e10vk
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
FORM 10-K
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x ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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For the Fiscal Year Ended May 31, 2008
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OR
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o TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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Commission file number: 000-51788
Oracle Corporation
(Exact name of registrant as
specified in its charter)
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Delaware
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54-2185193
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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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:
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Title of Each Class
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Name of Each Exchange on Which
Registered
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Common Stock, par value $0.01 per share
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The NASDAQ Stock Market LLC
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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, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act.
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Large Accelerated
filer x
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Accelerated
filer o
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Non-accelerated
filer o (Do
not check if a smaller reporting company)
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Smaller reporting company
o
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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 $80,698,061,000 based on
the number of shares held by non-affiliates of the registrant as
of May 31, 2008, and based on the closing sale price of
common stock as reported by the NASDAQ Global Select Market on
November 30, 2007, 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 27,
2008: 5,155,842,000
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 October 10, 2008.
ORACLE
CORPORATION
FISCAL
YEAR 2008
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 U.S. Securities and Exchange Commission, including
the Quarterly Reports on
Form 10-Q
to be filed by us in our 2009 fiscal year, which runs from
June 1, 2008 to May 31, 2009.
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.
Our goal is to offer customers scalable, reliable, secure and
integrated software solutions that improve 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.
We believe our internal or organic growth and continued
innovation with respect to our core database, middleware and
applications technologies provide the foundation for our
long-term strategic plan. In fiscal 2008, we invested
$2.7 billion on research and development to enhance our
existing portfolio of products and services and to develop new
products, features and services.
An active acquisition program is another important element of
our corporate strategy. Over the last four fiscal years, we have
invested billions of dollars, including $9.4 billion in
fiscal 2008, to acquire a number of complementary companies,
products, services and technologies such as BEA Systems, Inc. in
fiscal 2008, Hyperion Solutions Corporation in fiscal 2007,
Siebel Systems, Inc. in fiscal 2006 and PeopleSoft, Inc. in
fiscal 2005. We believe our acquisition program supports our
long-term strategic direction, strengthens our competitive
position, expands our customer base, provides greater scale to
accelerate innovation, grows our revenues and earnings, and
increases 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 80% and 20% of our total revenues,
respectively, in both fiscal 2008 and 2006, and 79% and 21% of
our total revenues, respectively, in fiscal 2007. See
Note 13 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 Databases and
Oracle Fusion Middleware, as well as applications software. Our
technology and business solutions are based on an internet model
comprised of interconnected databases, application servers, as
well as mobile devices. This architecture enables users to
access business data and applications through a web browser
interface, while providing customers 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. Our architecture
provides high quality business information and can be adapted to
the specific needs of any industry or application. Oracle
technology operates on both single server and clustered server
configurations, which we refer to as grid software,
and supports a choice of operating systems including Linux,
Windows and UNIX.
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 34%, 33% and 34%
of total revenues in fiscal 2008, 2007 and 2006, respectively.
Database
and Middleware Software
Our database and middleware software provides a cost-effective,
high-performance platform for running and managing business
applications for mid-size businesses and large global
enterprises. With an increasing focus by enterprises on reducing
their total cost of information technology (IT) infrastructure,
our 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 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 more 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 68%, 71% and 73% of our new
software license revenues in fiscal 2008, 2007 and 2006,
respectively.
Databases
As the worlds most popular database, Oracle Database
enables the secure storage, retrieval and manipulation of all
forms of data, including business application and analytics
data, and unstructured data in the form of XML files, office
documents, images, video and spatial data. 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 our database software 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, data security and compliance,
data warehousing, unstructured data integration and systems
management. Examples of these options include:
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Oracle Real Application Clusters, which consolidates a single,
scalable and fault tolerant database that is shared across
interconnected clusters of servers;
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Oracle Partitioning, which breaks down large transaction
processing and business intelligence database tables into
smaller segments for faster query performance and easier
management of data throughout its lifecycle;
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Oracle Warehouse Builder Enterprise and Data Quality Options,
which help customers design, build and populate data warehouses
with reliable, quality information from a variety of legacy
repositories; and
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Oracle In-Memory Database Cache, a new option that improves
application performance by caching or storing performance
critical parts of Oracle Database in the main memory of the
application tier.
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In addition to the four editions of Oracle Database, Oracle also
offers a selection of specialized databases:
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Oracle TimesTen In-Memory Database, which is a memory-optimized
relational database that delivers low latency and high
throughput for applications requiring real-time performance;
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Oracle Berkeley DB, which is a family of open source,
embeddable, non-relational databases that allows developers to
incorporate a fast, scalable and reliable database engine within
their applications; and
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Oracle Database Lite, which is a comprehensive solution for
developing, deploying and managing applications for mobile and
embedded environments. It consists of a small footprint
relational database that runs on many devices and platforms, a
mobile server that synchronizes data between the mobile devices
and Oracle Database, and mobile application development tools.
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We also offer products that are complementary to our database
product offerings, including Oracle Enterprise Manager and
Oracle Audit Vault.
Enterprise
Manager
Oracle Enterprise Manager is designed to deliver top-down
applications and software infrastructure 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
Architecture applications. In addition to managing Oracle
software infrastructure products including the Oracle Database
and Oracle Fusion Middleware, Oracle Enterprise Manager also
supports our recently acquired BEA Web Logic Server middleware
product and other 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.
Audit Vault
Oracle Audit Vault reduces the cost and complexity of compliance
reporting and of detection of unauthorized activities by
automating the collection and consolidation of enterprise audit
data. Oracle Database provides one of the most advanced auditing
capabilities of any database management system. With Audit
Vault, security and database administrators can manage audit
policies across their enterprise and automatically collect audit
data into a centralized, tamper resistant repository. This
secure repository is built on Oracles scalable
architecture to allow retention and aggregation of terabytes of
audit data for analysis and reporting. Audit Vault analyzes
audit data in real-time based upon enterprise defined policies,
issues alerts for unauthorized activities, and provides built-in
reports for demonstrating the IT controls required to comply
with internal control assessments, including provisions of the
U.S. Sarbanes-Oxley Act and other data privacy and
protection regulations.
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:
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Oracle Application Server;
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Oracle Business Intelligence Suite;
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Oracle Identity and Access Management Suite;
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Oracle Enterprise Content Management Suite;
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Oracle WebCenter;
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Oracle JDeveloper and Oracle Service-Oriented Architecture
Suite; and
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Oracle Data Integration Suite.
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Oracle Fusion Middleware is designed to protect customers
IT investments and work with both Oracle and non-Oracle
database, middleware and applications products through its
hot-pluggable architecture (which enables customers
to easily install and use Oracle Fusion Middleware products
within their existing IT environments) 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 lifecycles
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.
On April 29, 2008, we acquired BEA, a leading provider of
enterprise application and service infrastructure software
solutions. Our acquisition of BEA further strengthened our
leading technology in certain product areas within Oracle Fusion
Middleware such as Java application server (WebLogic Server),
transaction processing (Tuxedo), portal and Enterprise 2.0
capabilities, Service-Oriented Architecture, IT governance and
business process management. Our acquisition of BEA also
increased the number of Java developers building applications
for our middleware products. Additionally, BEAs business
is complementary to other product areas within Oracle Fusion
Middleware such as identity management, business intelligence
and enterprise content management.
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. Our recent
acquisition of BEA enables us to provide our customers with
additional open-standards Java-based application infrastructure
products such as WebLogic Server and scalable messaging and
transaction processing platform products such as Tuxedo.
Business
Intelligence
Oracle Business Intelligence (BI) provides visibility into how
customers businesses are performing and helps them plan
and model to improve that performance. BI is a portfolio of
technology and applications that provides an integrated
end-to-end system called Enterprise Performance Management (EPM)
that unites our BI foundation and data warehousing products with
our BI and EPM applications (described further below) to offer
our customers an enterprise-wide business intelligence platform.
Our BI foundation products include Oracle BI
Suite Enterprise Edition Plus, Oracle BI Standard Edition
One, Hyperion Essbase and Oracle BI Publisher. Our BI foundation
products deliver customers a comprehensive set of business
intelligence tools, including interactive dashboards, ad hoc
query and analysis, proactive detection and alerts, advanced
reporting and publishing, real-time predictive intelligence,
mobile analytics and desktop gadgets.
Our data warehousing products enable the extraction,
transformation and loading of quality data in order for that
data to be accurately searched and analyzed.
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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.
Enterprise
Content Management Suite
Unstructured information, which is data that is not easily
readable or has not been stored so that it can be used
efficiently, makes up a large portion of all the information
residing in most businesses and public sector entities. Oracle
Enterprise Content Management Suite provides a comprehensive set
of capabilities to create, capture, publish, share and
collaborate on, archive, retain, manage business process flows
and manage information access rights to documents and other
unstructured content file types. Oracle Enterprise Content
Management Suite supports an extensive set of document and image
formats. Our Web Content Management products capabilities
also enable customers to use external facing websites as
strategic marketing assets and rapid communications channels.
WebCenter
Oracle WebCenter 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. Oracle WebCenter also includes integrated
Enterprise 2.0 capabilities, which enable customers to work
together in teams via the internet and capitalize on
collective intelligence within their enterprise and
with their partners and customers.
JDeveloper
Oracle JDeveloper is an integrated software development
environment designed to facilitate rapid development of Java
applications, portlets, web services, process models and Rich
Internet Applications (RIA) such as Flash and AJAX, among
others. Oracle JDeveloper provides a comprehensive Java
development environment for modeling, building, debugging and
testing enterprise-class J2EE applications and web
services. It is also integrated with the Oracle Application
Development Framework, which provides a framework for building
applications, including a set of components that enable
developers to build RIA based on Java user interface standards
and deploy the applications to take advantage of modern RIA
technologies.
Service-Oriented
Architecture Suite
Service-Oriented Architecture (SOA) is an information technology
strategy which allows users to interface with Internet-based
portals and composite applications, which in turn interface with
several enterprise applications. Oracle SOA Suite is a complete
set of service infrastructure components for creating,
deploying, and managing SOAs, including Oracle JDeveloper,
Oracle BPEL Process Manager, Oracle Web Services Manager, Oracle
Business Rules, 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.
Data
Integration Suite
Through Oracle Data Integration Suite, we offer best-of-breed
and unified data integration technologies that enable customers
to build, deploy and manage enterprise business data. Our Data
Integration foundation allows enterprise data architects to
unify, manage, replicate, migrate and distribute data into
enterprise applications and orchestrated business processes.
With our open and hot-pluggable data integration
components, organizations can continue to
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use and evolve their IT infrastructure instead of replacing it.
The Data Integration Suite can extract data from one system and
load it into another (such as a data warehouse) and then rapidly
transform the data into a new format. It also includes
technology to address data quality and data profiling.
Applications
Software
Our applications software strategy is designed to provide
customers with complete, integrated and open solutions for
industry business process automation, supported by a robust,
standards-based technology platform. Central to that strategy is
our commitment to offer customers that purchase software license
updates and product support contracts a choice as to when they
wish to upgrade to the next generation of the products they own.
Until our customers reach a decision to upgrade to the next
generation of the products they own, we protect their
investments in their applications by offering them the ability
to purchase software license updates and product support
contracts for their existing products. New technologies such as
Oracle Fusion Middleware, Oracle Business Intelligence Suite,
and Oracle WebCenter are designed to help customers extend the
benefits of their IT investments in our 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 software products combine business
functionality with innovative technologies such as role-based
analytics, secure search, identity management, self-service and
workflow to deliver adaptive industry processes, business
intelligence and insights, and optimal end-user productivity.
Our applications software products enable efficient management
of all core business functions, including:
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Customer relationship management (CRM)
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Enterprise performance management (EPM)
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Enterprise resource planning (ERP)
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Product lifecycle management (PLM), and
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Industry-specific applications.
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Our applications software products are offered as integrated
suites or available on a component basis, and all are built on
open architectures that 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.
Oracle Application Integration Architecture provides an open,
standards-based framework for creating adaptable,
cross-application business processes. For customers looking to
quickly deploy integrations between Oracle applications, Oracle
Application Integration Architecture also offers packaged
integrations, allowing for rapid implementation of
mission-critical business applications.
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:
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Billing and delivery;
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Sales solutions that provide a single repository for customer
and supply chain information; and
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Service solutions that increase customer satisfaction by
providing visibility into customer billing and order information.
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Enterprise
Performance Management (EPM)
We offer a full spectrum of EPM applications that are open,
industry-specific analytic applications with capabilities such
as interactive dashboarding and embedded analytic functionality
for delivering insight across the enterprise. Our business
analytics solution is tailored to 20 industries, giving
customers the ability to monitor, analyze and act upon business
intelligence while providing end-to-end visibility into a
customers operations and financial performance. With our
acquisition of Hyperion in fiscal 2007, we added complementary
products to our business
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intelligence offerings, including a leading open enterprise
planning system, financial consolidation products, and a
multi-source OLAP server. Our acquisition of Hyperion combined
with our BI analytics, BI foundation and data warehousing
products enable 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, transportation and
human resources. Our ERP applications combine business
functionality with innovative technologies such as workflow and
self-service applications in order 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.
Product
Lifecycle Management (PLM)
With our acquisition of Agile Software Corporation in the first
quarter of fiscal 2008, we added PLM software solutions. Our PLM
solutions manage the product innovation and introduction process
in a variety of industries, including high technology, life
sciences, industrial manufacturing and consumer packaged goods.
Our PLM solutions help customers make better product portfolio
decisions, collaborate across design and supply chain partners,
accelerate new product introduction and manage compliance.
Industry
Applications
Our applications can be tailored to offer customers a variety of
industry-specific solutions. As a 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:
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Retail, with our acquisitions of Retek, Inc., ProfitLogic, Inc.
and several other companies;
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Banking and financial services, with our acquisition of i-flex
solutions limited;
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Communications, with our acquisitions of Portal Software, Inc.
and MetaSolv, Inc.; and
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Utilities, with our acquisition of Lodestar Corporation and SPL
WorldGroup, Inc.
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These acquired industry applications are in addition to industry
applications we developed for health sciences, insurance,
manufacturing, education, professional services and the public
sector.
We are currently building Oracle Fusion Applications, which are
being designed to unify best-of-business capabilities from all
Oracle applications in a complete suite. We believe this suite
of applications will deliver a superior ownership experience
through improved usability, adaptive business process
automation, built-in business intelligence and industry-specific
capabilities.
New software license revenues from applications software
represented 32%, 29% and 27% of new software license revenues in
fiscal 2008, 2007 and 2006, respectively.
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
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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. We also offer Oracle Unbreakable
Linux Support, which provides enterprise level support for the
Linux operating system and, in fiscal 2008, we introduced
support for Oracle VM server virtualization software.
Our software license updates and product support revenues
represented 46% of total revenues in fiscal 2008, 2007 and 2006.
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,
enhancements, and upgrades; and ongoing managed services. These
services help our customers 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 global delivery centers and
applications solutions centers to leverage economies of scale
for our customers. Consulting revenues represented 15%, 16% and
15% of total revenues in fiscal 2008, 2007 and 2006,
respectively.
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 over the internet our database, middleware
and applications software delivered either at our data center
facilities, at select partner data centers or at customer
facilities. CRM On Demand is a service offering that provides
our customers with our CRM software functionality delivered via
a hosted, web-based 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 2008, 2007 and 2006.
Education
We provide training to customers, partners and employees as a
part of our mission of accelerating the adoption of our
technology around the world. We currently offer thousands of
courses covering all of our 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. Our acquisition of
BEA further enhanced our educational offerings in middleware.
Education revenues represented 2% of total revenues in fiscal
2008, 2007 and 2006.
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.
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
8
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 Oracle PartnerNetwork 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 globally. Our
geographic coverage allows us to draw on business and technical
expertise from a global 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 our products. A summary of our domestic and
international revenues and long-lived assets is set forth in
Note 13 of Notes to Consolidated Financial Statements.
Seasonality
and Cyclicality
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. General economic conditions also 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 our revenues.
See Selected Quarterly Financial Data in Item 7
of this Annual Report for a more complete description of the
seasonality and cyclicality 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 2008, 2007 or 2006.
Competition
The enterprise software industry is highly fragmented, intensely
competitive and evolving rapidly. We compete in various segments
of this industry including, but not limited to:
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database software;
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middleware (including application server, business intelligence,
application integration, content management, portal server and
identity management);
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collaboration;
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development tools;
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enterprise applications;
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software as a service;
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hosted and On Demand solutions;
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operating systems;
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virtualization software; and
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consulting/systems integration.
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Total cost of ownership, performance, scalability,
functionality, ease of use, open standards-compliance, product
reliability, Service-Oriented Architecture, security and quality
of technical support are key competitive factors 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.
9
Our product sales (and the relative strength of our products
versus our competitors products) are also affected by the
broader platform competition between industry
standard Java (J2EE) by Sun Microsystems, Inc. (Sun
Microsystems) and Microsoft Corporations .NET programming
environments and by operating system competition among
Microsofts Windows Server, Unix (Sun Microsystems
Solaris, Hewlett Packard Companys (HP)-UX and
International Business Machines Corporations (IBM)-AIX)
and Linux. Open source alternatives to commercial software are
also impacting the competitive environment. These products are
typically offered free of charge and are readily available over
the internet. Finally, software-as-a-service (SaaS) offerings
continue to alter the competitive landscape.
The following lists of competitors are necessarily incomplete
due to the nature of the enterprise software industry. The
competitive landscape is constantly evolving as firms emerge,
expand, are acquired and otherwise change.
In the sale of database software, scalability, reliability,
availability and security are key competitive differentiators
for us. Our competitors include IBM, Microsoft, Sybase, Inc.,
NCR Corporations Teradata division, SAS Institute, Inc.,
Informatica Corporation, and the open source databases such as
MySQL (recently acquired by Sun Microsystems) and PostgreSQL,
among others. Our ability to continually innovate and
differentiate our database product offerings has enabled us to
maintain our leading position in database software over our
competitors.
In the sale of middleware products, our offerings include
application server, business intelligence, application
integration, business process management, Service-Oriented
Architecture, collaboration and content management, portal, 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, SAP AG, Sun Microsystems, Progress
Software, Fujitsu Software Corporation, Hitachi Software
Engineering Co., Ltd., open source vendors such as Red Hat, Inc.
(JBoss), Apache Geronimo, and Netezza Corporation, as well as
several other competitors in each element of our packaged
functions such as TIBCO Software, Inc., Software AG, Savvion,
Inc., Microstrategy, Inc., CA, Inc., Informatica, Novell, Inc.,
Lombardi Software, Inc. and Pegasystems, Inc., among others. Our
middleware solutions have experienced rapid growth in recent
years relative to our competitors.
In the sale of collaboration and content management products, we
compete with Microsoft, IBM (Domino/Notes/FileNet), EMC
Corporation (Documentum), Open Text Corporation, Interwoven,
Inc., HP (Tower Software) and Vignette Corporation, 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 (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. As a result of our acquisitions of PeopleSoft and
Siebel, we currently offer several product lines that are suited
for different needs of customers in different industries. One of
the main competitive differentiators in applications software is
our ability to combine best-of-breed software, Suite software
and our Application Integration Architecture, while shielding
the end user from complexities. We compete against SAP AG,
Lawson Software, Inc., Infor Global Solutions GmbH (SSA Global
Technologies, Extensity), Microsoft Dynamics (Dynamics GP,
Dynamics NAV, Dynamics CRM, Dynamics Snap, Dynamics SL), Sage,
Inc., and IBM (Maximo, MOR Software, Ascential Software) as well
as many other application providers and point solution providers.
We also provide applications specific to operations in
particular industry verticals, such as retailing, financial
services, communications, tax and utilities, health sciences,
public sector and others. These applications are distinguished
from enterprise resource planning (ERP) or customer relationship
management (CRM) in that these industry-specific applications
are focused on and limited to particular industry segments, as
opposed to being designed for broad distribution across several
industries. We typically compete with commercial software
vendors pre-packaged applications, applications developed
in-house by customers, applications which were custom developed
by other software vendors and applications consisting of
discrete pieces of functionality from multiple
10
providers which have been customized and implemented by systems
integrators. In some of these industries, complete industry
solutions either do not exist or are addressed by dozens of
software participants.
