as of May 31, 2007 based on the guidelines established in
Internal ControlIntegrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Our internal control over financial reporting includes
policies and procedures that provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external reporting
purposes in accordance with U.S. generally accepted
accounting principles.
Based on the results of our evaluation, our management concluded
that our internal control over financial reporting was effective
as of May 31, 2007. We reviewed the results of
managements assessment with our Finance and Audit
Committee.
Managements assessment of the effectiveness of our
internal control over financial reporting as of May 31,
2007 has been audited by Ernst & Young LLP, an
independent registered public accounting firm, as stated in
their report which is included in Part IV, Item 15 of
this Annual Report on
Form 10-K.
Changes
in Internal Control over Financial Reporting
There were no changes in our internal control over financial
reporting identified in connection with the evaluation required
by paragraph (d) of Exchange Act
Rules 13a-15
or 15d-15
that occurred during our last fiscal quarter that have
materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
59
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 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.
|
|
Item 9B.
|
Other
Information
|
None.
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
The information required by this Item is incorporated by
reference from the information contained in our Proxy Statement
to be filed with the Securities and Exchange Commission in
connection with the solicitation of proxies for our Annual
Meeting of Stockholders to be held on November 2, 2007.
|
|
Item 11.
|
Executive
Compensation
|
The information required by this Item is incorporated by
reference from the responsive information to be contained in our
Proxy Statement.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
Equity
Compensation Plan Information
|
|
|
|
|
|
|
|
|
|
|
|
|
May 31, 2007
|
|
|
|
Number of
|
|
|
|
Number of Shares
|
|
|
|
Shares to be Issued
|
|
Weighted Average
|
|
Remaining Available for
|
|
|
|
Upon Exercise of
|
|
Exercise Price of
|
|
Future Issuance Under
|
|
|
|
Outstanding Options,
|
|
Outstanding Options,
|
|
Equity Compensation
|
|
|
|
Warrants and Rights
|
|
Warrants and Rights
|
|
Plans(1)
|
|
|
Equity compensation plans approved
by stockholders
|
|
|
356,148,558
|
|
$
|
13.52
|
|
|
432,842,962
|
(2)
|
Equity compensation plans not
approved by
stockholders(3)
|
|
|
79,802,812
|
|
$
|
13.93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
435,951,370
|
|
|
|
|
|
432,842,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
These numbers exclude the shares listed under the column heading
Number of Shares to be Issued Upon Exercise of Outstanding
Options, Warrants and Rights. |
|
(2) |
|
This number includes 84,212,131 shares available for future
issuance under the Oracle Corporation Employee Stock Purchase
Plan (1992). |
60
|
|
|
(3) |
|
These options were assumed in connection with our acquisitions
in fiscal 2007, fiscal 2006 and fiscal 2005. No additional
awards were or can be granted under the plans that originally
issued these options. |
Information required by this Item with respect to Stock
Ownership of Certain Beneficial Owners and Management is
incorporated herein by reference from the information provided
under the heading Security Ownership of Certain Beneficial
Owners and Management of our Proxy Statement.
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
The information required by this Item is incorporated herein by
reference from the information to be contained in our Proxy
Statement.
|
|
Item 14.
|
Principal
Accountant Fees and Services
|
The information required by this Item is incorporated herein by
reference from the information to be contained in our Proxy
Statement.
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules
|
|
|
(a)
|
1. Financial
Statements
|
The following financial statements are filed as a part of this
report:
|
|
|
|
|
|
|
Page
|
|
|
|
|
|
65
|
|
Consolidated Financial Statements:
|
|
|
|
|
|
|
|
67
|
|
|
|
|
68
|
|
|
|
|
69
|
|
|
|
|
70
|
|
|
|
|
71
|
|
|
|
2.
|
Financial
Statement Schedules
|
The following financial statement schedule is filed as a part of
this report:
All other schedules are omitted because they are not required or
the required information is shown in the financial statements or
notes thereto.
The following exhibits are filed herewith or are incorporated by
reference to exhibits previously filed with the SEC (the
original Exhibit number is referenced parenthetically).