With service-oriented architecture, our packaged applications
also compete with custom solutions developed either in-house or
by large systems integrators such as Accenture Ltd. or IBM
Global Services.
Our applications also compete against business process
outsourcers including Automatic Data Processing, Inc., Fidelity
Investments, Ceridian Corporation, Hewitt-Cyborg Limited and
others.
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 placed us in competition with others
who offer support for the Linux operating system, including Red
Hat, Novell and Canonical Ltd. (Ubuntu); with IBM, Sun
Microsystems, HP and others in the sale of Unix operating
systems; and with Microsoft in the sale of Windows Server
operating systems.
In the sale of virtualization products, we compete with VMware,
Inc., IBM, Microsoft, Sun Microsystems and Citrix Systems, Inc.,
among others, including other vendors of open source
virtualization products.
In the sale of consulting and systems integration services, we
both partner with and compete against Accenture, Electronic Data
Systems Corporation (to be acquired by HP), IBM Global Services,
Bearing Point, Inc., CapGemini Group, and many others (both
large and small).
In the sale of many of our products, we also compete with
products and features developed internally by customers and
their IT staff.
Research
and Development
We develop the substantial 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 $2.7 billion,
$2.2 billion and $1.9 billion, or 12%, 12% and 13% of
total revenues, in fiscal 2008, 2007 and 2006, respectively. As
a percentage of new software license revenues, research and
development expenditures were 36%, 37% and 38% in fiscal 2008,
2007 and 2006, 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 products.
Employees
As of May 31, 2008, we employed 84,233 full-time
employees, including 19,465 in sales and marketing, 7,642 in
software license updates and product support, 28,215 in
services, 20,607 in research and development and 8,304 in
general and administrative positions. Of these employees, 28,079
were located in the United States and 56,154 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.
11
Executive
Officers of the Registrant
Our executive officers are listed below.
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Name
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Office(s)
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Lawrence J. Ellison
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Chief Executive Officer and Director
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Jeffrey O. Henley
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Chairman of the Board of Directors
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Safra A. Catz
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President, Chief Financial Officer and Director
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Charles E. Phillips, Jr.
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President and Director
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Keith G. Block
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Executive Vice President, North America Sales and Consulting
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Sergio Giacoletto
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Executive Vice President, Europe, Middle East and Africa Sales
and Consulting
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Juergen Rottler
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Executive Vice President, Oracle Customer Services
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Charles A. Rozwat
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Executive Vice President, Product Development
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Derek H. Williams
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Executive Vice President, Japan Sales and Consulting
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Dorian E. Daley
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Senior Vice President, General Counsel and Secretary
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William Corey West
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Senior Vice President, Corporate Controller and Chief Accounting
Officer
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Mr. Ellison, 63, 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, 63, 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, 46, 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. She
also serves as a director of HSBC Holdings plc.
Mr. Phillips, 49, 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. He also serves as a director of
Morgan Stanley and Viacom, Inc.
Mr. Block, 47, 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.
Mr. Giacoletto, 58, has been Executive Vice President,
Europe, Middle East and Africa Sales and Consulting since June
2000 and served as Senior Vice President, Business Solutions
from November 1998 to June 2000. 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.
Mr. Rottler, 41, has been Executive Vice President, Oracle
Customer Services since September 2006. He was Executive Vice
President, Oracle Support and Oracle On Demand, from January
2005 to September 2006 and was Executive Vice President, Oracle
On Demand, from September 2004 to January 2005. 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. He also
held various other global and regional executive positions in
HPs Services and Software business units since 1997.
Mr. Rozwat, 60, has been Executive Vice President, Product
Development, since October 2007. He served as Executive Vice
President, Server Technologies from November 1999 to October
2007 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.
12
Mr. Williams, 63, has been Executive Vice President, Japan
Sales and Consulting since June 2008 and was Executive Vice
President, Asia Pacific Sales and Consulting from October 2000
to May 2008. He served as Senior Vice President, Asia Pacific
from July 1993 to October 2000 and as Vice President, Asia
Pacific from April 1991 to July 1993. He joined Oracle United
Kingdom in October 1988 and served as Regional Director,
Strategic Accounts from October 1988 to April 1991.
Ms. Daley, 49, has been Senior Vice President, General
Counsel and Secretary since October 2007. She served as Vice
President, Legal, Associate General Counsel and Assistant
Secretary from June 2004 to October 2007, as Associate General
Counsel and Assistant Secretary from October 2001 to June 2004,
and as Associate General Counsel from February 2001 to October
2001. She joined Oracles Legal Department in 1992.
Mr. West, 46, has been Senior Vice President, Corporate
Controller and Chief Accounting Officer since February 2008 and
was Vice President, Corporate Controller and Chief Accounting
Officer from April 2007 to February 2008. Prior to joining us,
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. He also spent
14 years with Arthur Andersen LLP, most recently as a
partner.
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:
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general economic and business conditions;
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the overall demand for enterprise software and services;
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governmental budgetary constraints or shifts in government
spending priorities; and
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general political developments.
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A general weakening of, or declining corporate confidence in,
the global economy, or a curtailment in government or corporate
spending could delay or 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 and 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 related services 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 IT 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.
13
A substantial portion of our new software license revenue
contracts is completed in the latter part of a quarter and a
significant percentage of these are large orders. Because our
cost structure is largely fixed in the short term, revenue
shortfalls tend to have a disproportionately negative impact on
our profitability. The number of large new software license
transactions also increases the risk of fluctuation in our
quarterly results because a delay in even a small number of
these 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, IT 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.
We are developing a next generation applications platform called
Oracle Fusion Applications that is planned to combine the best
features, flows and usability traits of our existing 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 four
fiscal years, we have invested billions of dollars, including
$9.4 billion in fiscal 2008, 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:
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our ongoing business may be disrupted and our managements
attention may be diverted by acquisition, transition or
integration activities;
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an acquisition may not further our business strategy as we
expected, or we may pay more than the acquired company or assets
are worth;
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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;
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we may have legal and tax exposures or lose anticipated tax
benefits as a result of unforeseen difficulties in our
integration activities;
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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;
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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;
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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, former stockholders or other third parties;
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14
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our relationship with current and new employees, customers,
partners and distributors could be impaired;
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we may have difficulty incorporating acquired technologies or
products with our existing product lines and maintaining uniform
standards, controls, procedures and policies;
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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;
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we may have higher than anticipated costs in continuing support
and development of acquired products;
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we may assume pre-existing liabilities, whether known or
unknown, of acquired companies which could be material;
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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;
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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;
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our use of cash to pay for acquisitions may limit other
potential uses of our cash, including stock repurchases and
retirement of outstanding indebtedness;
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we may significantly increase our interest expense, leverage and
debt service requirements if we incur additional debt to pay for
an acquisition;
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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
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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.
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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 have claimed and, in the future, may claim
infringement or misuse of intellectual property rights
and/or
breach of license agreement provisions. We
periodically receive notices from, or have lawsuits filed
against us by, 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:
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we continue to acquire companies;
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the number of products and competitors in our industry segments
grows;
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the functionality of products overlap;
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the use and support of third-party code (including open source
code) becomes more prevalent in the software industry; and
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the volume of issued software patents continues to increase.
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Responding to any such claim, regardless of its validity, could:
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be time-consuming, costly
and/or
result in litigation;
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15
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divert managements time and attention from developing our
business;
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require us to pay monetary damages or enter into royalty and
licensing agreements that we would not normally find acceptable;
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require us to stop selling or to redesign certain of our
products;
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require us to release source code to third parties, possibly
under open source license terms;
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require us to satisfy indemnification obligations to our
customers; or
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otherwise adversely affect our business, results of operations,
financial condition or cash flows.
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Specific patent infringement cases are discussed under
Note 15 in Notes to Consolidated Financial Statements.
We may need to change our pricing models to compete
successfully. The intense competition we face
in the sales of our products and services and general economic
and business conditions can put pressure on us to change 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 may reduce margins and could adversely affect operating
results. Our software license updates and product support fees
are generally priced as a percentage of our net new software
license fees. Our competitors may offer 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 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
certain of our products. If we do not adapt our pricing models
to reflect changes in customer use of our products or changes in
customer demand, our new software license revenues could
decrease. Additionally, increased distribution of applications
through application service providers, including
software-as-a-service (SaaS) 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 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 middleware 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 customers 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 for free. Existing or new competitors
could gain sales opportunities or customers at our expense.
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 revenues.
Charges to earnings resulting from past acquisitions may
adversely affect our operating results. Under
business combination accounting standards, we allocate the total
purchase price to an acquired companys net tangible
assets, intangible assets and in-process research and
development based on their values as of the date of the
16
acquisition (including certain assets and liabilities that are
recorded at fair value) and record the excess of the purchase
price over those values as goodwill. Managements estimates
of fair value are based upon assumptions believed to be
reasonable but which are inherently uncertain. After we complete
an acquisition, the following factors could result in material
charges that would adversely affect our operating results and
may adversely affect our cash flows:
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impairment of goodwill or intangible assets;
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a reduction in the useful lives of intangible assets acquired;
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identification of assumed contingent liabilities after we
finalize the purchase price allocation period;
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|
charges to our operating results to eliminate certain Oracle
pre-merger activities that duplicate those of the acquired
company or to reduce our cost structure; and
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charges to our operating results resulting from revised
estimates to restructure an acquired companys operations
after we finalize the purchase price allocation period.
|
Routine charges to our operating results 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 with assumed stock awards. Charges to our operating
results 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 Certain Charges and Gains 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 acquired companies, which may be
substantial. Additional costs may include costs of employee
redeployment, relocation and retention, including salary
increases or bonuses, accelerated stock-based compensation
expenses 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.
In December 2007, the Financial Accounting Standards Board
(FASB) issued Statement No. 141 (revised 2007), Business
Combinations (see Note 1 of Notes to Consolidated
Financial Statements for a summary of Statement 141(R)).
Statement 141(R) is effective for us beginning in fiscal 2010.
We are in the process of evaluating the impact of the pending
adoption of Statement 141(R) on our consolidated financial
statements. We currently believe that the adoption of Statement
141(R) will result in the recognition of certain types of
expenses in our results of operations that we currently
capitalize pursuant to existing accounting standards and may
also impact our financial statements in other ways.
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 also 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.
17
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 expense all stock-based
compensation, we may in the future change our stock-based and
other compensation practices. Some of the changes we consider
from time to time include the reduction in the number of
employees granted options, a reduction in the number of options
granted per employee 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.
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, consulting, On Demand and
shared administrative service centers. We are subject to a
variety of risks and challenges in managing an organization
operating in various countries, including those related to:
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general economic conditions in each country or region;
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regulatory changes;
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political unrest, terrorism and the potential for other
hostilities;
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public health risks, particularly in areas in which we have
significant operations;
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longer payment cycles and difficulties in collecting accounts
receivable;
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overlapping tax regimes;
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|
fluctuations in currency exchange rates;
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difficulties in transferring funds from certain
countries; and
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reduced protection for intellectual property rights in some
countries.
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In addition, compliance with international and U.S. laws
and regulations that apply to our international operations
increases our cost of doing business in foreign jurisdictions.
These laws and regulations include data privacy requirements,
labor relations laws, tax laws, anti-competition regulations,
import and trade restrictions, export requirements,
U.S. laws such as the Foreign Corrupt Practices Act, and
local laws which also prohibit corrupt payments to governmental
officials. Violations of these laws and regulations could result
in fines, criminal sanctions against us, our officers or our
employees, and prohibitions on the conduct of our business. Any
such violations could include prohibitions on our ability to
offer our products and services in one or more countries, could
delay or prevent potential acquisitions, and could also
materially damage our reputation, our brand, our international
expansion efforts, our ability to attract and retain employees,
our business and our operating results. Our success depends, in
part, on our ability to anticipate these risks and manage these
difficulties.
As the majority shareholder of i-flex solutions limited, a
publicly traded Indian software company focused on the banking
industry, 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 significant number of
transactions in currencies other than the U.S. 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. Our revenues and
operating results have recently been favorably affected by the
weakening U.S. Dollar relative to other major foreign
currencies. Changes in the value of major foreign currencies,
particularly the Euro, Japanese Yen and British Pound relative
to the U.S. 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.
18
Our periodic workforce restructurings can be
disruptive. We have in the past restructured
or made other adjustments to our workforce, including our direct
sales force on which we continue to rely heavily, in response to
management changes, product changes, performance issues,
acquisitions and other internal and external considerations. In
the past, sales force and other 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.
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, at
select partner data centers or at customer facilities. We also
offer CRM On Demand, which is a subscription service offering
that provides our customers with our CRM software functionality
delivered via a hosted, web-based 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 these offerings. These
businesses are subject to a variety of risks including:
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demand for these services may not meet our expectations;
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we may not be able to operate these businesses at an acceptable
profit level;
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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, inadequate disaster recovery or loss or
misappropriation of customer confidential information;
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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 IT functions to us;
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the laws and regulations applicable to hosted service providers
are unsettled, particularly in the areas of privacy and security
and use of global 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;
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demand for these services may be affected by customer and media
concerns about security risks, international transfers of data,
government or other third-party access to data,
and/or use
of outsourced services providers more generally; and
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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.
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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,
CRM On Demand and other outsourcing services, support and
consulting services, on our products and networks and any
security flaws, if exploited, could affect our ability to
conduct internal 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 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
19
a long return on investment 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.
There are risks associated with our outstanding
indebtedness. As of May 31, 2008, we had
an aggregate of $11.2 billion of outstanding indebtedness
that will mature between 2009 and 2038, 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,
generate sufficient cash flows to service such debt 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.
We may also need to refinance a portion of our outstanding debt
as it matures. There is a risk that we may not be able to
refinance existing debt or that the terms of any refinancing may
not be as favorable as the terms of our existing debt.
Furthermore, if prevailing interest rates or other factors at
the time of refinancing result in higher interest rates upon
refinancing, then the interest expense relating to that
refinanced indebtedness would increase. In addition, changes by
any rating agency to our outlook or credit rating could
negatively affect the value of both our debt and equity
securities. These risks could adversely affect our financial
condition and results of operations.
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 15 in Notes to Consolidated Financial Statements.
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
20
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. These agreements are
effective for fiscal years through May 31, 2006. We have
submitted to the IRS a request for renewal of this Advance
Pricing Agreement for the years ending May 31, 2007 through
May 31, 2011. However, these agreements 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, which was effective for the years
ending May 31, 2002 through May 31, 2006 and we have
submitted a renewal for the years ending May 31, 2007
through May 31, 2011. We 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, there
is no assurance 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 based 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 based taxes and may have
exposure to additional non-income based tax liabilities. Our
acquisition activities have increased our non-income based tax
exposures.
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 us, as a result of our
acquisition of PeopleSoft, with a contingent obligation to make
payments to PeopleSoft customers should we fail to take certain
business actions for a fixed period of time after this
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. We concluded that, as of the date of the PeopleSoft
acquisition, the penalty provisions under the CAP represented a
contingent liability of ours. The aggregate potential CAP
obligation as of May 31, 2008 was $1.9 billion. Some
of the CAP provisions have expired or have been removed from
these license arrangements. We expect the significant majority
of the remaining CAP provisions to expire by the end of calendar
2008. 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,
2008, we have not received any claims for CAP payments,
PeopleSoft customers may assert claims for CAP payments.
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.
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Item 1B.
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Unresolved
Staff Comments
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None.
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 2.0 million square feet in Redwood City,
California. We also own or lease office facilities for current
use consisting of approximately 17.9 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
3.8 million square feet
21
or 19% of total owned and leased space. This vacated space is
sublet or is being actively marketed for sublease or disposition.
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Item 3.
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Legal
Proceedings
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The material set forth in Note 15 of Notes to Consolidated
Financial Statements in Item 15 of this Annual Report on
Form 10-K
is incorporated herein by reference.
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Item 4.
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Submission
of Matters to a Vote of Security Holders
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None.
22
PART II
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Item 5.
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Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
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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 20,505 stockholders of
record as of May 31, 2008. 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.
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Fiscal 2008
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Fiscal 2007
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Low Sale
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High Sale
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Low Sale
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High Sale
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Price
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Price
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Price
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Price
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Fourth Quarter
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$
|
18.44
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$
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22.84
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$
|
16.37
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$
|
19.42
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Third Quarter
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$
|
18.80
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$
|
23.11
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$
|
16.29
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$
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19.28
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Second Quarter
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$
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19.36
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$
|
22.92
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$
|
15.50
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$
|
19.66
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First Quarter
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$
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18.73
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$
|
20.78
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$
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13.15
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$
|
15.81
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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 reviews this matter from time to
time.
For equity compensation plan information, please refer to
Item 12 in Part III of this Annual Report.
Stock
Repurchase Programs
Our Board of Directors has approved a program to repurchase
shares of our common stock to reduce the dilutive effect of our
stock option and stock purchase plans. In April 2007, our Board
of Directors expanded our repurchase program by
$4.0 billion and, as of May 31, 2008,
$2.2 billion was available for share repurchases pursuant
to our stock repurchase program.
Our stock repurchase authorization does not have an expiration
date and the pace of our repurchase activity will depend on
factors such as our working capital needs, our cash requirements
for acquisitions, our debt repayment obligations, our stock
price, and economic and market conditions. Our stock repurchases
may be effected from time to time through open market purchases
or pursuant to a
Rule 10b5-1
plan. Our stock repurchase program may be accelerated,
suspended, delayed or discontinued at any time.
The following table summarizes the stock repurchase activity for
the three months ending May 31, 2008 and the approximate
dollar value of shares that may yet be purchased pursuant to our
share repurchase programs:
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Total Number of
|
|
Approximate Dollar
|
|
|
Total Number
|
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Average
|
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Shares Purchased as
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Value of Shares that
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of Shares
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Price Paid
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Part of Publicly
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May Yet Be Purchased
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(in millions, except per share amounts)
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Purchased
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per Share
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Announced Programs
|
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Under the Programs
|
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March 1, 2008March 31, 2008
|
|
|
8.1
|
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$
|
19.63
|
|
|
|
8.1
|
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$
|
2,550.8
|
April 1, 2008April 30, 2008
|
|
|
8.4
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$
|
20.87
|
|
|
|
8.4
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$
|
2,376.1
|
May 1, 2008May 31, 2008
|
|
|
7.6
|
|
$
|
21.89
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|
7.6
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$
|
2,209.4
|
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|
|
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|
|
|
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Total
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|
24.1
|
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$
|
20.76
|
|
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24.1
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23
Stock
Performance Graph 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,
2008, 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,
2003 IN STOCK OR
INDEX-INCLUDING REINVESTMENT OF
DIVIDENDS.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5/03
|
|
|
5/04
|
|
|
5/05
|
|
|
5/06
|
|
|
5/07
|
|
|
5/08
|
|
|
Oracle Corporation
|
|
|
100.00
|
|
|
|
87.62
|
|
|
|
98.39
|
|
|
|
109.30
|
|
|
|
148.96
|
|
|
|
175.56
|
|
S&P 500 Index
|
|
|
100.00
|
|
|
|
118.32
|
|
|
|
128.07
|
|
|
|
139.13
|
|
|
|
170.84
|
|
|
|
159.40
|
|
Dow Jones U.S. Software Index
|
|
|
100.00
|
|
|
|
109.22
|
|
|
|
119.48
|
|
|
|
113.63
|
|
|
|
151.06
|
|
|
|
149.95
|
|
24
|
|
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.
Over the last four fiscal years, we have invested billions of
dollars, including $9.4 billion in fiscal 2008, for our
acquisitions of a number of companies including PeopleSoft, BEA,
Siebel and Hyperion. The results of our acquired companies have
been included in our consolidated financial statements since
their respective dates of acquisition and have contributed to
our growth in revenues, income and earnings per share.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and For The Year Ended May 31,
|
|
(in millions, except per share amounts)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Consolidated Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
22,430
|
|
|
$
|
17,996
|
|
|
$
|
14,380
|
|
|
$
|
11,799
|
|
|
$
|
10,156
|
|
Operating income
|
|
$
|
7,844
|
|
|
$
|
5,974
|
|
|
$
|
4,736
|
|
|
$
|
4,022
|
|
|
$
|
3,864
|
|
Net income
|
|
$
|
5,521
|
|
|
$
|
4,274
|
|
|
$
|
3,381
|
|
|
$
|
2,886
|
|
|
$
|
2,681
|
|
Earnings per sharebasic
|
|
$
|
1.08
|
|
|
$
|
0.83
|
|
|
$
|
0.65
|
|
|
$
|
0.56
|
|
|
$
|
0.51
|
|
Earnings per sharediluted
|
|
$
|
1.06
|
|
|
$
|
0.81
|
|
|
$
|
0.64
|
|
|
$
|
0.55
|
|
|
$
|
0.50
|
|
Basic weighted average common shares outstanding
|
|
|
5,133
|
|
|
|
5,170
|
|
|
|
5,196
|
|
|
|
5,136
|
|
|
|
5,215
|
|
Diluted weighted average common shares outstanding
|
|
|
5,229
|
|
|
|
5,269
|
|
|
|
5,287
|
|
|
|
5,231
|
|
|
|
5,326
|
|
Consolidated Balance Sheets Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital
|
|
$
|
8,074
|
|
|
$
|
3,496
|
|
|
$
|
5,044
|
(1)
|
|
$
|
385
|
(2)
|
|
$
|
7,064
|
|
Total assets
|
|
$
|
47,268
|
(3)
|
|
$
|
34,572
|
(3)
|
|
$
|
29,029
|
(3)
|
|
$
|
20,687
|
(3)
|
|
$
|
12,763
|
|
Notes payable, current and other current borrowings
|
|
$
|
1,001
|
(4)
|
|
$
|
1,358
|
(4)
|
|
$
|
159
|
|
|
$
|
2,693
|
(4)
|
|
$
|
9
|
|
Notes payable and other non-current borrowings
|
|
$
|
10,235
|
(5)
|
|
$
|
6,235
|
(5)
|
|
$
|
5,735
|
(5)
|
|
$
|
159
|
|
|
$
|
163
|
|
Stockholders equity
|
|
$
|
23,025
|
|
|
$
|
16,919
|
|
|
$
|
15,012
|
|
|
$
|
10,837
|
|
|
$
|
7,995
|
|
|
|
|
(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.
|
|
(2) |
|
Total working capital decreased as
of May 31, 2005 primarily due to cash paid to acquire
PeopleSoft.
|
|
(3) |
|
Total assets increased as of
May 31, 2008, 2007, 2006 and 2005 primarily due to goodwill
and intangible assets arising from the acquisitions of BEA in
fiscal 2008, Hyperion in fiscal 2007, Siebel in fiscal 2006 and
PeopleSoft in fiscal 2005, as well as our profitability in all
periods presented. See Note 2 of Notes to Consolidated
Financial Statements for additional information on our
acquisitions.
|
|
(4) |
|
Notes payable, current and other
current borrowings decreased in fiscal 2008 due to repayments of
amounts borrowed under our commercial paper program during
fiscal 2007 partially offset by the reclassification of
$1.0 billion of senior notes that mature in 2009. Notes
payable, current and other current borrowings increased in
fiscal 2005 due to amounts borrowed under our commercial paper
program and amounts borrowed by Oracle Technology Company, a
wholly-owned subsidiary. We repaid these fiscal 2005 borrowings
in fiscal 2006.
|
|
(5) |
|
Notes payable and other non-current
borrowings increased between fiscal 2006 and fiscal 2008 due to
the issuances of $5.0 billion of long-term senior notes in
fiscal 2008, $2.0 billion of long-term senior notes in
fiscal 2007 and $5.75 billion of long-term senior notes in
fiscal 2006, partially offset by redemptions of
$1.5 billion in fiscal 2007. See Note 6 of Notes to
Consolidated Financial Statements for additional information on
our borrowings.
|
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
We begin Managements Discussion and Analysis of Financial
Condition and Results of Operations with an overview of our key
operating business segments and significant trends. This
overview is followed by a summary of our critical accounting
policies and estimates that we believe are important to
understanding the assumptions and judgments incorporated in our
reported financial results. We then provide a more detailed
analysis of our results of operations and financial condition.
We are the worlds largest enterprise software company. We
are organized into two businesses, software and services, which
are further divided into five operating segments. Each of these
operating segments has unique characteristics and faces
different opportunities and challenges. Although we report our
actual results in U.S. Dollars, we conduct a significant
number of transactions in currencies other than
U.S. Dollars. Therefore, we present constant currency
information to provide a framework for assessing how our
underlying business performed excluding the effect of foreign
currency rate fluctuations. An overview of our five operating
segments follows.
25
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 due to
continued demand for our products and due to our acquisitions,
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.
Our 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 license revenues on a
trailing
4-quarter
period (as provided in our quarterly reports on
Form 10-Q)
provides additional visibility into the underlying performance
of our new software license business. New software license
revenues represented 34%, 33% and 34% of our total revenues in
fiscal 2008, 2007 and 2006, respectively. Our new software
license margins have been and will continue to be affected by
the amortization of intangible assets associated with companies
we have acquired.
Competition in the software business is intense. Our goal is to
maintain a first or second position in each of our software
product categories and certain industry segments as well as to
grow our software revenues faster than our competitors. We
believe that the features and functionality of our software
products are as strong as they have ever been. We have focused
on lowering the total cost of ownership of our software products
by improving integration, decreasing installation times,
lowering administration costs and improving the ease of use. In
addition, our broad portfolio of product offerings (many of
which have been acquired over the past four fiscal years) helps
us to offer customers the ability to gain efficiencies by
consolidating their IT software stack with a single
vendor, which reduces the number of disparate software vendors
with which customers interact. Reducing the total cost of
ownership of our products provides our customers with a higher
return on their IT investments, which we believe creates more
demand for our products and services and provides 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 addition, we offer Oracle Unbreakable Linux
Support, which provides enterprise level support for the Linux
operating system and, in fiscal 2008, we introduced support for
Oracle VM server virtualization software. Substantially all of
our customers renew their software license updates and product
support contracts annually. The growth of software license
updates and product support revenues is primarily influenced by
three factors: (1) the renewal rate of the support contract
base, (2) the amount of new support contracts sold in
connection with the sale of new software licenses, and
(3) the support contract base assumed from companies we
have acquired.
Software license updates and product support revenues, which
represented 46% of our total revenues in fiscal 2008, 2007 and
2006, is our highest margin business unit. Support margins
during fiscal 2008 were 85%, and accounted for 76% of our total
margins over the same period. We believe that software license
updates and product support revenues and margins will continue
to grow for the following reasons:
|
|
|
|
|
Substantially all of our customers, including customers from
acquired companies, renew their support contracts when eligible
for renewal.
|
|
|
|
Substantially all of our customers purchase license updates and
product support contracts when they buy new software licenses,
resulting in a further increase in our support contract base.
Even if new software license revenue growth was flat, software
license updates and product support revenues would continue to
grow assuming renewal and cancellation rates remained relatively
constant since substantially all new software license
transactions add to our support contract base.
|
26
|
|
|
|
|
Our acquisitions have increased our support contract base, as
well as the portfolio of products available to be licensed.
|
We record adjustments to reduce support obligations assumed in
business acquisitions to their estimated fair values at the
acquisition dates. As a result, as required by business
combination accounting rules, we did not recognize software
license updates and product support revenues related to support
contracts that would have been otherwise recorded by the
acquired businesses as independent entities in the amount of
$179 million, $212 million and $391 million in
fiscal 2008, 2007 and 2006, respectively. To the extent
underlying support contracts are renewed with us following an
acquisition, we will recognize the revenues for the full value
of the support contracts over the support periods, the majority
of which are one year.
Services
Business
Our services business consists of consulting, On Demand and
education. Our services business, which represented 20%, 21% and
20% of our total revenues in fiscal 2008, 2007 and 2006,
respectively, has significantly lower margins than our software
business.
Consulting: Consulting revenues have
increased primarily due to an increase in application
implementations resulting from higher sales of new software
applications over the past year and our recent acquisitions. 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 software
license growth rates have generally increased over the last
several quarters in comparison to the corresponding prior year
periods.
On Demand: On Demand includes Oracle On
Demand, CRM on Demand, as well as Advanced Customer Services
offerings. We believe that our On Demand offerings provide our
customers flexibility in how they manage their IT environments
and an additional opportunity 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 our On Demand business to support current and future revenue
growth, which has negatively impacted On Demand margins and may
continue to do so in the future.
Education: The purpose of our education
services is to further the adoption and usage 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. However,
education revenues and expenses have increased in recent periods
in comparison to the corresponding periods of the prior year as
a result of additional education offerings related to our
acquired products.
Acquisitions
An active acquisition program is another important element of
our corporate strategy. Over the last four fiscal years, we have
invested billions of dollars, including $9.4 billion in
fiscal 2008, to acquire a number of complementary companies,
products, services and technologies such as BEA Systems, Inc. in
fiscal 2008, Hyperion Solutions Corporation in fiscal 2007,
Siebel Systems, Inc. in fiscal 2006 and PeopleSoft, Inc. in
fiscal 2005. We believe our acquisition program supports our
long-term strategic direction, strengthens our competitive
position, expands our customer base, provides greater scale to
accelerate innovation, grows our revenues and earnings, and
increases stockholder value. We expect to continue to acquire
companies, products, services and technologies. See Note 2
of Notes to Consolidated Financial Statements for additional
information related to our recent acquisitions.
We believe we can fund additional acquisitions with our
internally available cash, cash equivalents and marketable
securities, cash generated from operations, amounts available
under our existing debt capacity, 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.
27
Critical
Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance
with U.S. generally accepted accounting principles (GAAP).
These accounting principles require us to make certain
estimates, judgments and assumptions. We believe that the
estimates, judgments and assumptions upon which we rely are
reasonable based upon information available to us at the time
that these estimates, judgments and assumptions are made. These
estimates, judgments and assumptions can affect the reported
amounts of assets and liabilities as of the date of the
financial statements as well as the reported amounts of revenues
and expenses during the periods presented. To the extent there
are material differences between these estimates, judgments or
assumptions and actual results, our financial statements will be
affected. The accounting policies that reflect our more
significant estimates, judgments and assumptions and which we
believe are the most critical to aid in fully understanding and
evaluating our reported financial results include the following:
|
|
|
|
|
Revenue Recognition
|
|
|
|
Business Combinations
|
|
|
|
Goodwill and Intangible AssetsImpairment Assessments
|
|
|
|
Accounting for Income Taxes
|
|
|
|
Legal and Other Contingencies
|
|
|
|
Stock-Based Compensation
|
|
|
|
Allowances for Doubtful Accounts
|
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 (SOP)
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
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.
28
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, revenues are 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. 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 revenues 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 revenues are 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
delivered either at our data center facilities, at select
partner data centers or at customer facilities. 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
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 also 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 revenues for any undelivered elements, and recognize
revenues when the product is delivered or over the period in
which the service is performed, in accordance with our revenue
recognition policy for each such element. If we cannot
objectively determine the fair value of any undelivered element
included in bundled software and service arrangements, we defer
revenues 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
29
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 generally recognize revenues upon delivery provided
the acceptance terms are perfunctory and all other revenue
recognition criteria have been met. If acceptance provisions are
not perfunctory (for example, acceptance provisions that are
long-term in nature or are not included as standard terms of an
arrangement), revenues are 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 revenues
once all of the criteria described above have been met. If such
a determination cannot be made, revenues are 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 revenues if all other revenue recognition
requirements are met. Our standard payment terms are
net 30 days. However, payment 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 (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
recognize new software license revenues 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 Financial Accounting Standards Board (FASB)
Statement No. 141, Business Combinations, 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 upon
their estimated fair values at the acquisition date. The
purchase price allocation process requires management to make
significant estimates and assumptions, especially at acquisition
date with respect to intangible assets, support obligations
assumed, estimated restructuring liabilities and pre-acquisition
contingencies.
30
Although we believe the assumptions and estimates we have made
in the past have been reasonable and appropriate, they are based
in part on historical experience and information obtained from
the management of the acquired companies and are inherently
uncertain. Examples of critical estimates in valuing certain of
the intangible assets we have acquired or may acquire in the
future include but are not limited to:
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future expected cash flows from software license sales, support
agreements, consulting contracts, other customer contracts and
acquired developed technologies and patents;
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expected costs to develop the in-process research and
development into commercially viable products and estimated cash
flows from the projects when completed;
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the acquired companys brand and competitive 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
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discount rates.
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Unanticipated events and circumstances may occur which may
affect the accuracy or validity of such assumptions, estimates
or actual results.
In connection with the purchase price allocations for our
acquisitions, we estimate the fair value of the support
obligations assumed. 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. The sum of these costs and operating profit
approximates, in theory, the amount that we would be required to
pay a third party to assume the support obligation. 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 any selling efforts is excluded
because the acquired entities would have concluded those selling
efforts on the support contracts prior to the acquisition date.
We also do not include the estimated research and development
costs in our fair value determinations, as these costs are not
deemed to represent a legal obligation at the time of
acquisition.
As a result, we did not recognize software license updates and
product support revenues related to support contracts in the
amounts of $179 million, $212 million and
$391 million that would have been otherwise recorded by the
acquired businesses as independent entities in fiscal 2008, 2007
and 2006, respectively. Historically, substantially all of our
customers, including customers from acquired companies, renew
their contracts when the contracts are 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 substantial majority of
which are one year.
Had we included costs for 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 values of the support
obligations would have been significantly higher than what we
had recorded and we would have recorded a higher amount of
software license updates and product support revenues both
historically and in future periods related to these assumed
support arrangements.
Other significant estimates associated with the accounting for
business combinations include restructuring costs. Restructuring
costs are typically 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 are generally subject to
refinement during the purchase price allocation period
(generally within one year of the acquisition date). 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 and as
operating expenses thereafter.
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
31
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 income 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.
In fiscal 2010, we will adopt FASB Statement No. 141
(revised 2007), Business Combinations. Refer to
Note 1 of Notes to Consolidated Financial Statements for
additional information.
Goodwill
and Intangible AssetsImpairment Assessments
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 13 of 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 2008, did not result in an impairment charge.
We make judgments about the recoverability of purchased
intangible assets whenever events or changes in circumstances
indicate that an other than temporary impairment may exist. Each
period we evaluate the estimated remaining useful lives of
purchased intangible assets and whether events or changes in
circumstances warrant a revision to the remaining periods of
amortization. In accordance with FASB Statement No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets, recoverability of these assets is measured by
comparison of the carrying amount of the asset to the future
undiscounted cash flows the asset is expected to generate. If
the asset is considered to be impaired, the amount of any
impairment is measured as the difference between the carrying
value and the fair value of the impaired asset.
Assumptions and estimates about future values and remaining
useful lives of our intangible and other long-lived assets are
complex and subjective. They can be affected by a variety of
factors, including external factors such as industry and
economic trends, and internal factors such as changes in our
business strategy and our internal forecasts. Although we
believe the historical assumptions and estimates we have made
are reasonable and appropriate, different assumptions and
estimates could materially impact our reported financial
results. We did not recognize any intangible asset impairment
charges in fiscal 2008, 2007 or 2006.
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 revenues and expenses that qualify for preferential tax
treatment, and segregation of foreign and domestic earnings and
expenses 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
32
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 our
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 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 assets would be charged to earnings in the
period in which we make such a 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, which can materially
impact our effective tax rate.
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 any 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 expenses as a part of the purchase
price allocation process. 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 adjustments to
goodwill.
On June 1, 2007, we adopted FASB Interpretation
No. 48, Accounting for Uncertainty in Income Taxes, an
interpretation of FASB Statement No. 109 (FIN 48),
which contains a two-step approach to recognizing and measuring
uncertain tax positions taken or expected to be taken in a tax
return by determining if the weight of available evidence
indicates that it is more likely than not that the tax position
will be sustained on audit, including resolution of any related
appeals or litigation processes. The second step is to measure
the tax benefit as the largest amount that is more than 50%
likely to be realized upon ultimate settlement. Although we
believe we have adequately reserved for our uncertain tax
positions, no assurance can be given with respect to the final
outcome of these matters. We adjust reserves for our uncertain
tax positions due to changing facts and circumstances, such as
the closing of a tax audit or the refinement of an estimate. To
the extent that the final outcome of these matters is different
than the amounts recorded, such differences will impact our
provision for income taxes in the period in which such a
determination is made. Our provisions for income taxes include
the impact of reserve provisions and changes to reserves that
are considered appropriate and also include the related interest
and penalties.
33
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 9 of
Notes to Consolidated Financial Statements for further
information.
Stock-Based
Compensation
We account for share-based payments to employees, including
grants of employee stock awards and purchases under employee
stock purchase plans in accordance with FASB Statement
No. 123 (revised 2004), Share-Based Payment, which
requires that share-based payments (to the extent they are
compensatory) be recognized in our consolidated statements of
operations based on their fair values. In addition, we have
applied the provisions of the SECs Staff Accounting
Bulletin No. 107 in our accounting for Statement
123(R).
We are required to estimate the stock 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 estimate forfeitures
based on historical experience, actual forfeitures in the future
may differ. In addition, to the extent our actual forfeitures
are different than our estimates, we record a
true-up for
the difference in the period that the awards vest, and such
true-ups
could materially affect our operating results.
As required by Statement 123(R), we recognize stock-based
compensation expense for share-based payments issued or assumed
after June 1, 2006 that are expected to vest. For all
share-based payments granted or assumed beginning June 1,
2006, we recognize stock-based compensation expense on a
straight-line basis over the service period of the award, which
is generally four years. The fair value of the unvested portion
of share-based payments granted prior to June 1, 2006 is
recognized over the remaining service period using the
accelerated expense attribution method, net of estimated
forfeitures. In determining whether an award is expected to
vest, we use an estimated, forward-looking forfeiture rate based
upon our historical forfeiture rates. Stock-based compensation
expense recorded using an estimated forfeiture rate is updated
for actual forfeitures quarterly. We also consider, each
quarter, whether there have been any significant changes in
facts and circumstances that would affect our forfeiture rate.
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 we use 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, longest-term 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. The
aforementioned inputs entered into the option valuation model we
use to fair value our stock awards are subjective estimates and
changes to these estimates will cause the fair value of our
stock awards and related stock-based compensation expense we
record to vary.
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
34
receive a tax deduction. Because the deferred tax assets we
record are based upon the stock-based compensation expenses in a
particular jurisdiction, the aforementioned inputs that affect
the fair value of our stock awards also indirectly affect our
income tax expense. In addition, 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.
To the extent we change the terms of our employee stock-based
compensation programs or refine different assumptions in future
periods such as forfeiture rates that differ from our estimates,
the stock-based compensation expense that we record in future
periods and the tax benefits that we realize may differ
significantly from what we have recorded in previous reporting
periods.
Allowances
for Doubtful Accounts
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
allowances for doubtful accounts does not reflect the future
ability to collect outstanding receivables, additional
provisions for doubtful accounts may be needed and our future
results of operations could be materially affected.
Results
of Operations
The comparability of our operating results in fiscal 2008
compared to fiscal 2007 is primarily impacted by our acquisition
of Hyperion in our fourth quarter of fiscal 2007, our
acquisition of Agile Software, Inc. in our first quarter of
fiscal 2008 and our acquisition of BEA in our fourth quarter of
fiscal 2008.
The comparability of our operating results in fiscal 2007 in
comparison to fiscal 2006 is impacted by our acquisition of
Siebel in our third quarter of fiscal 2006, the consolidation of
i-flex solutions limited at the beginning of fiscal 2007 and, to
a lesser extent, our acquisition of Hyperion in our fourth
quarter of fiscal 2007.