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Title
|
|
|
2
|
.01(1)
|
|
Agreement and Plan of Merger dated
as of September 12, 2005, as amended, by and among Oracle
Systems Corporation (formerly named Oracle Corporation), Siebel
Systems, Inc., Oracle Corporation (formerly named Ozark Holding
Inc.), Ozark Merger Sub Inc. and Sierra Merger Sub Inc. (2.1)
|
|
2
|
.02(2)
|
|
Agreement and Plan of Merger,
dated February 28, 2007, among Oracle Corporation, Hyperion
Solutions Corporation and Hotrod Acquisition Corporation (2.1)
|
|
3
|
.01(1)
|
|
Amended and Restated Certificate
of Incorporation of Oracle Corporation and Certificate of
Amendment of Amended and Restated Certificate of Incorporation
of Oracle Corporation (3.1)
|
61
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Title
|
|
|
3
|
.02(3)
|
|
Amended and Restated Bylaws of
Oracle Corporation (3.02)
|
|
4
|
.01(4)
|
|
Specimen Certificate of
Registrants Common Stock (4.01)
|
|
4
|
.02(1)
|
|
Preferred Share Rights Agreement
between Oracle Corporation and Computershare Trust Company,
N.A., as rights agent, dated as of January 31, 2006 (10.1)
|
|
4
|
.03(5)
|
|
Indenture dated January 13,
2006, among Oracle Systems Corporation, Oracle Corporation and
Citibank, N.A. (10.34)
|
|
4
|
.04(5)
|
|
Forms of Old 2011 Note and Old
2016 Note, together with the Officers Certificate issued
January 13, 2006 pursuant to the Indenture dated
January 13, 2006, among Oracle Corporation (formerly known
as Ozark Holding Inc.) and Citibank, N.A. (10.35)
|
|
4
|
.05(6)
|
|
Forms of New 5.00% Note due
2011 and New 5.25% Note due 2016 (4.4)
|
|
4
|
.07(7)
|
|
First Supplemental Indenture dated
May 9, 2007 among Oracle Corporation, Citibank, N.A. and
The Bank of New York Trust Company, N.A. (4.3)
|
|
4
|
.08(8)
|
|
Forms of New Floating Rate Note
due 2009 and New Floating Rate Note due 2001, together with
Officers Certificate issued May 15, 2002 setting
forth the terms of the Notes (4.01)
|
|
10
|
.01(9)*
|
|
Oracle Corporation 1993 Deferred
Compensation Plan, as amended and restated as of
November 14, 2003 (10.17)
|
|
10
|
.02(10)*
|
|
Oracle Corporation Employee Stock
Purchase Plan (1992), as amended and restated as of
February 8, 2005 (10.01)
|
|
10
|
.03(11)*
|
|
Oracle Corporation Amended and
Restated 1993 Directors Stock Plan, as approved on
October 9, 2006 (10.29)
|
|
10
|
.04(12)*
|
|
The 1991 Long-Term Equity
Incentive Plan, as amended through October 18, 1999 (10.11)
|
|
10
|
.05(13)*
|
|
Amendment to the 1991 Long-Term
Equity Incentive Plan, dated January 7, 2000 (10.09)
|
|
10
|
.06(13)*
|
|
Amendment to the 1991 Long-Term
Equity Incentive Plan, dated June 2, 2000 (10.10)
|
|
10
|
.07(14)*
|
|
Amended and Restated 2000
Long-Term Equity Incentive Plan, as approved on October 29,
2004 (10.07)
|
|
10
|
.08(15)*
|
|
Form of Stock Option Agreements
for the 2000 Long-Term Equity Incentive Plan (10.08)
|
|
10
|
.09(15)*
|
|
Form of Stock Option Agreement for
Oracle Corporation Amended and Restated
1993 Directors Stock Plan (10.09)
|
|
10
|
.10(15)*
|
|
Form of Indemnification Agreement
for Directors and Executive Officers (10.10)
|
|
10
|
.11(15)*
|
|
Letter dated September 15,
2004 confirming severance arrangement contained in Offer Letter
dated May 14, 2003 to Charles E. Phillips, Jr. and
employment agreement dated May 15, 2003 (10.11)
|
|
10
|
.12(16)*
|
|
Amendment dated August 26,
2005, to the Offer Letter dated May 14, 2003, to Charles E.
Phillips, Jr. (10.25)
|
|
10
|
.13(15)*
|
|
Offer letter dated
September 7, 2004 to Juergen Rottler and employment
agreement dated September 3, 2004 (10.13)
|
|
10
|
.14(11)*
|
|
Description of the Fiscal Year
2007 Executive Bonus Plan (10.28)
|
|
10
|
.15(17)*
|
|
Form of Executive Bonus Plan
Agreements for the Oracle Executive Bonus Plan, Non-Sales (10.29)
|
|
10
|
.16(17)*
|
|
Form of Executive Bonus Plan
Agreement for the Oracle Executive Bonus Plan, Sales and
Consulting (10.30)
|
|
10
|
.17(18)
|
|
$700,000,000 Facility Agreement
dated May 20, 2005, between Oracle Technology Company and
ABN AMRO Bank N.V. (10.23)
|
|
10
|
.18(18)
|
|
Guaranty dated May 20, 2005,
by Oracle Corporation for the benefit of ABN AMRO Bank N.V.
(10.24)
|
|
10
|
.19(19)
|
|
First Amendment dated as of
January 5, 2006, to the Facility Agreement between Oracle
Technology Company and ABN AMRO Bank, N.V. and the Guaranty by
Oracle Systems Corporation for the benefit of ABN AMRO Bank,
N.V., each dated as of May 20, 2005 (10.32)
|
|
10
|
.20(19)
|
|
$5,000,000,000
364-Day Term
Loan Agreement dated as of January 5, 2006, among Oracle
Corporation, Oracle Systems Corporation and the lenders and
agents named therein (10.33)
|
62
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Title
|
|
|
10
|
.21(20)
|
|
Form of Commercial Paper Dealer
Agreement relating to the $3,000,000,000 Commercial Paper
Program (10.2)
|
|
10
|
.22(20)
|
|
Issuing and Paying Agency
Agreement between Oracle Corporation and JP Morgan Chase Bank,
National Association dated as of February 3, 2006 (10.3)
|
|
10
|
.23(21)
|
|
$3,000,000,000
5-Year
Revolving Credit Agreement dated as of March 15, 2006,
among Oracle Corporation and the lenders and agents named
therein (10.4)
|
|
10
|
.24(22)*
|
|
Offer Letter dated June 20,
2005 to Gregory B. Maffei and employment agreement dated
June 21, 2005 (10.24)
|
|
10
|
.25(23)*
|
|
Amendment dated September 8,
2005, to the Offer Letter dated June 20, 2005, to Gregory
B. Maffei (10.26)
|
|
10
|
.26(24)*
|
|
Resignation Agreement dated
November 3, 2005, of Gregory B. Maffei (10.28)
|
|
10
|
.27(25)*
|
|
Offer letter dated
January 31, 1997 to Sergio Giacoletto and employment
agreement dated February 20, 1997 (10.27)
|
|
21
|
.01
|
|
Subsidiaries of the Registrant
|
|
23
|
.01
|
|
Consent of Ernst & Young
LLP, Independent Registered Public Accounting Firm
|
|
31
|
.01
|
|
Certification Pursuant to
Section 302 of the Sarbanes-Oxley ActLawrence J.