In our discussion of changes in our results of operations from
fiscal 2008 compared to fiscal 2007, and fiscal 2007 compared to
fiscal 2006, we quantify the contribution of our acquired
products to the growth in new software license revenues, the
amount of revenues associated with software license updates and
product support, as well as On Demand services (in the fiscal
2007 to fiscal 2006 comparison), and present supplemental
disclosure related to certain charges and gains (including
acquisition accounting and stock-based compensation), where
applicable. Although certain revenue contributions from our
acquisitions are quantifiable, we are unable to identify the
following:
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The contribution of the significant majority of consulting and
education services revenues from acquired companies in fiscal
2008, 2007 and 2006 (with the exception of the impact of BEA
consulting and education revenues in fiscal 2008 in comparison
to fiscal 2007, and 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.
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The contribution of expenses associated with acquired products
and services in fiscal 2008, 2007 and 2006 (with the exception
of the impact of certain BEA operating expenses in fiscal 2008
in comparison to fiscal 2007 and the impact 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.
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35
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:
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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. We believe that if our sales forces had not
been integrated, the relative mix of products sold would have
been different.
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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.
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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 certain charges and gains
(see below) are not necessarily indicative of revenue
improvements we will achieve upon contract renewal to the extent
customers do not renew.
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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 U.S. Dollars are converted into
U.S. Dollars at the exchange rate in effect on May 31,
2007, which was the last day of our prior fiscal year, rather
than the actual exchange rates in effect during the respective
periods. For example, if an entity reporting in Euros had
revenues of 1.0 million Euros from products sold on
May 31, 2008 and May 31, 2007, our financial
statements would reflect revenues of $1.57 million in
fiscal 2008 (using 1.57 as the exchange rate) and
$1.35 million in fiscal 2007 (using 1.35 as the exchange
rate). The constant currency presentation would translate the
fiscal 2008 results using the fiscal 2007 exchange rate and
indicate, in this example, no change in revenues during the
period. In each of the tables below, we present the percent
change based on actual results as reported and based on constant
currency.
Total
Revenues and Operating Expenses
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Year Ended May 31,
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Percent Change
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Percent Change
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(Dollars in millions)
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2008
|
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Actual
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Constant
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2007
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Actual
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Constant
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2006
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Total Revenues by Geography:
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|
|
|
|
|
|
|
|
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|
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Americas
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$
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11,330
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20%
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|
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18%
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$
|
9,460
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24%
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|
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23%
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$
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7,652
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EMEA(1)
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7,945
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32%
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20%
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|
6,037
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28%
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20%
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4,708
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Asia Pacific
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|
|
3,155
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|
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26%
|
|
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18%
|
|
|
2,499
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|
|
24%
|
|
|
21%
|
|
|
2,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Total revenues
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22,430
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|
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25%
|
|
|
19%
|
|
|
17,996
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25%
|
|
|
22%
|
|
|
14,380
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Total Operating Expenses
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|
14,586
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|
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21%
|
|
|
17%
|
|
|
12,022
|
|
|
25%
|
|
|
22%
|
|
|
9,644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Total Operating Margin
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$
|
7,844
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31%
|
|
|
22%
|
|
$
|
5,974
|
|
|
26%
|
|
|
21%
|
|
$
|
4,736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Total Operating Margin %
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35%
|
|
|
|
|
|
|
|
|
33%
|
|
|
|
|
|
|
|
|
33%
|
% Revenues by Geography:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Americas
|
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51%
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|
|
|
|
|
|
|
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53%
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|
|
|
|
|
|
|
|
53%
|
EMEA(1)
|
|
|
35%
|
|
|
|
|
|
|
|
|
34%
|
|
|
|
|
|
|
|
|
33%
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Asia Pacific
|
|
|
14%
|
|
|
|
|
|
|
|
|
13%
|
|
|
|
|
|
|
|
|
14%
|
Total Revenues by Business:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Software
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$
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17,843
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26%
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|
|
19%
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|
$
|
14,211
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|
|
23%
|
|
|
20%
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|
$
|
11,541
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Services
|
|
|
4,587
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|
|
21%
|
|
|
15%
|
|
|
3,785
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|
|
33%
|
|
|
29%
|
|
|
2,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Total revenues
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$
|
22,430
|
|
|
25%
|
|
|
19%
|
|
$
|
17,996
|
|
|
25%
|
|
|
22%
|
|
$
|
14,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Revenues by Business:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
|
|
|
80%
|
|
|
|
|
|
|
|
|
79%
|
|
|
|
|
|
|
|
|
80%
|
Services
|
|
|
20%
|
|
|
|
|
|
|
|
|
21%
|
|
|
|
|
|
|
|
|
20%
|
|
|
|
(1) |
|
Comprised of Europe, the Middle
East and Africa
|
36
Fiscal 2008 Compared to Fiscal
2007: Total revenues increased in fiscal 2008
due to increased demand for our products and services offerings
and incremental revenues from our acquisitions. The growth in
our total revenues was positively affected by foreign currency
rate fluctuations of 6 percentage points in fiscal 2008 due
to the weakening of the U.S. Dollar relative to other major
international currencies. Excluding the effect of currency rate
fluctuations, new software license revenues contributed 38% to
the growth in total revenues, software license updates and
product support revenues contributed 45% and services revenues
contributed 17%. Excluding the effect of currency rate
fluctuations, the Americas contributed 50% to the increase in
total revenues, EMEA contributed 37% and Asia Pacific
contributed 13%.
Total operating expenses were adversely affected by foreign
currency rate fluctuations of 4 percentage points.
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 fiscal 2007 acquisitions, Agile in
the first quarter of fiscal 2008 and, to a lesser extent, BEA in
the fourth quarter of fiscal 2008), as well as higher
commissions and bonuses associated with increased revenues,
earnings and headcount levels. In addition, operating expenses
also increased in fiscal 2008 due to higher expenses from the
amortization of intangible assets and additional stock-based
compensation resulting from a higher fair value of grants issued
in fiscal 2008 (caused primarily by our higher stock price) and
the acceleration of vesting of certain acquired stock awards
upon employee terminations pursuant to the original terms of
those awards. Total operating expenses in fiscal 2007 were also
reduced by a $52 million benefit as a result of a
settlement of an acquired legal contingency from PeopleSoft for
less than the amount accrued as of the end of the purchase price
allocation period. The increases in operating expenses during
fiscal 2008 were partially offset by a $57 million gain on
property sale and a $127 million reduction of in-process
research and development from our fiscal 2008 acquisitions in
comparison to our fiscal 2007 acquisitions.
Total operating margin as a percentage of total revenues
increased during fiscal 2008. The growth in our operating margin
in fiscal 2008 was the result of our revenue growth, both
organic and from acquisitions, and the relatively fixed nature
of our cost structure in the short term. In addition, our
operating margin growth was favorably affected by foreign
currency rate fluctuations of 9 percentage points.
International operations will continue to provide a significant
portion of our total revenues and expenses. As a result, total
revenues and expenses will continue to be affected by changes in
the relative strength of the U.S. Dollar against certain
major international currencies.
Fiscal 2007 Compared to Fiscal
2006: Total revenues increased in fiscal 2007
due to increased demand for our products and services offerings
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 U.S. 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 revenues 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%.
Operating expenses were adversely affected by foreign currency
rate fluctuations of 3 percentage points. Excluding the
effect of currency rate fluctuations, the increase in total
operating expenses was primarily due to higher salary and
employee benefits associated with increased headcount levels
(primarily resulting from our acquisitions), 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
123(R) at the beginning of fiscal 2007. The aforementioned
increases in operating expenses were partially offset by lower
restructuring expenses and the settlement of a PeopleSoft
contingency that provided a $52 million benefit to our
operating expenses (see Acquisition Related and Other Expenses
discussion below).
Operating margins as a percentage of total revenues were flat in
fiscal 2007 in comparison to fiscal 2006 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 the impact of
amortization costs of intangible assets and stock-based
compensation expenses. The increases in those cost categories
offset the slower growth in our other operating expenses.
37
Supplemental
Disclosure Related to Certain Charges and Gains
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.
Our operating results include the following business combination
accounting entries and expenses related to acquisitions as well
as certain other significant expense and income items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended May 31,
|
|
(in millions)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Support deferred
revenues(1)
|
|
$
|
179
|
|
|
$
|
212
|
|
|
$
|
391
|
|
Amortization of intangible
assets(2)
|
|
|
1,212
|
|
|
|
878
|
|
|
|
583
|
|
Acquisition related and
other(3)(5)
|
|
|
124
|
|
|
|
140
|
|
|
|
137
|
|
Restructuring(4)
|
|
|
41
|
|
|
|
19
|
|
|
|
85
|
|
Stock-based
compensation(5)
|
|
|
257
|
|
|
|
198
|
|
|
|
31
|
|
Income tax
effect(6)
|
|
|
(535
|
)
|
|
|
(414
|
)
|
|
|
(362
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,278
|
|
|
$
|
1,033
|
|
|
$
|
865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 $179 million, $212 million and
$391 million in fiscal 2008, fiscal 2007 and fiscal 2006,
respectively. Approximately $205 million of estimated
software license updates and product support revenues related to
support contracts assumed will not be recognized in fiscal 2009
that would have otherwise been recognized by the acquired
businesses as independent entities, due to the application of
business combination accounting rules. To the extent customers
renew these support contracts, we expect to recognize revenues
for the full contract value over the support renewal period.
|
|
(2) |
|
Represents the amortization of
intangible assets acquired in connection with acquisitions,
primarily PeopleSoft, BEA, Siebel, Hyperion and i-flex. As of
May 31, 2008, estimated future amortization expenses
related to intangible assets are as follows (in millions):
|
|
|
|
|
|
Fiscal 2009
|
|
$
|
1,660
|
|
Fiscal 2010
|
|
|
1,550
|
|
Fiscal 2011
|
|
|
1,266
|
|
Fiscal 2012
|
|
|
1,126
|
|
Fiscal 2013
|
|
|
962
|
|
Thereafter
|
|
|
1,831
|
|
|
|
|
|
|
Total
|
|
$
|
8,395
|
|
|
|
|
|
|
|
|
|
(3) |
|
Acquisition related and other
expenses primarily consist of in-process research and
development expenses, stock-based compensation expenses,
integration related professional services, personnel related
costs for transitional employees, certain business combination
contingency adjustments after the purchase price allocation
period has ended, and certain other operating expenses (income),
net. For fiscal 2008, acquisition related and other expenses
include a gain on property sale of $57 million and, for
fiscal 2007, acquisition related and other expenses include a
benefit of $52 million related to the settlement of a
pre-acquisition lawsuit against PeopleSoft (see Note 1 of
Notes to Consolidated Financial Statements for further
information).
|
|
(4) |
|
Restructuring expenses during
fiscal 2008 relate to Oracle employee severance in connection
with restructuring plans initiated in the second quarter, and
amended in the fourth quarter, of fiscal 2008. Restructuring
costs during fiscal 2007 relate to an Oracle-based restructuring
plan initiated in the third quarter of fiscal 2006 for which
additional expenses were recorded during fiscal 2007.
|
|
(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,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Sales and marketing
|
|
$
|
51
|
|
|
$
|
38
|
|
|
$
|
8
|
|
Software license updates and product support
|
|
|
10
|
|
|
|
11
|
|
|
|
3
|
|
Cost of services
|
|
|
13
|
|
|
|
15
|
|
|
|
7
|
|
Research and development
|
|
|
114
|
|
|
|
85
|
|
|
|
13
|
|
General and administrative
|
|
|
69
|
|
|
|
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
257
|
|
|
|
198
|
|
|
|
31
|
|
Acquisition related and other
|
|
|
112
|
|
|
|
9
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
369
|
|
|
$
|
207
|
|
|
$
|
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation included
in acquisition related and other expenses resulted from unvested
options assumed from acquisitions whose vesting was accelerated
upon termination of the employees pursuant to the terms of those
options.
|
|
|
|
At the beginning of fiscal 2007, we
adopted Statement 123(R) under the modified prospective method.
Statement 123(R) requires us to record non-cash operating
expenses associated with stock awards at their estimated fair
values. Prior to our Statement 123(R) adoption, we were required
to record stock-based compensation expenses at intrinsic values
and 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 (i.e. fiscal 2006) have not been restated to
reflect, and do not include, the changes in methodology to
expense options at fair values in accordance with Statement
123(R).
|
|
(6) |
|
The income tax effects on the above
presented charges and gains were calculated based on our
effective tax rates of 29.5%, 28.6% and 29.7% in fiscal 2008,
2007 and 2006, 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. Sales and marketing expenses
are largely personnel-related and include commissions earned by
our sales force for the sale of our software products, and also
include marketing program costs and amortization of intangible
assets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended May 31,
|
|
|
|
|
Percent Change
|
|
|
|
Percent Change
|
|
|
(Dollars in millions)
|
|
2008
|
|
Actual
|
|
Constant
|
|
2007
|
|
Actual
|
|
Constant
|
|
2006
|
|
New Software License Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
3,467
|
|
26%
|
|
24%
|
|
$
|
2,751
|
|
18%
|
|
18%
|
|
$
|
2,323
|
EMEA
|
|
|
2,766
|
|
35%
|
|
24%
|
|
|
2,043
|
|
24%
|
|
16%
|
|
|
1,650
|
Asia Pacific
|
|
|
1,282
|
|
18%
|
|
11%
|
|
|
1,088
|
|
17%
|
|
15%
|
|
|
932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
7,515
|
|
28%
|
|
21%
|
|
|
5,882
|
|
20%
|
|
17%
|
|
|
4,905
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and
marketing(1)
|
|
|
4,628
|
|
20%
|
|
14%
|
|
|
3,869
|
|
22%
|
|
18%
|
|
|
3,169
|
Stock-based compensation
|
|
|
51
|
|
32%
|
|
32%
|
|
|
38
|
|
388%
|
|
388%
|
|
|
8
|
Amortization of intangible
assets(2)
|
|
|
560
|
|
58%
|
|
58%
|
|
|
354
|
|
70%
|
|
70%
|
|
|
208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
5,239
|
|
23%
|
|
18%
|
|
|
4,261
|
|
26%
|
|
23%
|
|
|
3,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Margin
|
|
$
|
2,276
|
|
40%
|
|
31%
|
|
$
|
1,621
|
|
7%
|
|
3%
|
|
$
|
1,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Margin %
|
|
|
30%
|
|
|
|
|
|
|
28%
|
|
|
|
|
|
|
31%
|
% Revenues by Geography:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
|
46%
|
|
|
|
|
|
|
47%
|
|
|
|
|
|
|
47%
|
EMEA
|
|
|
37%
|
|
|
|
|
|
|
35%
|
|
|
|
|
|
|
34%
|
Asia Pacific
|
|
|
17%
|
|
|
|
|
|
|
18%
|
|
|
|
|
|
|
19%
|
Revenues by Product:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Database and middleware
|
|
$
|
5,090
|
|
24%
|
|
17%
|
|
$
|
4,119
|
|
15%
|
|
12%
|
|
$
|
3,566
|
Applications
|
|
|
2,369
|
|
38%
|
|
33%
|
|
|
1,716
|
|
32%
|
|
29%
|
|
|
1,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues by product
|
|
|
7,459
|
|
28%
|
|
21%
|
|
|
5,835
|
|
20%
|
|
17%
|
|
|
4,869
|
Other revenues
|
|
|
56
|
|
19%
|
|
15%
|
|
|
47
|
|
31%
|
|
29%
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total new software license revenues
|
|
$
|
7,515
|
|
28%
|
|
21%
|
|
$
|
5,882
|
|
20%
|
|
17%
|
|
$
|
4,905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Revenues by Product:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Database and middleware
|
|
|
68%
|
|
|
|
|
|
|
71%
|
|
|
|
|
|
|
73%
|
Applications
|
|
|
32%
|
|
|
|
|
|
|
29%
|
|
|
|
|
|
|
27%
|
|
|
|
(1) |
|
Excluding stock-based compensation
|
|
(2) |
|
Included as a component of
Amortization of Intangible Assets in our
consolidated statements of operations
|
Fiscal 2008 Compared to Fiscal
2007: New software license revenues growth
was positively affected by foreign currency rate fluctuations of
7 percentage points in fiscal 2008. Excluding the effect of
currency rate fluctuations, new software license revenues grew
in all major product lines and across all geographies, with
database and middleware revenues contributing 55% to the
increase in new software license revenues and applications
revenues contributing 45%. Excluding the effect of currency rate
fluctuations, the Americas contributed 52%, EMEA contributed 39%
and Asia Pacific contributed 9% to the increase in new software
license revenues.
Excluding the effect of currency rate fluctuations, database and
middleware revenues grew 17% in fiscal 2008 as a result of
increased demand for our database and middleware products as
well as incremental revenues from acquired
39
companies. Hyperion products contributed $103 million, BEA
products contributed $93 million, Stellent products
contributed $37 million, Tangosol products contributed
$18 million and other recently acquired products
contributed $2 million to the total database and middleware
revenues growth in fiscal 2008.
On a constant currency basis, applications revenues increased
33% in fiscal 2008 due to continued strengthening of our
competitive position in the applications software segment of the
software industry as a result of our broad portfolio of product
offerings to a diverse customer base and incremental revenues
from acquired companies. Hyperion products contributed
$199 million, Agile products contributed $58 million,
Metasolv products contributed $14 million, and other
recently acquired products contributed $42 million to the
total applications revenue growth in fiscal 2008.
New software license revenues earned from transactions over
$0.5 million grew by 42% in fiscal 2008 and increased from
46% of new software license revenues in fiscal 2007 to 51% in
fiscal 2008.
Sales and marketing expenses were adversely impacted by
5 percentage points of unfavorable currency variations
during fiscal 2008. Excluding the effect of currency rate
fluctuations, sales and marketing expenses increased in fiscal
2008 primarily due to higher salaries, benefits and travel
expenses resulting from increased headcount, higher commissions
expenses associated with both increased revenues and headcount
levels, and an increase in planned marketing program expenses.
Sales and marketing expenses include $45 million in
expenses from BEA in fiscal 2008. These increases were partially
offset by a $42 million reduction in litigation related
expenses resulting primarily from the settlement of certain
legal matters during the third quarter of fiscal 2008.
Total new software license margin as a percentage of revenues
increased due to our new software licenses revenues growth rate
and a favorable foreign currency impact, partially offset by
higher growth rates in our amortization of intangible assets and
stock-based compensation expenses.
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.
Excluding the effect of currency rate fluctuations, database and
middleware revenues grew 12% as a result of 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
contributed $26 million, Hyperion products contributed
$16 million and other recently acquired products
contributed $19 million to the total database and
middleware revenues growth in fiscal 2007.
On a constant currency basis, applications revenues increased
29% as a result of the strengthening of our competitive position
in the applications software segment of the software industry
and incremental revenues from acquired companies. Siebel
products contributed $130 million, i-flex products
contributed $50 million, Hyperion products contributed
$27 million, Portal products contributed $22 million,
Demantra products contributed $21 million and other
recently acquired products contributed $22 million to the
total applications revenues 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
our expenses, including amortization costs of intangible assets,
grew at a faster rate than our revenues.
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
include the cost of providing the support services, largely
personnel related expenses, and the amortization of our
40
intangible assets associated with software support contracts and
customer relationships obtained from our acquisitions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended May 31,
|
|
|
|
|
|
|
Percent Change
|
|
|
|
|
Percent Change
|
|
|
|
(Dollars in millions)
|
|
2008
|
|
|
Actual
|
|
Constant
|
|
2007
|
|
|
Actual
|
|
Constant
|
|
2006
|
|
|
Software License Updates and Product Support
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
5,587
|
|
|
|
19%
|
|
|
17%
|
|
$
|
4,698
|
|
|
|
24%
|
|
|
23%
|
|
$
|
3,790
|
|
EMEA
|
|
|
3,503
|
|
|
|
32%
|
|
|
20%
|
|
|
2,653
|
|
|
|
29%
|
|
|
21%
|
|
|
2,052
|
|
Asia Pacific
|
|
|
1,238
|
|
|
|
27%
|
|
|
18%
|
|
|
978
|
|
|
|
23%
|
|
|
22%
|
|
|
794
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
10,328
|
|
|
|
24%
|
|
|
18%
|
|
|
8,329
|
|
|
|
25%
|
|
|
22%
|
|
|
6,636
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software license updates and product
support(1)
|
|
|
987
|
|
|
|
19%
|
|
|
13%
|
|
|
831
|
|
|
|
16%
|
|
|
12%
|
|
|
716
|
|
Stock-based compensation
|
|
|
10
|
|
|
|
-6%
|
|
|
-6%
|
|
|
11
|
|
|
|
306%
|
|
|
306%
|
|
|
3
|
|
Amortization of intangible
assets(2)
|
|
|
596
|
|
|
|
27%
|
|
|
27%
|
|
|
470
|
|
|
|
34%
|
|
|
34%
|
|
|
351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
1,593
|
|
|
|
21%
|
|
|
18%
|
|
|
1,312
|
|
|
|
23%
|
|
|
21%
|
|
|
1,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Margin
|
|
$
|
8,735
|
|
|
|
24%
|
|
|
18%
|
|
$
|
7,017
|
|
|
|
26%
|
|
|
23%
|
|
$
|
5,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Margin %
|
|
|
85%
|
|
|
|
|
|
|
|
|
|
84%
|
|
|
|
|
|
|
|
|
|
84%
|
|
% Revenues by Geography:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
|
54%
|
|
|
|
|
|
|
|
|
|
57%
|
|
|
|
|
|
|
|
|
|
57%
|
|
EMEA
|
|
|
34%
|
|
|
|
|
|
|
|
|
|
32%
|
|
|
|
|
|
|
|
|
|
31%
|
|
Asia Pacific
|
|
|
12%
|
|
|
|
|
|
|
|
|
|
11%
|
|
|
|
|
|
|
|
|
|
12%
|
|
|
|
|
(1) |
|
Excluding stock-based compensation
|
|
(2) |
|
Included as a component of
Amortization of Intangible Assets in our
consolidated statements of operations
|
Fiscal 2008 Compared to Fiscal
2007: The growth in our software license
updates and product support revenues was favorably affected by
foreign currency rate fluctuations of 6 percentage points
in fiscal 2008. Excluding the effect of currency rate
fluctuations, software license updates and product support
revenues increased in fiscal 2008 as a result of the addition of
software license updates and product support contracts
associated with new software licenses sold during the fourth
quarter of fiscal 2007 and over the course of fiscal 2008, the
renewal of substantially all of the customer base eligible for
renewal in the current fiscal year and incremental revenues from
the expansion of our customer base from acquisitions. Excluding
the effect of currency rate fluctuations, the Americas
contributed 53%, EMEA contributed 36% and Asia Pacific
contributed 11% to the increase in software license updates and
product support revenues.
Software license updates and product support revenues in fiscal
2008 include incremental revenues of $303 million from
Hyperion, $38 million from BEA, $38 million from
Agile, $30 million from Stellent, $25 million from
Metasolv, and $46 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 $179 million, $212 million
and $391 million that would have been otherwise recorded by
our acquired businesses as independent entities, were not
recognized in fiscal 2008, 2007 and 2006, 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 substantial majority of which are
one year.
Software license updates and product support expenses were
adversely impacted by 3 percentage points of unfavorable
currency variations during fiscal 2008. 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 bonuses and commissions due to
increased revenues, and higher amortization expenses resulting
from additional intangible assets acquired during fiscal 2008
and fiscal 2007. Software license updates and product support
expenses include $7 million of expense growth from BEA in
fiscal 2008. Total software license updates and product support
margin as a percentage of revenues
41
increased slightly as our revenues grew faster than expenses,
but were partially offset by a higher growth rate in our
amortization of intangible assets expenses.
Fiscal 2007 Compared to Fiscal
2006: Excluding the effect of currency rate
fluctuations, software license updates and product support
revenues increased in fiscal 2007 as a result of the addition of
software license updates and product support contracts
associated with new software licenses sold 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 fiscal 2007 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 revenue growth of $310 million from
Siebel, $37 million from i-flex, $19 million from
Hyperion, and $55 million from other recently acquired
companies.
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 include $16 million in incremental
expenses from both i-flex and Hyperion. Total software license
updates and product support margin as a percentage of revenues
remained constant as intangible asset amortization expenses and
stock-based compensation expenses grew much faster than revenues
and offset the lower growth in other operating expenses.
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 software products 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)
|
|
2008
|
|
|
Actual
|
|
|
Constant
|
|
|
2007
|
|
|
Actual
|
|
|
Constant
|
|
|
2006
|
|
|
Consulting Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
1,720
|
|
|
|
12%
|
|
|
|
10
|
%
|
|
$
|
1,534
|
|
|
|
33%
|
|
|
|
32
|
%
|
|
$
|
1,157
|
|
EMEA
|
|
|
1,291
|
|
|
|
25%
|
|
|
|
14
|
%
|
|
|
1,033
|
|
|
|
34%
|
|
|
|
24
|
%
|
|
|
771
|
|
Asia Pacific
|
|
|
466
|
|
|
|
54%
|
|
|
|
42
|
%
|
|
|
302
|
|
|
|
57%
|
|
|
|
52
|
%
|
|
|
192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
3,477
|
|
|
|
21%
|
|
|
|
15
|
%
|
|
|
2,869
|
|
|
|
35%
|
|
|
|
31
|
%
|
|
|
2,120
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
services(1)
|
|
|
3,014
|
|
|
|
22%
|
|
|
|
16
|
%
|
|
|
2,477
|
|
|
|
32%
|
|
|
|
27
|
%
|
|
|
1,878
|
|
Stock-based compensation
|
|
|
7
|
|
|
|
-18%
|
|
|
|
-18
|
%
|
|
|
9
|
|
|
|
36%
|
|
|
|
36
|
%
|
|
|
7
|
|
Amortization of intangible
assets(2)
|
|
|
42
|
|
|
|
38%
|
|
|
|
38
|
%
|
|
|
30
|
|
|
|
585%
|
|
|
|
579
|
%
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
3,063
|
|
|
|
22%
|
|
|
|
16
|
%
|
|
|
2,516
|
|
|
|
33%
|
|
|
|
29
|
%
|
|
|
1,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Margin
|
|
$
|
414
|
|
|
|
17%
|
|
|
|
10
|
%
|
|
$
|
353
|
|
|
|
53%
|
|
|
|
47
|
%
|
|
$
|
231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Margin %
|
|
|
12%
|
|
|
|
|
|
|
|
|
|
|
|
12%
|
|
|
|
|
|
|
|
|
|
|
|
11%
|
|
% Revenues by Geography:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
|
50%
|
|
|
|
|
|
|
|
|
|
|
|
53%
|
|
|
|
|
|
|
|
|
|
|
|
55%
|
|
EMEA
|
|
|
37%
|
|
|
|
|
|
|
|
|
|
|
|
36%
|
|
|
|
|
|
|
|
|
|
|
|
36%
|
|
Asia Pacific
|
|
|
13%
|
|
|
|
|
|
|
|
|
|
|
|
11%
|
|
|
|
|
|
|
|
|
|
|
|
9%
|
|
|
|
|
(1) |
|
Excluding stock-based compensation
|
|
(2) |
|
Included as a component of
Amortization of Intangible Assets in our
consolidated statements of operations
|
42
Fiscal 2008 Compared to Fiscal
2007: Consulting revenue growth was
positively affected by foreign currency rate fluctuations of
6 percentage points in fiscal 2008. Excluding the effect of
currency rate fluctuations, consulting revenues increased during
fiscal 2008 primarily due to an increase in application product
implementations associated with the sales of our application
software products and incremental revenues from our recent
acquisitions, primarily Hyperion and BEA. BEA added
$16 million to our consulting revenue growth in fiscal
2008. Excluding the effect of currency rate fluctuations, the
Americas contributed 36%, EMEA contributed 35% and Asia Pacific
contributed 29% to the increase in consulting revenues.
Consulting expenses were adversely impacted by 6 percentage
points of unfavorable currency variations during fiscal 2008.
Excluding the effect of currency rate fluctuations, consulting
expenses increased during fiscal 2008 as a result of higher
personnel related expenses attributable to higher headcount
levels and third party contractor expenses that supported our
increase in revenues. BEA added $16 million to our
consulting expense growth in fiscal 2008. Total consulting
margin as a percentage of revenues remained constant during
fiscal 2008 as margin improvements in the EMEA and Asia Pacific
regions were offset by expense growth in the Americas region and
for i-flex and an increase in our amortization of intangible
asset expenses.
Fiscal 2007 Compared to Fiscal
2006: Excluding the effect of currency rate
fluctuations, consulting revenues increased during fiscal 2007
primarily due to an increase in our application product
implementations associated with the increase in sales of our
application software products and incremental revenues from our
acquisitions, including $359 million of incremental
revenues from i-flex, whom we 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 in fiscal 2007 as a result of higher
personnel related expenses attributable to higher headcount
levels and third-party contractor expenses. Consulting expenses
included $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.
On Demand: On Demand includes our
Oracle On Demand, CRM On Demand and Advanced Customer Services
offerings. Oracle On Demand provides multi-featured software and
hardware management, and maintenance services for our database
and middleware as well as our applications software delivered
either at our data center facilities, at select partner data
centers, or at customer facilities. CRM On Demand is a service
offering that provides our customers with our CRM software
functionality delivered via a hosted solution that we manage.
Advanced Customer Services consists of configuration and
performance analysis, personalized support and
on-site
technical services. The cost of providing On Demand services
consists primarily of personnel related expenditures, technology
infrastructure expenditures and facilities costs.
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended May 31,
|
|
|
|
|
Percent Change
|
|
|
|
|
Percent Change
|
|
|
|
(Dollars in millions)
|
|
2008
|
|
Actual
|
|
|
Constant
|
|
2007
|
|
|
Actual
|
|
|
Constant
|
|
|
2006
|
|
On Demand Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
375
|
|
|
20%
|
|
|
|
18%
|
|
$
|
313
|
|
|
|
35%
|
|
|
|
35%
|
|
|
$
|
231
|
EMEA
|
|
|
226
|
|
|
29%
|
|
|
|
18%
|
|
|
176
|
|
|
|
49%
|
|
|
|
39%
|
|
|
|
118
|
Asia Pacific
|
|
|
93
|
|
|
36%
|
|
|
|
28%
|
|
|
68
|
|
|
|
46%
|
|
|
|
42%
|
|
|
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
694
|
|
|
25%
|
|
|
|
19%
|
|
|
557
|
|
|
|
40%
|
|
|
|
37%
|
|
|
|
397
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
services(1)
|
|
|
632
|
|
|
10%
|
|
|
|
6%
|
|
|
574
|
|
|
|
49%
|
|
|
|
45%
|
|
|
|
385
|
Stock-based compensation
|
|
|
5
|
|
|
16%
|
|
|
|
16%
|
|
|
4
|
|
|
|
*
|
|
|
|
*
|
|
|
|
|
Amortization of intangible
assets(2)
|
|
|
14
|
|
|
0%
|
|
|
|
0%
|
|
|
14
|
|
|
|
365%
|
|
|
|
365%
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
651
|
|
|
10%
|
|
|
|
6%
|
|
|
592
|
|
|
|
52%
|
|
|
|
47%
|
|
|
|
388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Margin
|
|
$
|
43
|
|
|
224%
|
|
|
|
213%
|
|
$
|
(35
|
)
|
|
|
-553%
|
|
|
|
-512%
|
|
|
$
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Margin %
|
|
|
6%
|
|
|
|
|
|
|
|
|
|
-6%
|
|
|
|
|
|
|
|
|
|
|
|
2%
|
% Revenues by Geography:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
|
54%
|
|
|
|
|
|
|
|
|
|
56%
|
|
|
|
|
|
|
|
|
|
|
|
58%
|
EMEA
|
|
|
33%
|
|
|
|
|
|
|
|
|
|
32%
|
|
|
|
|
|
|
|
|
|
|
|
30%
|
Asia Pacific
|
|
|
13%
|
|
|
|
|
|
|
|
|
|
12%
|
|
|
|
|
|
|
|
|
|
|
|
12%
|
|
|
|
(1) |
|
Excluding stock-based compensation
|
|
(2) |
|
Included as a component of
Amortization of Intangible Assets in our
consolidated statements of operations
|
|
*
|
|
Not meaningful
|
Fiscal 2008 Compared to Fiscal 2007: On
Demand revenue growth was positively affected by foreign
currency rate fluctuations of 6 percentage points in fiscal
2008. Excluding the effect of currency rate fluctuations, On
Demand revenues increased in fiscal 2008 due to an increase in
each service categorys subscription base as more customers
engaged us to provide IT outsourcing solutions. On a constant
currency basis, Oracle On Demand, Advanced Customer Services and
CRM On Demand contributed 44%, 42% and 14%, respectively.
Excluding the effect of currency rate fluctuations, the Americas
contributed 53%, EMEA contributed 29% and Asia Pacific
contributed 18% to the increase in On Demand revenues.
Excluding the effect of unfavorable currency rate fluctuations
of 4 percentage points, On Demand expenses increased in
fiscal 2008 due to higher salaries and benefits expenses
associated with increased headcount, and higher technology
infrastructure related expenses to support the expansion of our
customer base. These expense increases were partially offset by
a shift of certain U.S. based costs to global support
centers in lower cost countries. Total On Demand margin as a
percentage of revenues improved primarily as a result of our
Oracle On Demand business, which increased revenues while
managing operating expenses to a level consistent with fiscal
2007 and the favorable impact of currency effects during the
period. Our Advanced Customer Services and CRM On Demand margin
percentages also improved modestly in comparison to fiscal 2007.
Fiscal 2007 Compared to Fiscal
2006: Excluding the effect of currency rate
fluctuations, On Demand revenues increased in fiscal 2007 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 and CRM On Demand revenues
included $50 million and $31 million, respectively, of
incremental revenues from Siebel in fiscal 2007.
44
On Demand expenses were adversely impacted by 5 percentage
points of unfavorable currency variations during fiscal 2007.
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 IT related costs to support the expansion of
our customer base. On Demand expense growth also reflects a full
year of expenses from Siebel 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 IT related expenditures for
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.
Education: Education revenues are
earned by providing instructor led, media based and internet
based training in the use of our database and middleware
software products as well as applications software products.
Education expenses primarily consist of personnel related
expenditures, facilities and external contractor costs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended May 31,
|
|
|
|
|
Percent Change
|
|
|
|
Percent Change
|
|
|
(Dollars in millions)
|
|
2008
|
|
Actual
|
|
Constant
|
|
2007
|
|
Actual
|
|
Constant
|
|
2006
|
|
Education Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
181
|
|
|
10%
|
|
|
8%
|
|
$
|
164
|
|
|
9%
|
|
|
8%
|
|
$
|
151
|
EMEA
|
|
|
159
|
|
|
20%
|
|
|
9%
|
|
|
132
|
|
|
13%
|
|
|
6%
|
|
|
117
|
Asia Pacific
|
|
|
76
|
|
|
22%
|
|
|
14%
|
|
|
63
|
|
|
16%
|
|
|
14%
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
416
|
|
|
16%
|
|
|
10%
|
|
|
359
|
|
|
11%
|
|
|
8%
|
|
|
322
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
services(1)
|
|
|
325
|
|
|
15%
|
|
|
8%
|
|
|
283
|
|
|
15%
|
|
|
11%
|
|
|
246
|
Stock-based compensation
|
|
|
1
|
|
|
-17%
|
|
|
-17%
|
|
|
2
|
|
|
*
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
326
|
|
|
15%
|
|
|
8%
|
|
|
285
|
|
|
16%
|
|
|
12%
|
|
|
246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Margin
|
|
$
|
90
|
|
|
21%
|
|
|
16%
|
|
$
|
74
|
|
|
-2%
|
|
|
-5%
|
|
$
|
76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Margin %
|
|
|
22%
|
|
|
|
|
|
|
|
|
21%
|
|
|
|
|
|
|
|
|
24%
|
% Revenues by Geography:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
|
44%
|
|
|
|
|
|
|
|
|
46%
|
|
|
|
|
|
|
|
|
47%
|
EMEA
|
|
|
38%
|
|
|
|
|
|
|
|
|
37%
|
|
|
|
|
|
|
|
|
36%
|
Asia Pacific
|
|
|
18%
|
|
|
|
|
|
|
|
|
17%
|
|
|
|
|
|
|
|
|
17%
|
|
|
|
(1) |
|
Excluding stock-based compensation
|
|
*
|
|
Not meaningful
|
Fiscal 2008 Compared to Fiscal
2007: Education revenue growth was positively
affected by foreign currency rate fluctuations of
6 percentage points in fiscal 2008. Excluding the effect of
currency rate fluctuations, education revenues increased in
fiscal 2008 due primarily to an increase in customer training on
the use of our applications products, including recently
acquired products. BEA contributed $2 million to our
revenue growth in fiscal 2008. Excluding the effect of currency
rate fluctuations, the Americas contributed 39%, EMEA
contributed 36% and Asia Pacific contributed 25% to the increase
in education revenues.
Excluding the effect of unfavorable currency rate fluctuations
of 7 percentage points, education expenses increased due to
higher personnel related expenses during the first half of
fiscal 2008 and were partially offset by lower personnel related
expenses in the second half of fiscal 2008 as a result of
restructuring actions taken. Education expenses also increased
due to third party contractor expenses and royalty fees
associated with increased revenues and included $2 million
of incremental expenses from BEA. Education margin as a
percentage of revenues increased slightly in fiscal 2008 as
revenue growth exceeded expense growth.
45
Fiscal 2007 Compared to Fiscal
2006: Excluding the effect of currency rate
fluctuations, education revenues grew in fiscal 2007 primarily
due to an increase in customer training on the use of our
application products, as well as $5 million of incremental
revenues from 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 in fiscal 2007 due to incremental headcount
and associated personnel related expenditures, as well as higher
third party contractor expenses and royalty fees associated with
increased revenues. Education expenses also included
$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.
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended May 31,
|
|
|
|
|
Percent Change
|
|
|
|
Percent Change
|
|
|
(Dollars in millions)
|
|
2008
|
|
Actual
|
|
Constant
|
|
2007
|
|
Actual
|
|
Constant
|
|
2006
|
|
Research and
development(1)
|
|
$
|
2,627
|
|
|
24%
|
|
|
22%
|
|
$
|
2,110
|
|
|
14%
|
|
|
11%
|
|
$
|
1,859
|
Stock-based compensation
|
|
|
114
|
|
|
35%
|
|
|
35%
|
|
|
85
|
|
|
541%
|
|
|
541%
|
|
|
13
|
Amortization of intangible
assets(2)
|
|
|
|
|
|
-100%
|
|
|
-100%
|
|
|
10
|
|
|
-47%
|
|
|
-47%
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
$
|
2,741
|
|
|
25%
|
|
|
22%
|
|
$
|
2,205
|
|
|
17%
|
|
|
16%
|
|
$
|
1,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Total Revenues
|
|
|
12%
|
|
|
|
|
|
|
|
|
12%
|
|
|
|
|
|
|
|
|
13%
|
|
|
|
(1) |
|
Excluding stock-based compensation
|
|
(2) |
|
Included as a component of
Amortization of Intangible Assets in our
consolidated statements of operations
|
Fiscal 2008 Compared to Fiscal
2007: Excluding the effect of currency rate
fluctuations, research and development expenses increased in
fiscal 2008 due to higher employee related expenses associated
with higher headcount levels, including higher stock-based
compensation expenses, and $46 million of increased
expenses pertaining to certain legal-related matters. Our growth
in research and development expenses included $15 million
from BEA in fiscal 2008. The increase in our headcount was the
combined result of our recent acquisitions and our hiring of
additional resources to develop new functionality for our
existing products. Research and development headcount as of the
end of fiscal 2008 increased by approximately
2,550 employees in comparison to fiscal 2007, and included
approximately 950 employees from BEA.