Ellison
|
|
31
|
.02
|
|
Certification Pursuant to
Section 302 of the Sarbanes-Oxley ActSafra A. Catz
|
|
32
|
.01
|
|
Certification Pursuant to
Section 906 of the Sarbanes-Oxley Act
|
|
|
|
* |
|
Indicates management contract or compensatory plan or arrangement |
|
(1) |
|
Incorporated by reference to Oracle Corporations Current
Report on Form
8-K12G3
filed on February 6, 2006 |
|
(2) |
|
Incorporated by reference to Oracle Corporations Current
Report on Form
8-K filed on
March 6, 2007 |
|
(3) |
|
Incorporated by reference to Oracle Corporations Current
Report on Form
8-K filed on
July 14, 2006 |
|
(4) |
|
Incorporated by reference to Oracle Corporations Annual
Report on Form
10-K filed
July 21, 2006 |
|
(5) |
|
Incorporated by reference to Oracle Systems Corporations
Current Report on
Form 8-K
filed on January 20, 2006 |
|
(6) |
|
Incorporated by reference to Oracle Corporations
Form S-4/A
filed on April 14, 2006 |
|
(7) |
|
Incorporated by reference to Oracle Corporations
Form S-3ASR
filed on May 10, 2007 |
|
(8) |
|
Incorporated by reference to Oracle Corporations Current
Report on Form
8-K filed on
May 15, 2007 |
|
(9) |
|
Incorporated by reference to Oracle Systems Corporations
Quarterly Report on
Form 10-Q
filed December 22, 2004 |
|
(10) |
|
Incorporated by reference to Oracle Systems Corporations
Quarterly Report on
Form 10-Q
filed September 28, 2005 |
|
(11) |
|
Incorporated by reference to Oracle Corporations Current
Report on Form
8-K filed on
October 12, 2006 |
|
(12) |
|
Incorporated by reference to Oracle Systems Corporations
Quarterly Report on
Form 10-Q
filed January 14, 2000 |
|
(13) |
|
Incorporated by reference to Oracle Systems Corporations
Annual Report on
Form 10-K
filed August 28, 2000 |
|
(14) |
|
Incorporated by reference to Oracle Systems Corporations
Current Report on
Form 8-K
filed November 4, 2004 |
|
(15) |
|
Incorporated by reference to Oracle Systems Corporations
Quarterly Report on
Form 10-Q
filed September 17, 2004 |
|
(16) |
|
Incorporated by reference to Oracle Systems Corporations
Current Report on
Form 8-K
filed August 30, 2005 |
|
(17) |
|
Incorporated by reference to Oracle Systems Corporations
Quarterly Report on
Form 10-Q
filed January 5, 2006 |
|
(18) |
|
Incorporated by reference to Oracle Systems Corporations
Current Report on
Form 8-K
filed on May 26, 2005 |
63
|
|
|
(19) |
|
Incorporated by reference to Oracle Systems Corporations
Current Report on
Form 8-K
filed January 11, 2006 |
|
(20) |
|
Incorporated by reference to Oracle Corporations Current
Report on Form
8-K filed on
February 9, 2006 |
|
(21) |
|
Incorporated by reference to Oracle Corporations Current
Report on Form
8-K filed
March 21, 2006 |
|
(22) |
|
Incorporated by reference to Oracle Systems Corporations
Current Report on
Form 8-K
filed June 27, 2005 |
|
(23) |
|
Incorporated by reference to Oracle Systems Corporations
Current Report on
Form 8-K
filed on September 9, 2005 |
|
(24) |
|
Incorporated by reference to Oracle Systems Corporations
Current Report on
Form 8-K
filed on November 9, 2005 |
|
(25) |
|
Incorporated by reference to Oracle Corporations Quarterly
Report on
Form 10-Q
filed December 21, 2006 |
64
REPORT OF
ERNST & YOUNG LLP, INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
The Board of Directors and Stockholders of Oracle Corporation
We have audited the accompanying consolidated balance sheets of
Oracle Corporation as of May 31, 2007 and 2006, and the
related consolidated statements of operations,
stockholders equity, and cash flows for each of the three
years in the period ended May 31, 2007. Our audits also
included the financial statement schedule listed in the Index at
Item 15(a) 2. These financial statements and schedule are
the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and
schedule are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Oracle Corporation at May 31, 2007
and 2006, and the consolidated results of its operations and its
cash flows for each of the three years in the period ended
May 31, 2007, in conformity with U.S. generally
accepted accounting principles. Also, in our opinion, the
related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set
forth therein.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of Oracle Corporations internal control over
financial reporting as of May 31, 2007, based on criteria
established in Internal Control-Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated June 28, 2007 expressed an
unqualified opinion thereon.
As discussed in Note 1 to the consolidated financial
statements, under the heading Stock-Based Compensation, the
Company adopted Statement of Financial Accounting Standards
No. 123 (revised 2004), Share-Based Payment,
effective June 1, 2006. As discussed in Note 19 to the
consolidated financial statements, the Company adopted Statement
of Financial Accounting Standards No. 158,
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans, an amendment of FASB Statements
No. 87, 88, 106, and 132(R), in fiscal 2007.