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 our adoption of Statement 123(R) at the beginning of
fiscal 2007, and increased external contractor expenses. Our
growth in research and development expenses was impacted by our
acquisitions, including $25 million from i-flex and
$19 million from Hyperion. Research and development
headcount increased by approximately 3,600 employees in
comparison to fiscal 2006, and included approximately
1,200 employees from i-flex and 600 employees from
Hyperion.
General and Administrative
Expenses: General and administrative expenses
primarily consist of personnel related expenditures for
information technology, finance, legal and human resources
support functions.
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended May 31,
|
|
|
|
|
Percent Change
|
|
|
|
Percent Change
|
|
|
(Dollars in millions)
|
|
2008
|
|
Actual
|
|
Constant
|
|
2007
|
|
Actual
|
|
Constant
|
|
2006
|
|
General and
Administrative(1)
|
|
$
|
739
|
|
|
15%
|
|
|
10%
|
|
$
|
643
|
|
|
16%
|
|
|
13%
|
|
$
|
555
|
Stock-based compensation
|
|
|
69
|
|
|
40%
|
|
|
40%
|
|
|
49
|
|
|
*
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
$
|
808
|
|
|
17%
|
|
|
12%
|
|
$
|
692
|
|
|
25%
|
|
|
22%
|
|
$
|
555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Total Revenues
|
|
|
4%
|
|
|
|
|
|
|
|
|
4%
|
|
|
|
|
|
|
|
|
4%
|
|
|
|
(1) |
|
Excluding stock-based compensation
|
|
*
|
|
Not meaningful
|
Fiscal 2008 Compared to Fiscal
2007: Excluding the effect of currency rate
fluctuations, general and administrative expenses increased
during fiscal 2008 as a result of higher personnel related costs
associated with increased headcount to support our expanding
operations and increased stock-based compensation expenses.
General and administrative expenses include $4 million of
expenses from BEA in fiscal 2008.
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 123(R) at the beginning of
fiscal 2007 and increased professional services fees, primarily
litigation related expenses. General and administrative expenses
included incremental expenses of $25 million from i-flex
and $10 million from Hyperion in fiscal 2007.
Amortization
of Intangible Assets Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended May 31,
|
|
|
|
|
Percent Change
|
|
|
|
Percent Change
|
|
|
(Dollars in millions)
|
|
2008
|
|
Actual
|
|
Constant
|
|
2007
|
|
Actual
|
|
Constant
|
|
2006
|
|
Software support agreements and related relationships
|
|
$
|
402
|
|
|
25%
|
|
|
25%
|
|
$
|
321
|
|
|
33%
|
|
|
33%
|
|
$
|
241
|
Developed technology
|
|
|
515
|
|
|
45%
|
|
|
45%
|
|
|
355
|
|
|
72%
|
|
|
72%
|
|
|
206
|
Core technology
|
|
|
178
|
|
|
34%
|
|
|
34%
|
|
|
133
|
|
|
46%
|
|
|
46%
|
|
|
91
|
Customer contracts
|
|
|
85
|
|
|
93%
|
|
|
93%
|
|
|
44
|
|
|
47%
|
|
|
47%
|
|
|
30
|
Trademarks
|
|
|
32
|
|
|
28%
|
|
|
28%
|
|
|
25
|
|
|
67%
|
|
|
67%
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortization of intangible assets
|
|
$
|
1,212
|
|
|
38%
|
|
|
38%
|
|
$
|
878
|
|
|
51%
|
|
|
51%
|
|
$
|
583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2008 Compared to Fiscal
2007: Amortization of intangible assets
increased in fiscal 2008 due to the amortization of acquired
intangibles from Agile, Hyperion, BEA and other acquisitions
that we consummated since the fourth quarter of fiscal 2007. See
Note 5 of Notes to Consolidated Financial Statements for
additional information regarding our intangible assets
(including weighted average useful lives) and related
amortization expenses.
Fiscal 2007 Compared to Fiscal
2006: Amortization of intangible assets
increased in fiscal 2007 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 since the
fourth quarter of fiscal 2006.
Acquisition Related and Other
Expenses: Acquisition related and other
expenses primarily consist of in-process research and
development expenses, integration related professional services,
stock-based compensation expenses, personnel related costs for
transitional employees, certain business combination contingency
adjustments after the purchase price allocation period has
ended, and certain other expenses (income), net. Stock-based
compensation expenses included in acquisition related and other
expenses relate to unvested options assumed from acquisitions
whereby vesting was accelerated upon termination of the
employees pursuant to the original terms of those options.
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended May 31,
|
|
|
|
|
|
Percent Change
|
|
|
|
|
Percent Change
|
|
|
(Dollars in millions)
|
|
2008
|
|
|
Actual
|
|
Constant
|
|
2007
|
|
|
Actual
|
|
Constant
|
|
2006
|
|
In-process research and development
|
|
$
|
24
|
|
|
|
-84%
|
|
|
-84%
|
|
$
|
151
|
|
|
|
94%
|
|
|
94%
|
|
$
|
78
|
Transitional employee related expenses
|
|
|
32
|
|
|
|
34%
|
|
|
33%
|
|
|
24
|
|
|
|
-20%
|
|
|
-20%
|
|
|
30
|
Stock-based compensation
|
|
|
112
|
|
|
|
1,144%
|
|
|
1,144%
|
|
|
9
|
|
|
|
-50%
|
|
|
-50%
|
|
|
18
|
Professional fees
|
|
|
7
|
|
|
|
-13%
|
|
|
-13%
|
|
|
8
|
|
|
|
-27%
|
|
|
-27%
|
|
|
11
|
Business combination contingency adjustments
|
|
|
6
|
|
|
|
111%
|
|
|
111%
|
|
|
(52
|
)
|
|
|
*
|
|
|
*
|
|
|
|
Gain on sale of property
|
|
|
(57
|
)
|
|
|
*
|
|
|
*
|
|
|
|
|
|
|
*
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total acquisition related and other expenses
|
|
$
|
124
|
|
|
|
-11%
|
|
|
-12%
|
|
$
|
140
|
|
|
|
2%
|
|
|
2%
|
|
$
|
137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2008 Compared to Fiscal
2007: Acquisition related and other expenses
decreased during fiscal 2008 due to lower in-process research
and development acquired as a part of our fiscal 2008
acquisitions in comparison to our fiscal 2007 acquisitions and a
$57 million gain on a property sale in December 2007 (see
Note 1 to Notes to Consolidated Financial Statements for
additional information). These decreases to acquisition related
and other expenses were partially offset by higher transitional
employee related expenses and increased stock-based compensation
expenses due to the acceleration of certain acquired employee
stock options pursuant to the terms of those options. Business
combination contingency adjustments in fiscal 2007 included a
$52 million benefit relating to the settlement of a lawsuit
filed against PeopleSoft on behalf of the U.S. government.
This lawsuit was filed in October 2003, prior to our acquisition
of PeopleSoft, and represented a pre-acquisition contingency
that we identified and assumed in connection with our
acquisition of PeopleSoft. We settled this lawsuit in October
2006, which was subsequent to the purchase price allocation
period, for approximately $98 million. Accordingly, we
included the difference between the amount accrued as of the end
of the purchase price allocation period and the settlement
amount as a $52 million benefit to our consolidated
statement of operations for fiscal 2007.
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 almost entirely offset by a
$52 million benefit as described above.
Restructuring expenses: Restructuring
expenses consist of Oracle employee severance costs and Oracle
duplicate facilities closures that 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 7 of Notes to Consolidated Financial Statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended May 31,
|
|
|
|
|
Percent Change
|
|
|
|
Percent Change
|
|
|
(Dollars in millions)
|
|
2008
|
|
Actual
|
|
Constant
|
|
2007
|
|
Actual
|
|
Constant
|
|
2006
|
|
Restructuring expenses
|
|
$
|
41
|
|
|
113%
|
|
|
95%
|
|
$
|
19
|
|
|
-78%
|
|
|
-78%
|
|
$
|
85
|
Fiscal 2008 Compared to Fiscal
2007: During the second quarter of fiscal
2008, our management with the appropriate level of authority
approved, committed to, and initiated the Oracle Fiscal 2008
Restructuring Plan (2008 Plan) as a result of certain management
and operational changes that are intended to improve
efficiencies in our Oracle-based operations. Our 2008 Plan was
amended in the fourth quarter of fiscal 2008 to include the
expected effects resulting from our acquisition of BEA. The
total estimated costs associated with the 2008 Plan are
approximately $111 million and are primarily related to
employee severance. The majority of these estimated costs are
expected to be incurred over the course of fiscal 2009. Our
estimated costs are preliminary and may be subject to change in
future periods. We incurred restructuring expenses of
$41 million in fiscal 2008, pursuant to the 2008 Plan (see
Note 7 to Notes to Consolidated Financial Statements for
additional information). Restructuring expenses in fiscal 2007
relate to Oracle employee severance and facility closures that
were recorded in those periods and were a part of a
restructuring plan initiated in the third quarter of fiscal 2006.
48
Fiscal 2007 Compared to Fiscal
2006: Restructuring expenses decreased in
fiscal 2007 as we initiated the majority of the actions pursuant
to the Fiscal 2006 Oracle Restructuring Plan during fiscal 2006.
Our management did not initiate any new plans to restructure our
Oracle-based operations during fiscal 2007.
Interest
Expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended May 31,
|
|
|
|
|
Percent Change
|
|
|
|
Percent Change
|
|
|
(Dollars in millions)
|
|
2008
|
|
Actual
|
|
Constant
|
|
2007
|
|
Actual
|
|
Constant
|
|
2006
|
|
Interest expense
|
|
$
|
394
|
|
|
15%
|
|
|
15%
|
|
$
|
343
|
|
|
103%
|
|
|
104%
|
|
$
|
169
|
Fiscal 2008 Compared to Fiscal
2007: Interest expense increased in fiscal
2008 due to higher average borrowings resulting from the
issuance of $5.0 billion of senior notes in April 2008, a
net increase of $500 million in additional senior notes
outstanding for the majority of fiscal 2008 and our issuances of
short-term commercial paper in the fourth quarter of fiscal 2008
and fourth quarter of fiscal 2007 (we repaid these commercial
paper amounts during fiscal 2008).
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.
Non-Operating Income,
net: Non-operating income, net consists
primarily of interest income, net foreign currency exchange
gains, the minority owners share in the net profits of our
majority-owned i-flex and Oracle Japan subsidiaries, and other
income including net gains related to our marketable securities
and other investments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended May 31,
|
|
|
|
|
|
|
Percent Change
|
|
|
|
|
Percent Change
|
|
|
|
(Dollars in millions)
|
|
2008
|
|
|
Actual
|
|
Constant
|
|
2007
|
|
|
Actual
|
|
Constant
|
|
2006
|
|
|
Interest income
|
|
$
|
337
|
|
|
|
14%
|
|
|
9%
|
|
$
|
295
|
|
|
|
74%
|
|
|
72%
|
|
$
|
170
|
|
Foreign currency gains, net
|
|
|
40
|
|
|
|
-10%
|
|
|
3%
|
|
|
45
|
|
|
|
15%
|
|
|
19%
|
|
|
39
|
|
Minority interests
|
|
|
(60
|
)
|
|
|
-15%
|
|
|
-18%
|
|
|
(71
|
)
|
|
|
72%
|
|
|
70%
|
|
|
(41
|
)
|
Other, net
|
|
|
67
|
|
|
|
-22%
|
|
|
-26%
|
|
|
86
|
|
|
|
15%
|
|
|
8%
|
|
|
75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-operating income, net
|
|
$
|
384
|
|
|
|
8%
|
|
|
5%
|
|
$
|
355
|
|
|
|
46%
|
|
|
45%
|
|
$
|
243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2008 Compared to Fiscal
2007: Non-operating income, net increased in
fiscal 2008 primarily due to an increase in interest income from
higher weighted average cash and marketable securities balances
during fiscal 2008.
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 our
Oracle Japan majority-owned subsidiaries.
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 U.S. 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.
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended May 31,
|
(Dollars in millions)
|
|
2008
|
|
Actual
|
|
Constant
|
|
2007
|
|
Actual
|
|
Constant
|
|
2006
|
|
Provision for income taxes
|
|
$
|
2,313
|
|
|
35%
|
|
|
32%
|
|
$
|
1,712
|
|
|
20%
|
|
|
20%
|
|
$
|
1,429
|
Effective tax rate
|
|
|
29.5%
|
|
|
|
|
|
|
|
|
28.6%
|
|
|
|
|
|
|
|
|
29.7%
|
Provision for income taxes increased in fiscal 2008 and fiscal
2007 due to higher earnings before taxes. See Note 12 of
Notes to Consolidated Financial Statements for additional
information.
Liquidity
and Capital Resources
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of May 31,
|
(Dollars in millions)
|
|
2008
|
|
Change
|
|
2007
|
|
Change
|
|
2006
|
|
Working capital
|
|
$
|
8,074
|
|
|
131%
|
|
$
|
3,496
|
|
|
-31%
|
|
$
|
5,044
|
Cash, cash equivalents and marketable securities
|
|
$
|
11,043
|
|
|
57%
|
|
|
7,020
|
|
|
-8%
|
|
|
7,605
|
Working capital: The increase in
working capital in fiscal 2008 was primarily due to an increase
in our cash, cash equivalents and marketable securities balances
resulting from the issuance of $5.0 billion of long-term
senior notes in April 2008, additional cash and trade
receivables generated from our operations and our adoption of
FIN 48, which resulted in a significant reclassification of
certain short-term tax liabilities to long-term (see
Note 12 to Notes to Consolidated Financial Statements for
additional information). These increases in working capital were
partially offset by cash used in fiscal 2008 to pay for our
acquisitions (primarily BEA) and to repurchase our common stock.
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.
Cash, cash equivalents and marketable
securities: Cash and cash equivalents
primarily consist of deposits held at major banks, money market
funds, Tier-1 commercial paper, U.S. Treasury obligations,
U.S. government agency and government sponsored enterprise
obligations, and other securities with original maturities of
90 days or less. Marketable securities primarily consist of
time deposits held at major banks, Tier-1 commercial paper,
corporate notes, U.S. Treasury obligations and
U.S. government agency and government sponsored enterprise
obligations. Cash, cash equivalents and marketable securities
include $10.1 billion held by our foreign subsidiaries as
of May 31, 2008. The increase in cash, cash equivalents and
marketable securities at May 31, 2008 in comparison to
May 31, 2007 is due to the issuance of $5.0 billion of
senior notes in April 2008 and an increase in our operating cash
flows resulting primarily from an increase in net income,
partially offset by cash used for our acquisitions (primarily
BEA), net repayments of our short-term commercial paper notes,
and repurchases of our common stock. The decrease in cash, cash
equivalents and marketable securities at May 31, 2007 in
comparison to May 31, 2006 is a result of cash used to pay
for acquisitions and stock repurchases during fiscal 2007,
partially offset by an increase in our operating cash flows from
higher net income, 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 63 days at May 31, 2008 compared with 62 days
at May 31, 2007. The days sales outstanding calculation
excludes the adjustment to reduce software license updates and
product support revenues related to adjusting the carrying value
for deferred support revenues acquired to fair value. Our
increase in days sales outstanding is primarily due to
differences in the timing of completion of certain sales
transactions between years and a slight decline in timeliness of
collections in certain countries.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended May 31,
|
|
(Dollars in millions)
|
|
2008
|
|
|
Change
|
|
2007
|
|
|
Change
|
|
2006
|
|
|
Cash provided by operating activities
|
|
$
|
7,402
|
|
|
|
34%
|
|
$
|
5,520
|
|
|
|
22%
|
|
$
|
4,541
|
|
Cash used for investing activities
|
|
$
|
(9,076
|
)
|
|
|
83%
|
|
$
|
(4,971
|
)
|
|
|
48%
|
|
$
|
(3,359
|
)
|
Cash provided by (used for) financing activities
|
|
$
|
3,281
|
|
|
|
388%
|
|
$
|
(1,139
|
)
|
|
|
-175%
|
|
$
|
1,527
|
|
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.
50
Payments from customers for software license updates and product
support agreements are generally received near the beginning of
the contract term, which is generally one year in length. We
also generate significant cash from new software license sales
and, to a lesser extent, services. Our primary uses of cash from
operating activities are for personnel related expenditures as
well as payments related to taxes and leased facilities.
Fiscal 2008 Compared to Fiscal
2007: Net cash provided by operating
activities increased in fiscal 2008 primarily due to higher net
income, partially offset by increased accounts receivable due to
fourth quarter fiscal 2008 revenue growth.
Fiscal 2007 Compared to Fiscal
2006: Cash flows provided by operating
activities increased in fiscal 2007 primarily due to higher net
income, partially offset by increased accounts receivable due to
fourth quarter fiscal 2007 revenue growth, cash payments to
terminate leases associated with excess facilities assumed in
the Siebel acquisition, and the settlement of a pre-acquisition
lawsuit filed against PeopleSoft.
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 our investments in
marketable securities. We also use cash to invest in capital and
other assets to support our growth.
Fiscal 2008 Compared to Fiscal
2007: Net cash used for investing activities
increased in fiscal 2008 due to an increase in cash used for
acquisitions (primarily BEA), net of cash acquired and an
increase in cash used to purchase marketable securities (net of
proceeds received from maturities).
Fiscal 2007 Compared to Fiscal
2006: Net 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.
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 repurchases and proceeds
from stock option exercise activity.
Fiscal 2008 Compared to Fiscal
2007: Net cash provided by financing
activities in fiscal 2008 increased in comparison to cash used
by financing activities in fiscal 2007 due to the issuance of
$5.0 billion of long-term senior notes in April 2008,
additional proceeds from stock option exercises, excess tax
benefits realized from stock-based compensation arrangements,
and decreased spending on stock repurchases, and were partially
offset by $1.4 billion of net repayments of short-term
commercial paper notes.
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 fiscal 2006.
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 flows generated from our operations. We
believe free cash flow is also useful as one of the bases for
comparing our performance with our competitors. The presentation
of non-GAAP free cash flow is not meant to be considered in
isolation or as an alternative to net income as an indicator of
our performance, or as an alternative to cash flows from
operating activities as a measure of liquidity. We calculate
free cash flows as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended May 31,
|
|
(Dollars in millions)
|
|
2008
|
|
|
Change
|
|
|
2007
|
|
|
Change
|
|
|
2006
|
|
|
Cash provided by operating activities
|
|
$
|
7,402
|
|
|
|
34%
|
|
|
$
|
5,520
|
|
|
|
22%
|
|
|
$
|
4,541
|
|
Capital
expenditures(1)
|
|
$
|
(243
|
)
|
|
|
-24%
|
|
|
$
|
(319
|
)
|
|
|
35%
|
|
|
$
|
(236
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Free cash flow
|
|
$
|
7,159
|
|
|
|
38%
|
|
|
$
|
5,201
|
|
|
|
21%
|
|
|
$
|
4,305
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
5,521
|
|
|
|
29%
|
|
|
$
|
4,274
|
|
|
|
26%
|
|
|
$
|
3,381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Free cash flow as a percent of net income
|
|
|
130%
|
|
|
|
|
|
|
|
122%
|
|
|
|
|
|
|
|
127%
|
|
|
|
|
(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.
|
51
Long-Term
Customer Financing
We offer our customers the option to acquire our software
products and service offerings through separate long-term
payment contracts. We generally sell contracts that we have
financed on a non-recourse basis to financial institutions. We
record the transfers of amounts due from customers to financial
institutions as sales of financial assets because we are
considered to have surrendered control of these financial
assets. In fiscal 2008, 2007 and 2006, $1.1 billion,
$891 million and $618 million or approximately 15%,
15% and 13%, respectively, of our new software license revenues
were financed through our financing division.
Contractual
Obligations
The contractual obligations presented in the table below
represent our estimates of future payments under fixed
contractual obligations and commitments. Changes in our business
needs, cancellation provisions, changing interest rates and
other factors may result in actual payments differing from these
estimates. We cannot provide certainty regarding the timing and
amounts of payments. We have presented below a summary of the
most significant assumptions used in our information within the
context of our consolidated financial position, results of
operations and cash flows. The following is a summary of our
contractual obligations as of May 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ending May 31,
|
|
(Dollars in millions)
|
|
Total
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
Thereafter
|
|
|
Principal payments on
borrowings(1)
|
|
$
|
11,250
|
|
|
$
|
1,000
|
|
|
$
|
1,000
|
|
|
$
|
2,250
|
|
|
$
|
|
|
|
$
|
1,250
|
|
|
$
|
5,750
|
|
Capital
leases(2)
|
|
|
2
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest payments on
borrowings(1)
|
|
|
5,509
|
|
|
|
602
|
|
|
|
552
|
|
|
|
506
|
|
|
|
392
|
|
|
|
392
|
|
|
|
3,065
|
|
Operating
leases(3)
|
|
|
1,713
|
|
|
|
432
|
|
|
|
370
|
|
|
|
259
|
|
|
|
187
|
|
|
|
124
|
|
|
|
341
|
|
Purchase
obligations(4)
|
|
|
432
|
|
|
|
395
|
|
|
|
17
|
|
|
|
4
|
|
|
|
3
|
|
|
|
3
|
|
|
|
10
|
|
Funding
commitments(5)
|
|
|
3
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
18,909
|
|
|
$
|
2,433
|
|
|
$
|
1,940
|
|
|
$
|
3,019
|
|
|
$
|
582
|
|
|
$
|
1,769
|
|
|
$
|
9,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Our borrowings (excluding capital
leases) consist of the following as of May 31, 2008:
|
|
|
|
|
|
|
|
Principal Balance
|
|
|
Floating rate senior notes due May 2009
|
|
$
|
1,000
|
|
Floating rate senior notes due May 2010
|
|
|
1,000
|
|
5.00% senior notes due January 2011, net of discount of $4
|
|
|
2,246
|
|
4.95% senior notes due April 2013
|
|
|
1,250
|
|
5.25% senior notes due January 2016, net of discount of $9
|
|
|
1,991
|
|
5.75% senior notes due April 2018, net of discount of $1
|
|
|
2,499
|
|
6.50% senior notes due April 2038, net of discount of $2
|
|
|
1,248
|
|
|
|
|
|
|
Total borrowings
|
|
$
|
11,234
|
|
|
|
|
|
|
|
|
|
|
|
Our floating rate senior notes due
May 2009 and May 2010 bore interest at a rate of 2.70% and
2.74%, respectively, as of May 31, 2008. In September 2007,
we entered into two interest-rate swap agreements that have the
economic effect of modifying the variable interest obligations
associated with our floating rate senior notes due May 2009 and
May 2010 so that the interest payable on the senior notes
effectively became fixed at a rate of 4.62% and 4.59%,
respectively. Interest payments were calculated based on terms
of the related agreements and include estimates based on the
effective interest rates as of May 31, 2008 for variable
rate borrowings after consideration of the aforementioned
interest rate swap agreements.
|
|
(2) |
|
Represents remaining payments under
capital leases 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
$355 million in facility obligations, net of estimated
sublease income, in accrued restructuring for these locations in
our consolidated balance sheet at May 31, 2008.
|
|
(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.
|
52
Excluded from the table above are agreements that we entered
into during the fourth quarter of fiscal 2008 and the first
quarter of fiscal 2009 in which we agreed to acquire a number of
companies for estimated total cash consideration of
$407 million. We expect these transactions to close during
the first quarter of fiscal 2009.
As of May 31, 2008, we have $1.7 billion of
unrecognized tax benefits recorded on our consolidated balance
sheet. We have reached certain settlement agreements with
relevant taxing authorities to pay approximately
$90 million of these liabilities. Although it remains
unclear as to when payments pursuant to these agreements will be
made, some or all may be made in fiscal 2009. We cannot make a
reasonably reliable estimate of the period in which the
remainder of these liabilities will be settled or released with
the relevant tax authorities, although we believe it is
reasonably possible that certain of these liabilities could be
settled or released during fiscal 2009.
We believe that our current cash, cash equivalents and
marketable securities and cash generated from operations will be
sufficient to meet our working capital, capital expenditures and
contractual obligations. In addition, we believe we could fund
our acquisitions, including the aforementioned acquisitions that
we expect to close during the first quarter of fiscal 2009, and
repurchase common stock with our internally available cash, cash
equivalents and marketable securities, cash generated from
operations, our existing available debt capacity, additional
borrowings or from the issuance of additional securities.
Off-Balance
Sheet Arrangements
We do not have any off-balance sheet arrangements that have or
are reasonably likely to have a current or future effect on our
financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures
or capital resources that are material to investors.
Recent
Financing Activities
Senior
Notes
In April 2008, we issued $5.0 billion of fixed rate senior
notes, of which $1.25 billion of 4.95% senior notes is
due April 2013 (2013 Notes), $2.5 billion of
5.75% senior notes is due April 2018 (2018 Notes), and
$1.25 billion of 6.50% senior notes is due April 2038
(2038 Notes). We issued these senior notes to finance the
acquisition of BEA and for general corporate purposes. Some or
all of the 2013 Notes, 2018 Notes and 2038 Notes may be redeemed
at any time, subject to payment of a make-whole premium. The
2013 Notes, 2018 Notes and 2038 Notes pay interest semi-annually.
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. 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, 2013 Notes, 2016 Notes, 2018 Notes, and 2038 Notes
(collectively, the Senior Notes) at May 31, 2008 were
2.70%, 2.74%, 5.08%, 4.96%, 5.33%, 5.76% and 6.52%,
respectively. In September 2007, we entered into two interest
rate swap agreements that have the economic effect of modifying
the variable interest obligations associated with the New 2009
Notes and 2010 Notes
53
so that the interest payable on the senior notes effectively
became fixed at a rate of 4.62% and 4.59%, respectively, until
maturity.
The Senior Notes rank pari passu with any Commercial Paper Notes
(defined below) that we may issue 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 any
Commercial Paper Notes that we may issue.
Commercial
Paper Program
In March 2008, we increased our commercial paper program to
$5.0 billion from $3.0 billion (the CP Program). The
original dealer agreements entered into in February 2006 with
each of Banc of America Securities LLC, JP Morgan Securities
Inc., Lehman Brothers Inc., Merrill Lynch Money Markets Inc. and
Merrill Lynch Pierce, Fenner & Smith Incorporated and
the Issuing and Paying Agency Agreement entered into in February
2006 with JPMorgan Chase Bank, National Association, remained in
effect and were not changed. Under the CP Program, we may issue
and sell unsecured short-term promissory notes (Commercial Paper
Notes) pursuant to a private placement exemption from the
registration requirements under federal and state securities
laws. In fiscal 2008 and 2007, we issued approximately
$1.2 billion and $2.1 billion of Commercial Paper
Notes, respectively, of which none and $1.4 billion
remained outstanding as of May 31, 2008 and 2007,
respectively. As of May 31, 2008, we had $5.0 billion
of capacity remaining under our CP Program.
Revolving
Credit Agreements
In March 2008, we entered into a $2.0 billion,
364-Day
Revolving Credit Agreement with Wachovia Bank, National
Association, Bank of America, N.A. and certain other lenders
(2008 Credit Agreement). The 2008 Credit Agreement was in
addition to an existing $3.0 billion, five-year Revolving
Credit Agreement with substantially the same parties that we
entered into in March 2006 (the 2006 Credit Agreement and,
collectively with the 2008 Credit Agreement, the Credit
Agreements). The Credit Agreements provide for unsecured
revolving credit facilities, which can also be used to backstop
any Commercial Paper Notes (see above) that we may issue and for
working capital and other general corporate purposes. Subject to
certain conditions stated in the Credit Agreements, we may
borrow, prepay and re-borrow amounts under the facilities at any
time during the terms of the Credit Agreements. Interest for the
Credit Agreements is based on either (a) a LIBOR-based
formula or (b) a formula based on Wachovias prime
rate or on the federal funds effective rate. Any amounts drawn
pursuant to the 2008 Credit Agreement are due on March 17,
2009 (we may, upon the agreement of the lenders, extend the
facility by up to two times in succession). Any amounts drawn
pursuant to the 2006 Credit Agreement are due on March 14,
2011. No amounts were outstanding pursuant to the Credit
Agreements as of May 31, 2008 and 2007. A total of
$5.0 billion remained available pursuant to the Credit
Agreements at May 31, 2008.
The Credit Agreements contain certain customary representations
and warranties, covenants and events of default, including the
requirement that our total net debt to total capitalization
ratio not exceed 45%. If any of the events of default occur and
are not cured within applicable grace periods or waived, any
unpaid amounts under the Credit Agreements may be declared
immediately due and payable and the Credit Agreements may be
terminated. We were in compliance with the Credit
Agreements covenants as of May 31, 2008.
Selected
Quarterly Financial Data
Quarterly revenues and expenses have historically been affected
by a variety of seasonal factors, including sales compensation
plans. 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. These
seasonal factors are common in the software industry. These
factors have caused a decrease in our first quarter revenues as
compared to revenues in the immediately preceding fourth
quarter, which historically has been our highest revenue
quarter. We expect this trend to continue into the first quarter
of fiscal 2009.
The following tables set 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
54
financial statements and related notes included elsewhere in
this Annual Report. The sum of the quarterly financial
information may vary from the annual data due to rounding.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2008 Quarter Ended (Unaudited)
|
|
(in millions, except per share amounts)
|
|
August 31
|
|
|
November 30
|
|
|
February 29
|
|
|
May 31
|
|
|
Revenues
|
|
$
|
4,529
|
|
|
$
|
5,313
|
|
|
$
|
5,349
|
|
|
$
|
7,239
|
|
Gross profit
|
|
$
|
2,111
|
|
|
$
|
2,690
|
|
|
$
|
2,731
|
|
|
$
|
4,028
|
|
Operating income
|
|
$
|
1,217
|
|
|
$
|
1,782
|
|
|
$
|
1,875
|
|
|
$
|
2,971
|
|
Net income
|
|
$
|
840
|
|
|
$
|
1,303
|
|
|
$
|
1,340
|
|
|
$
|
2,037
|
|
Earnings per sharebasic
|
|
$
|
0.16
|
|
|
$
|
0.25
|
|
|
$
|
0.26
|
|
|
$
|
0.40
|
|
Earnings per sharediluted
|
|
$
|
0.16
|
|
|
$
|
0.25
|
|
|
$
|
0.26
|
|
|
$
|
0.39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
Stock
Options
Our stock option program is a key component of the compensation
package we provide to attract and retain certain of our talented
employees and align their interests with the interests of
existing stockholders. We recognize that options dilute existing
stockholders and have sought to control the number of options
granted while providing competitive compensation packages.
Consistent with these dual goals, our cumulative potential
dilution since June 1, 2005 has been a weighted average
annualized rate of 1.5% per year. The potential dilution
percentage is calculated as the average annualized new options
granted and assumed, net of options forfeited by employees
leaving the company, divided by the weighted average outstanding
shares during the calculation period. This maximum potential
dilution will only result if all options are exercised. Some of
these options, which have
10-year
exercise periods, have exercise prices substantially higher than
the current market price of our common stock. At May 31,
2008, 11% 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, 2008, 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 7.3%.
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
55
stock option grants up to 100,000 shares to non-executive
officers and employees. Stock option activity from June 1,
2005 through May 31, 2008 is summarized as follows (shares
in millions):
|
|
|
|
|
Options outstanding at May 31, 2005
|
|
|
469
|
|
Options granted
|
|
|
190
|
|
Options assumed
|
|
|
143
|
|
Options exercised
|
|
|
(328
|
)
|
Forfeitures and cancellations
|
|
|
(96
|
)
|
|
|
|
|
|
Options outstanding at May 31, 2008
|
|
|
378
|
|
|
|
|
|
|
Average annualized options granted and assumed net of forfeitures
|
|
|
79
|
|
Average annualized stock repurchases
|
|
|
159
|
|
Shares outstanding at May 31, 2008
|
|
|
5,150
|
|
Weighted average shares outstanding from June 1, 2005
through May 31, 2008
|
|
|
5,166
|
|
Options outstanding as a percent of shares outstanding at
May 31, 2008
|
|
|
7.3%
|
|
In the money options outstanding (based on our May 31, 2008
stock price) as a percent of shares outstanding at May 31,
2008
|
|
|
6.6%
|
|
Weighted average annualized options granted and assumed, net of
forfeitures and before stock repurchases, as a percent of
weighted average shares outstanding from June 1, 2005
through May 31, 2008
|
|
|
1.5%
|
|
Weighted average annualized options granted and assumed, net of
forfeitures and after stock repurchases, as a percent of
weighted average shares outstanding from June 1, 2005
through May 31, 2008
|
|
|
-1.6%
|
|
Our Compensation Committee approves the annual organization-wide
option grants to certain key employees. These annual option
grants are made during the ten business day period following the
second trading day after the announcement of our fiscal fourth
quarter earnings report.
Recent
Accounting Pronouncements
For information with respect to recent 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 Rate Risk: We generally
purchase debt security investments with relatively short
maturities (see a description of our debt securities held in the
Liquidity and Capital Resources section of Managements
Discussion and Analysis of Financial Condition and Results of
Operations presented above). Therefore, interest rate movements
generally do not materially affect the valuation of our debt
security investments. Changes in the overall level of interest
rates affect the interest income that is generated from our
investments. For fiscal 2008, total interest income was
$337 million with investments yielding an average 3.44% on
a worldwide basis. This interest rate level was down by
53 basis points from 3.97% for fiscal 2007. If overall
interest rates fell by 100 basis points from our average of
3.44% during fiscal 2008, our annual interest income would
decline by approximately $95 million, assuming consistent
investment levels. The table below presents the cash, cash
equivalent and marketable securities balances and the related
weighted average interest rates for our investment portfolio at
May 31, 2008. The cash, cash equivalent and marketable
securities balances are recorded at their fair values at
May 31, 2008.
|
|
|
|
|
|
|
|
|
Fair Value of
|
|
|
|
|
Available-for-Sale
|
|
Weighted Average
|
(Dollars in millions)
|
|
Securities
|
|
Interest Rate
|
|
Cash and cash equivalents
|
|
$
|
8,262
|
|
|
2.35%
|
Marketable securities
|
|
|
2,781
|
|
|
2.71%
|
|
|
|
|
|
|
|
Total cash, cash equivalents and marketable securities
|
|
$
|
11,043
|
|
|
2.44%
|
|
|
|
|
|
|
|
56
The following table includes the U.S. Dollar equivalent of
cash, cash equivalents and marketable securities denominated in
foreign currencies. See discussion of our foreign currency risk
below for a description of how we hedge net assets of certain
international subsidiaries from foreign currency exposure.
|
|
|
|
|
|
|
U.S. Dollar
|
|
|
|
Equivalent at
|
|
(in millions)
|
|
May 31, 2008
|
|
|
Euro
|
|
$
|
1,941
|
|
Japanese Yen
|
|
|
801
|
|
British Pound
|
|
|
705
|
|
Chinese Renminbi
|
|
|
477
|
|
Indian Rupee
|
|
|
357
|
|
Canadian Dollar
|
|
|
275
|
|
Australian Dollar
|
|
|
258
|
|
Other foreign currencies
|
|
|
1,629
|
|
|
|
|
|
|
Total cash, cash equivalents and marketable securities
denominated in foreign currencies
|
|
$
|
6,443
|
|
|
|
|
|
|
Our borrowings as of May 31, 2008 were $11.2 billion,
consisting of $9.2 billion of fixed rate borrowings and
$2.0 billion of variable rate borrowings. Our variable rate
borrowings were as follows at May 31, 2008:
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
Borrowings
|
|
|
Interest Rate
|
|
|
Floating rate senior notes due May
2009(1)
|
|
$
|
1,000
|
|
|
|
2.70%
|
|
Floating rate senior notes due May
2010(1)
|
|
|
1,000
|
|
|
|
2.74%
|
|
|
|
|
|
|
|
|
|
|
Total borrowings subject to variable interest rate fluctuations
|
|
$
|
2,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The 2009 and 2010 Notes bear
interest at a floating rate equal to three-month LIBOR plus
0.02% per year and 0.06% per year, respectively. In September
2007, we entered into two interest-rate swap agreements that
have the economic effect of modifying the variable interest
obligations associated with our floating rate senior notes due
May 2009 and May 2010 so that the interest payable on the senior
notes effectively becomes fixed at a rate of 4.62% and 4.59%,
respectively. The critical terms of the interest rate swap
agreements and the senior notes that the swap agreements pertain
to match, including the notional amounts, interest rate reset
dates, maturity dates and underlying market indices. The fair
values of the aforementioned interest rate swaps totaled an
unrealized loss of $24 million, net of tax effects, at
May 31, 2008. We are accounting for these swaps as hedges
pursuant to FASB Statement No. 133, Accounting for
Derivative Instruments and Hedging Activities. The
unrealized losses are included in accumulated other
comprehensive income and the corresponding fair value payables
are included in other current and long-term liabilities in our
condensed consolidated balance sheet.
|
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 foreign currency
forward contracts that we enter into 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 are marked to market at the end of
the period with unrealized gains and losses resulting from fair
value changes included in non-operating income, net (the
effective portion of our Yen equity hedge described below is
included in stockholders equity). Our ultimate realized
gain or loss with respect to currency fluctuations will depend
on the currency exchange rates and other factors in effect as
the contracts mature. Net foreign exchange transaction gains
included in non-operating income, net in the accompanying
consolidated statements of operations were $17 million,
$17 million and $15 million in fiscal 2008, 2007 and
2006, respectively. The net unrealized gains of our outstanding
foreign currency forward contracts were $3 million and
$5 million at May 31, 2008 and 2007, respectively.
The tables below present the notional amounts (at contract
exchange rates) and the weighted average contractual foreign
currency exchange rates for our outstanding forward contracts as
of May 31, 2008 and exclude our net
57
investment hedge contract described further below. 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 as of May 31, 2008.
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
|
|
$
|
|
|
$
|
49
|
|
|
0.95
|
British Pound
|
|
|
|
|
|
11
|
|
|
1.97
|
Canadian Dollar
|
|
|
|
|
|
80
|
|
|
0.99
|
Chilean Peso
|
|
|
6
|
|
|
|
|
|
483.80
|
Chinese Renminbi
|
|
|
330
|
|
|
|
|
|
6.89
|
Columbian Peso
|
|
|
18
|
|
|
|
|
|
1,806.15
|
Danish Krone
|
|
|
2
|
|
|
|
|
|
4.80
|
European Euro
|
|
|
3
|
|
|
|
|
|
1.56
|
Indian Rupee
|
|
|
112
|
|
|
112
|
|
|
41.89
|
Japanese Yen
|
|
|
32
|
|
|
|
|
|
104.12
|
Korean Won
|
|
|
61
|
|
|
|
|
|
1,038.50
|
Mexican Peso
|
|
|
8
|
|
|
|
|
|
10.48
|
Norwegian Krone
|
|
|
2
|
|
|
|
|
|
5.09
|
Peruvian New Sol
|
|
|
5
|
|
|
1
|
|
|
2.84
|
Philippine Peso
|
|
|
20
|
|
|
|
|
|
45.00
|
Polish Zloty
|
|
|
5
|
|
|
8
|
|
|
2.19
|
Saudi Arabian Riyal
|
|
|
32
|
|
|
|
|
|
3.74
|
Singapore Dollar
|
|
|
|
|
|
127
|
|
|
1.36
|
South African Rand
|
|
|
33
|
|
|
|
|
|
7.89
|
Taiwan Dollar
|
|
|
13
|
|
|
|
|
|
30.36
|
Thai Baht
|
|
|
12
|
|
|
|
|
|
32.63
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
694
|
|
$
|
388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58
European
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
British Pound
|
|
|
33
|
|
|
|
|
|
|
|
0.79
|
|
Danish Krone
|
|
|
3
|
|
|
|
|
|
|
|
7.46
|
|
Indian Rupee
|
|
|
|
|
|
|
4
|
|
|
|
60.66
|
|
Israeli Shekel
|
|
|
2
|
|
|
|
|
|
|
|
5.15
|
|
Norwegian Krone
|
|
|
4
|
|
|
|
|
|
|
|
7.91
|
|
Polish Zloty
|
|
|
7
|
|
|
|
|
|
|
|
3.41
|
|
Saudi Arabian Riyal
|
|
|
2
|
|
|
|
|
|
|
|
5.86
|
|
Slovakian Koruna
|
|
|
1
|
|
|
|
|
|
|
|
30.70
|
|
South African Rand
|
|
|
22
|
|
|
|
|
|
|
|
12.33
|
|
Swedish Krona
|
|
|
6
|
|
|
|
|
|
|
|
9.35
|
|
Swiss Franc
|
|
|
7
|
|
|
|
|
|
|
|
1.62
|
|
United States Dollar
|
|
|
16
|
|
|
|
|
|
|
|
1.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
103
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Investment Risk: We hedge the net
assets of certain of our 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 our 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 excluded portion and the ineffective
portion, if any) is recognized in non-operating income, net.