/s/ ERNST & YOUNG LLP
San Francisco, California
June 28, 2007
65
REPORT OF
ERNST & YOUNG LLP, INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
The Board of Directors and Stockholders of Oracle Corporation
We have audited managements assessment, which is contained
in Part I, Item 9A of this Annual Report on
Form 10-K
under the heading Managements Report on Internal
Control Over Financial Reporting, that Oracle Corporation
maintained effective internal control over financial reporting
as of May 31, 2007, based on criteria established in
Internal ControlIntegrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(the COSO criteria). Oracle Corporations management is
responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness
of internal control over financial reporting. Our responsibility
is to express an opinion on managements assessment and an
opinion on the effectiveness of the companys internal
control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, evaluating
managements assessment, testing and evaluating the design
and operating effectiveness of internal control, and performing
such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, managements assessment that Oracle
Corporation maintained effective internal control over financial
reporting as of May 31, 2007, is fairly stated, in all
material respects, based on the COSO criteria. Also, in our
opinion, Oracle Corporation maintained, in all material
respects, effective internal control over financial reporting as
of May 31, 2007, based on the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
2007 consolidated financial statements of Oracle Corporation and
our report dated June 28, 2007 expressed an unqualified
opinion thereon.
/s/ ERNST & YOUNG LLP
San Francisco, California
June 28, 2007
66
ORACLE
CORPORATION
CONSOLIDATED BALANCE SHEETS
As of May 31, 2007 and 2006
|
|
|
|
|
|
|
|
|
|
|
May 31,
|
|
(in millions, except per share data)
|
|
2007
|
|
|
2006
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
6,218
|
|
|
$
|
6,659
|
|
Marketable securities
|
|
|
802
|
|
|
|
946
|
|
Trade receivables, net of
allowances of $306 and $325 as of May 31, 2007
and 2006
|
|
|
4,074
|
|
|
|
3,022
|
|
Other receivables
|
|
|
515
|
|
|
|
398
|
|
Deferred tax assets
|
|
|
968
|
|
|
|
714
|
|
Prepaid expenses and other current
assets
|
|
|
306
|
|
|
|
235
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
12,883
|
|
|
|
11,974
|
|
|
|
|
|
|
|
|
|
|
Non-current assets:
|
|
|
|
|
|
|
|
|
Property, net
|
|
|
1,603
|
|
|
|
1,391
|
|
Intangible assets: software
support agreements and related relationships, net
|
|
|
3,002
|
|
|
|
2,620
|
|
Intangible assets: other, net
|
|
|
2,962
|
|
|
|
1,908
|
|
Goodwill
|
|
|
13,479
|
|
|
|
9,809
|
|
Other assets
|
|
|
643
|
|
|
|
1,327
|
|
|
|
|
|
|
|
|
|
|
Total non-current assets
|
|
|
21,689
|
|
|
|
17,055
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
34,572
|
|
|
$
|
29,029
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Short-term borrowings and current
portion of long-term debt
|
|
$
|
1,358
|
|
|
$
|
159
|
|
Accounts payable
|
|
|
315
|
|
|
|
268
|
|
Income taxes payable
|
|
|
1,237
|
|
|
|
810
|
|
Accrued compensation and related
benefits
|
|
|
1,349
|
|
|
|
1,172
|
|
Accrued restructuring
|
|
|
201
|
|
|
|
412
|
|
Deferred revenues
|
|
|
3,492
|
|
|
|
2,830
|
|
Other current liabilities
|
|
|
1,435
|
|
|
|
1,279
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
9,387
|
|
|
|
6,930
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities:
|
|
|
|
|
|
|
|
|
Notes payable and long-term debt,
net of current portion
|
|
|
6,235
|
|
|
|
5,735
|
|
Deferred tax liabilities
|
|
|
1,121
|
|
|
|
564
|
|
Accrued restructuring
|
|
|
258
|
|
|
|
273
|
|
Deferred revenues
|
|
|
93
|
|
|
|
114
|
|
Other long-term liabilities
|
|
|
559
|
|
|
|
401
|
|
|
|
|
|
|
|
|
|
|
Total non-current liabilities
|
|
|
8,266
|
|
|
|
7,087
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par
valueauthorized: 1.0 shares; outstanding: none
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value
and additional paid in capitalauthorized:
11,000 shares; outstanding: 5,107 shares and
5,232 shares as of May 31, 2007 and 2006
|
|
|
10,293
|
|
|
|
9,246
|
|
Retained earnings
|
|
|
6,223
|
|
|
|
5,538
|
|
Deferred compensation
|
|
|
|
|
|
|
(30
|
)
|
Accumulated other comprehensive
income
|
|
|
403
|
|
|
|
258
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
16,919
|
|
|
|
15,012
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity
|
|
$
|
34,572
|
|
|
$
|
29,029
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
67
ORACLE
CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended May 31, 2007, 2006 and 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended May 31,
|
|
(in millions, except per share data)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
New software licenses
|
|
$
|
5,882
|
|
|
$
|
4,905
|
|
|
$
|
4,091
|
|
Software license updates and
product support
|
|
|
8,329
|
|
|
|
6,636
|
|
|
|
5,330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software revenues
|
|
|
14,211
|
|
|
|
11,541
|
|
|
|
9,421
|
|
Services
|
|
|
3,785
|
|
|
|
2,839
|
|
|
|
2,378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
17,996
|
|
|
|
14,380
|
|
|
|
11,799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
3,907
|
|
|
|
3,177
|
|
|
|
2,511
|
|
Software license updates and
product support
|
|
|
842
|
|
|
|
719
|
|
|
|
618
|
|
Cost of services
|
|
|
3,349
|
|
|
|
2,516
|
|
|
|
2,033
|
|
Research and development
|
|
|
2,195
|
|
|
|
1,872
|
|
|
|
1,491
|
|
General and administrative
|
|
|
692
|
|
|
|
555
|
|
|
|
550
|
|
Amortization of intangible assets
|
|
|
878
|
|
|
|
583
|
|
|
|
219
|
|
Acquisition related
|
|
|
140
|
|
|
|
137
|
|
|
|
208
|
|
Restructuring
|
|
|
19
|
|
|
|
85
|
|
|
|
147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
12,022
|
|
|
|
9,644
|
|
|
|
7,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
5,974
|
|
|
|
4,736
|
|
|
|
4,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(343
|
)
|
|
|
(169
|
)
|
|
|
(135
|
)
|
Non-operating income, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
295
|
|
|
|
170
|
|
|
|
185
|
|
Net investment gains
|
|
|
22
|
|
|
|
25
|
|
|
|
2
|
|
Other
|
|
|
38
|
|
|
|
48
|
|
|
|
(23
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-operating income, net
|
|
|
355
|
|
|
|
243
|
|
|
|
164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income
taxes
|
|
|
5,986
|
|
|
|
4,810
|
|
|
|
4,051
|
|
Provision for income taxes
|
|
|
1,712
|
|
|
|
1,429
|
|
|
|
1,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
4,274
|
|
|
$
|
3,381
|
|
|
$
|
2,886
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.83
|
|
|
$
|
0.65
|
|
|
$
|
0.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.81
|
|
|
$
|
0.64
|
|
|
$
|
0.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
5,170
|
|
|
|
5,196
|
|
|
|
5,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
5,269
|
|
|
|
5,287
|
|
|
|
5,231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
68
ORACLE
CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
For the Years Ended May 31, 2007, 2006 and 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock and
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Additional Paid in Capital
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Comprehensive
|
|
|
Number of
|
|
|
|
|
|
Retained
|
|
|
Deferred
|
|
|
Comprehensive
|
|
|
|
|
(in millions)
|
|
Income
|
|
|
Shares
|
|
|
Amount
|
|
|
Earnings
|
|
|
Compensation
|
|
|
Income
|
|
|
Total
|
|
|
Balances as of May 31, 2004
|
|
|
|
|
|
|
5,171
|
|
|
$
|
5,456
|
|
|
$
|
2,383
|
|
|
$
|
|
|
|
$
|
156
|
|
|
$
|
7,995
|
|
Common stock issued under stock
award plans
|
|
$
|
|
|
|
|
71
|
|
|
|
468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
468
|
|
Common stock issued under stock
purchase plan
|
|
|
|
|
|
|
17
|
|
|
|
161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
161
|
|
Issuance of stock and assumption of
stock awards in connection with acquisitions
|
|
|
|
|
|
|
1
|
|
|
|
504
|
|
|
|
|
|
|
|
(123
|
)
|
|
|
|
|
|
|
381
|
|
Amortization of deferred
stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
78
|
|
|
|
|
|
|
|
72
|
|
Repurchase of common stock
|
|
|
|
|
|
|
(115
|
)
|
|
|
(117
|
)
|
|
|
(1,226
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,343
|
)
|
Tax benefits from stock plans
|
|
|
|
|
|
|
|
|
|
|
130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
130
|
|
Minimum benefit plan liability
adjustments
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16
|
)
|
|
|
(16
|
)
|
Foreign currency translation
|
|
|
111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
111
|
|
|
|
111
|
|
Equity hedge loss, net of tax
|
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14
|
)
|
|
|
(14
|
)
|
Net unrealized gains on equity
securities, net of tax
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
6
|
|
Net income
|
|
|
2,886
|
|
|
|
|
|
|
|
|
|
|
|
2,886
|
|
|
|
|
|
|
|
|
|
|
|
2,886
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
2,973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of May 31, 2005
|
|
|
|
|
|
|
5,145
|
|
|
|
6,596
|
|
|
|
4,043
|
|
|
|
(45
|
)
|
|
|
243
|
|
|
|
10,837
|
|
Common stock issued under stock
award plans
|
|
$
|
|
|
|
|
87
|
|
|
|
573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
573
|
|
Common stock issued under stock
purchase plan
|
|
|
|
|
|
|
6
|
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59
|
|
Issuance of stock and assumption of
stock awards in connection with acquisitions
|
|
|
|
|
|
|
141
|
|
|
|
2,042
|
|
|
|
|
|
|
|
(39
|
)
|
|
|
|
|
|
|
2,003
|
|
Amortization of deferred
stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
54
|
|
|
|
|
|
|
|
49
|
|
Repurchase of common stock
|
|
|
|
|
|
|
(147
|
)
|
|
|
(181
|
)
|
|
|
(1,886
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,067
|
)
|
Tax benefit from stock plans
|
|
|
|
|
|
|
|
|
|
|
162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
162
|
|
Minimum benefit plan liability
adjustments
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
(3
|
)
|
Foreign currency translation
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
7
|
|
Equity hedge gain, net of tax
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
|
|
14
|
|
Net unrealized losses on equity
securities, net of tax
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
(3
|
)
|
Net income
|
|
|
3,381
|
|
|
|
|
|
|
|
|
|
|
|
3,381
|
|
|
|
|
|
|
|
|
|
|
|
3,381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
3,396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of May 31, 2006
|
|
|
|
|
|
|
5,232
|
|
|
|
9,246
|
|
|
|
5,538
|
|
|
|
(30
|
)
|
|
|
258
|
|
|
$
|
15,012
|
|
Common stock issued under stock
award plans
|
|
$
|
|
|
|
|
106
|
|
|
|
873
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
873
|
|
Common stock issued under stock
purchase plan
|
|
|
|
|
|
|
3
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51
|
|
Assumption of stock awards in
connection with acquisitions
|
|
|
|
|
|
|
|
|
|
|
97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97
|
|
Reclassification of deferred
compensation upon adoption of Statement 123R
|
|
|
|
|
|
|
|
|
|
|
(30
|
)
|
|
|
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
207
|
|
Repurchase of common stock
|
|
|
|
|
|
|
(234
|
)
|
|
|
(395
|
)
|
|
|
(3,589
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,984
|
)
|
Tax benefit from stock plans
|
|
|
|
|
|
|
|
|
|
|
244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
244
|
|
Minimum benefit plan liability
adjustments
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
10
|
|
Adjustment to accumulated other
comprehensive income upon adoption of Statement 158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
|
|
|
|
29
|
|
Foreign currency translation
|
|
|
82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82
|
|
|
|