Net gains (losses) on investment hedges reported in
stockholders equity, net of tax effects, were
$(53) million, $28 million and $14 million in
fiscal 2008, 2007 and 2006, respectively. Net gains on
investment hedges reported in non-operating income, net were
$23 million, $28 million and $24 million in
fiscal 2008, 2007 and 2006, respectively.
At May 31, 2008, 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 our majority owned subsidiary, Oracle Japan. The
fair value of our Yen investment hedge was nominal at
May 31, 2008 and 2007. As of May 31, 2008, the Yen
investment hedge had a notional amount of $633 million and
an exchange rate of 104.32 Yen for each U.S. Dollar.
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
The response to this item is submitted as a separate section of
this Annual Report. See Part IV, Item 15.
|
|
Item 9.
|
Changes
In and Disagreements with Accountants on Accounting and
Financial Disclosure
|
Not applicable.
59
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 U.S. 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 our
disclosure controls as dynamic processes and procedures 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, 2008 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, 2008. We reviewed the results of
managements assessment with our Finance and Audit
Committee.
The effectiveness of our internal control over financial
reporting as of May 31, 2008 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.
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.
60
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 U.S. Securities and Exchange
Commission in connection with the solicitation of proxies for
our Annual Meeting of Stockholders to be held on
October 10, 2008.
|
|
Item 11.
|
Executive
Compensation
|
The information required by this Item is incorporated by
reference from the 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, 2008
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
|
|
Number of
|
|
|
|
|
|
Remaining Available
|
|
|
|
Shares to be Issued
|
|
|
Weighted Average
|
|
|
for Future Issuance
|
|
|
|
Upon Exercise of
|
|
|
Exercise Price of
|
|
|
Under Equity
|
|
|
|
Outstanding Options,
|
|
|
Outstanding Options,
|
|
|
Compensation
|
|
(in millions, except price data)
|
|
Warrants and Rights
|
|
|
Warrants and Rights
|
|
|
Plans(1)
|
|
|
Equity compensation plans approved by stockholders
|
|
|
301
|
|
|
$
|
16.33
|
|
|
|
382
|
(2)
|
Equity compensation plans not approved by
stockholders(3)
|
|
|
78
|
|
|
$
|
16.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
379
|
|
|
$
|
16.37
|
|
|
|
382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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
81 million shares available for future issuance under the
Oracle Corporation Employee Stock Purchase Plan (1992).
|
|
(3) |
|
These options and restricted stock
units were assumed in connection with our acquisitions. No
additional awards were or can be granted under the plans that
originally issued these awards.
|
Information required by this Item with respect to Stock
Ownership of Certain Beneficial Owners and Management is
incorporated herein by reference from the information to be
contained in our Proxy Statement.
61
|
|
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
|
|
|
Reports of Ernst & Young LLP, Independent Registered
Public Accounting Firm
|
|
|
65
|
|
Consolidated Financial Statements:
|
|
|
|
|
Balance Sheets as of May 31, 2008 and 2007
|
|
|
67
|
|
Statements of Operations for the years ended May 31, 2008,
2007 and 2006
|
|
|
68
|
|
Statements of Stockholders Equity for the years ended
May 31, 2008, 2007 and 2006
|
|
|
69
|
|
Statements of Cash Flows for the years ended May 31, 2008,
2007 and 2006
|
|
|
70
|
|
Notes to Consolidated Financial Statements
|
|
|
71
|
|
|
|
2.
|
Financial
Statement Schedules
|
The following financial statement schedule is filed as a part of
this report:
|
|
|
|
|
|
|
Page
|
|
|
Schedule II. Valuation and Qualifying Accounts
|
|
|
111
|
|
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
U.S. Securities and Exchange Commission (the original
Exhibit number is referenced parenthetically).
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Title
|
|
2.01(1)
|
|
Agreement and Plan of Merger, dated February 28, 2007, among
Oracle Corporation, Hyperion Solutions Corporation and Hotrod
Acquisition Corporation (2.1)
|
2.02(2)
|
|
Agreement and Plan of Merger, dated January 16, 2008, among
Oracle Corporation, BEA Systems, Inc. and Bronco Acquisition
Corporation (2.1)
|
3.01(3)
|
|
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)
|
3.02(4)
|
|
Amended and Restated Bylaws of Oracle Corporation (3.02)
|
4.01(5)
|
|
Specimen Certificate of Registrants Common Stock (4.01)
|
4.02(3)
|
|
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(6)
|
|
Indenture dated January 13, 2006, among Oracle Systems
Corporation, Oracle Corporation and Citibank, N.A. (10.34)
|
62
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Title
|
|
4.04(6)
|
|
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(7)
|
|
Forms of New 5.00% Note due 2011 and New 5.25% Note
due 2016 (4.4)
|
4.06(8)
|
|
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)
|
4.07(9)
|
|
Forms of New Floating Rate Note due 2009 and New Floating Rate
Note due 2010, together with Officers Certificate issued
May 15, 2007 setting forth the terms of the Notes (4.01)
|
4.08(10)
|
|
Forms of 4.95% Note due 2013, 5.75% Note due 2018 and
6.50% Note due 2038, together with Officers
Certificate issued April 9, 2008 setting forth the terms of the
Notes (4.09)
|
10.01(11)*
|
|
Oracle Corporation 1993 Deferred Compensation Plan, as amended
and restated as of November 14, 2003 (10.17)
|
10.02(12)*
|
|
Oracle Corporation Employee Stock Purchase Plan (1992), as
amended and restated as of February 8, 2005 (10.01)
|
10.03(13)*
|
|
Oracle Corporation Amended and Restated
1993 Directors Stock Plan, as amended and restated on
October 9, 2006 (10.29)
|
10.04(14)*
|
|
The 1991 Long-Term Equity Incentive Plan, as amended through
October 18, 1999 (10.11)
|
10.05(15)*
|
|
Amendment to the 1991 Long-Term Equity Incentive Plan, dated
January 7, 2000 (10.09)
|
10.06(15)*
|
|
Amendment to the 1991 Long-Term Equity Incentive Plan, dated
June 2, 2000 (10.10)
|
10.07(16)*
|
|
Amended and Restated 2000 Long-Term Equity Incentive Plan, as
approved on October 29, 2004 (10.07)
|
10.08(17)*
|
|
Form of Stock Option Agreements for the Amended and Restated
2000 Long-Term Equity Incentive Plan (10.08)
|
10.09(18)*
|
|
Form of Stock Option Agreement for Oracle Corporation Amended
and Restated 1993 Directors Stock Plan (10.09)
|
10.10(18)*
|
|
Form of Indemnification Agreement for Directors and Executive
Officers (10.10)
|
10.11(18)*
|
|
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(19)*
|
|
Amendment dated August 26, 2005, to the Offer Letter dated May
14, 2003, to Charles E. Phillips, Jr. (10.25)
|
10.13(18)*
|
|
Offer letter dated September 7, 2004 to Juergen Rottler and
Employment Agreement dated September 3, 2004 (10.13)
|
10.14(13)*
|
|
Description of the Fiscal Year 2007 Executive Bonus Plan (10.28)
|
10.15(20)*
|
|
Form of Executive Bonus Plan Agreements for the Oracle Executive
Bonus Plan, Non-Sales (10.29)
|
10.16(20)*
|
|
Form of Executive Bonus Plan Agreements for the Oracle Executive
Bonus Plan, Sales and Consulting (10.30)
|
10.17(21)
|
|
Form of Commercial Paper Dealer Agreement relating to the
$5,000,000,000 Commercial Paper Program (10.2)
|
10.18(21)
|
|
Issuing and Paying Agency Agreement between Oracle Corporation
and JP Morgan Chase Bank, National Association dated as of
February 3, 2006 (10.3)
|
10.19(22)
|
|
$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)
|
10.20(23)*
|
|
Offer letter dated January 31, 1997 to Sergio Giacoletto and
Employment Agreement dated February 20, 1997 (10.27)
|
10.21(24)*
|
|
Description of the Fiscal Year 2008 Executive Bonus Plan (10.28)
|
10.22(25)
|
|
$2,000,000,000 364-Day Revolving Credit Agreement dated as of
March 18, 2008, among Oracle Corporation and the lenders and
agents named therein (10.29)
|
63
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Title
|
|
12.01
|
|
Consolidated Ratio of Earnings to Fixed Charges
|
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-K
filed on March 6, 2007
|
|
(2) |
|
Incorporated by reference to BEA
Systems, Inc.s Current Report on
Form 8-K
(File
No. 000-22369)
filed on January 17, 2008
|
|
(3) |
|
Incorporated by reference to Oracle
Corporations Current Report on
Form 8-K12G3
filed on February 6, 2006
|
|
(4) |
|
Incorporated by reference to Oracle
Corporations Current Report on
Form 8-K
filed on July 14, 2006
|
|
(5) |
|
Incorporated by reference to Oracle
Corporations Annual Report on
Form 10-K
filed July 21, 2006
|
|
(6) |
|
Incorporated by reference to Oracle
Systems Corporations Current Report (File
No. 000-14376)
on
Form 8-K
filed on January 20, 2006
|
|
(7) |
|
Incorporated by reference to Oracle
Corporations
Form S-4/A
filed on April 14, 2006
|
|
(8) |
|
Incorporated by reference to Oracle
Corporations
Form S-3ASR
filed on May 10, 2007
|
|
(9) |
|
Incorporated by reference to Oracle
Corporations Current Report on
Form 8-K
filed on May 15, 2007
|
|
(10) |
|
Incorporated by reference to Oracle
Corporations Current Report on
Form 8-K
filed on April 8, 2008
|
|
(11) |
|
Incorporated by reference to Oracle
Systems Corporations Quarterly Report (File
No. 000-14376)
on
Form 10-Q
filed December 22, 2004
|
|
(12) |
|
Incorporated by reference to Oracle
Systems Corporations Quarterly Report (File
No. 000-14376)
on
Form 10-Q
filed September 28, 2005
|
|
(13) |
|
Incorporated by reference to Oracle
Corporations Current Report on
Form 8-K
filed on October 12, 2006
|
|
(14) |
|
Incorporated by reference to Oracle
Systems Corporations Quarterly Report on
Form 10-Q
(File
No. 000-14376)
filed January 14, 2000
|
|
(15) |
|
Incorporated by reference to Oracle
Systems Corporations Annual Report on
Form 10-K
(File
No. 000-14376)
filed August 28, 2000
|
|
(16) |
|
Incorporated by reference to Oracle
Systems Corporations Current Report on
Form 8-K
(File
No. 000-14376)
filed November 4, 2004
|
|
(17) |
|
Incorporated by reference to Oracle
Corporations Quarterly Report on
Form 10-Q
filed September 26, 2007
|
|
(18) |
|
Incorporated by reference to Oracle
Systems Corporations Oracle Corporations Quarterly
Report on
Form 10-Q
(File
No. 000-14376)
filed September 17, 2004
|
|
(19) |
|
Incorporated by reference to Oracle
Systems Corporations Current Report on
Form 8-K
(File
No. 000-14376)
filed August 30, 2005
|
|
(20) |
|
Incorporated by reference to Oracle
Systems Corporations Quarterly Report on
Form 10-Q
(File
No. 000-14376)
filed January 5, 2006
|
|
(21) |
|
Incorporated by reference to Oracle
Corporations Current Report on
Form 8-K
filed on February 9, 2006
|
|
(22) |
|
Incorporated by reference to Oracle
Corporations Current Report on
Form 8-K
filed March 21, 2006
|
|
(23) |
|
Incorporated by reference to Oracle
Corporations Quarterly Report on
Form 10-Q
filed December 21, 2006
|
|
(24) |
|
Incorporated by reference to Oracle
Corporations Quarterly Report on
Form 10-Q
filed December 21, 2007
|
|
(25) |
|
Incorporated by reference to Oracle
Corporations Current Report on
Form 8-K
filed on March 21, 2008
|
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, 2008 and 2007, and the
related consolidated statements of operations,
stockholders equity, and cash flows for each of the three
years in the period ended May 31, 2008. 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, 2008
and 2007, and the consolidated results of its operations and its
cash flows for each of the three years in the period ended
May 31, 2008, 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.
As discussed in Note 1 to the consolidated financial
statements, under the headings Stock-Based Compensation and
Income Taxes, the Company adopted Statement of Financial
Accounting Standards No. 123(R), Share-Based
Payment, effective June 1, 2006 and Financial
Accounting Standards Board (FASB) Interpretation No. 48,
Accounting for Uncertainty in Income Taxes, an interpretation
of FASB Statement No. 109, effective June 1, 2007.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
Oracle Corporations internal control over financial
reporting as of May 31, 2008, based on criteria established
in Internal ControlIntegrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated July 1, 2008 expressed an
unqualified opinion thereon.
/s/ ERNST & YOUNG LLP
San Francisco, California
July 1, 2008
65
REPORT OF
ERNST & YOUNG LLP, INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
The Board of Directors and Stockholders of Oracle Corporation
We have audited Oracle Corporations internal control over
financial reporting as of May 31, 2008 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 included in the accompanying
Managements Report on Internal Control Over Financial
Reporting. Our responsibility is to express an opinion on 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, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, 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, Oracle Corporation maintained, in all material
respects, effective internal control over financial reporting as
of May 31, 2008, based on the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Oracle Corporation as of
May 31, 2008 and 2007, and the related consolidated
statements of operations, stockholders equity, and cash
flows for each of the three years in the period ended
May 31, 2008 and our report dated July 1, 2008
expressed an unqualified opinion thereon.
/s/ ERNST & YOUNG LLP
San Francisco, California
July 1, 2008
66
ORACLE
CORPORATION
CONSOLIDATED BALANCE SHEETS
As of May 31, 2008 and 2007
|
|
|
|
|
|
|
|
|
|
|
May 31,
|
|
(in millions, except per share data)
|
|
2008
|
|
|
2007
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
8,262
|
|
|
$
|
6,218
|
|
Marketable securities
|
|
|
2,781
|
|
|
|
802
|
|
Trade receivables, net of allowances of $303 and $306 as of
May 31, 2008 and 2007
|
|
|
5,127
|
|
|
|
4,074
|
|
Other receivables
|
|
|
672
|
|
|
|
515
|
|
Deferred tax assets
|
|
|
853
|
|
|
|
968
|
|
Prepaid expenses and other current assets
|
|
|
408
|
|
|
|
306
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
18,103
|
|
|
|
12,883
|
|
|
|
|
|
|
|
|
|
|
Non-current assets:
|
|
|
|
|
|
|
|
|
Property, net
|
|
|
1,688
|
|
|
|
1,603
|
|
Intangible assets: software support agreements and related
relationships, net
|
|
|
3,797
|
|
|
|
3,002
|
|
Intangible assets: other, net
|
|
|
4,598
|
|
|
|
2,962
|
|
Goodwill
|
|
|
17,991
|
|
|
|
13,479
|
|
Other assets
|
|
|
1,091
|
|
|
|
643
|
|
|
|
|
|
|
|
|
|
|
Total non-current assets
|
|
|
29,165
|
|
|
|
21,689
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
47,268
|
|
|
$
|
34,572
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Notes payable, current and other current borrowings
|
|
$
|
1,001
|
|
|
$
|
1,358
|
|
Accounts payable
|
|
|
383
|
|
|
|
315
|
|
Income taxes payable
|
|
|
390
|
|
|
|
1,237
|
|
Accrued compensation and related benefits
|
|
|
1,770
|
|
|
|
1,349
|
|
Accrued restructuring
|
|
|
308
|
|
|
|
201
|
|
Deferred revenues
|
|
|
4,492
|
|
|
|
3,492
|
|
Other current liabilities
|
|
|
1,685
|
|
|
|
1,435
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
10,029
|
|
|
|
9,387
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities:
|
|
|
|
|
|
|
|
|
Notes payable and other non-current borrowings
|
|
|
10,235
|
|
|
|
6,235
|
|
Income taxes payable
|
|
|
1,566
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
1,218
|
|
|
|
1,121
|
|
Accrued restructuring
|
|
|
260
|
|
|
|
258
|
|
Deferred revenues
|
|
|
262
|
|
|
|
93
|
|
Other long-term liabilities
|
|
|
673
|
|
|
|
559
|
|
|
|
|
|
|
|
|
|
|
Total non-current liabilities
|
|
|
14,214
|
|
|
|
8,266
|
|
|
|
|
|
|
|
|
|
|
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: 5,150 shares and
5,107 shares as of May 31, 2008 and 2007
|
|
|
12,446
|
|
|
|
10,293
|
|
Retained earnings
|
|
|
9,961
|
|
|
|
6,223
|
|
Accumulated other comprehensive income
|
|
|
618
|
|
|
|
403
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
23,025
|
|
|
|
16,919
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
47,268
|
|
|
$
|
34,572
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
67
ORACLE
CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended May 31, 2008, 2007 and 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended May 31,
|
|
(in millions, except per share data)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
New software licenses
|
|
$
|
7,515
|
|
|
$
|
5,882
|
|
|
$
|
4,905
|
|
Software license updates and product support
|
|
|
10,328
|
|
|
|
8,329
|
|
|
|
6,636
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software revenues
|
|
|
17,843
|
|
|
|
14,211
|
|
|
|
11,541
|
|
Services
|
|
|
4,587
|
|
|
|
3,785
|
|
|
|
2,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
22,430
|
|
|
|
17,996
|
|
|
|
14,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
4,679
|
|
|
|
3,907
|
|
|
|
3,177
|
|
Software license updates and product support
|
|
|
997
|
|
|
|
842
|
|
|
|
719
|
|
Cost of services
|
|
|
3,984
|
|
|
|
3,349
|
|
|
|
2,516
|
|
Research and development
|
|
|
2,741
|
|
|
|
2,195
|
|
|
|
1,872
|
|
General and administrative
|
|
|
808
|
|
|
|
692
|
|
|
|
555
|
|
Amortization of intangible assets
|
|
|
1,212
|
|
|
|
878
|
|
|
|
583
|
|
Acquisition related and other
|
|
|
124
|
|
|
|
140
|
|
|
|
137
|
|
Restructuring
|
|
|
41
|
|
|
|
19
|
|
|
|
85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
14,586
|
|
|
|
12,022
|
|
|
|
9,644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
7,844
|
|
|
|
5,974
|
|
|
|
4,736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(394
|
)
|
|
|
(343
|
)
|
|
|
(169
|
)
|
Non-operating income, net
|
|
|
384
|
|
|
|
355
|
|
|
|
243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
|
7,834
|
|
|
|
5,986
|
|
|
|
4,810
|
|
Provision for income taxes
|
|
|
2,313
|
|
|
|
1,712
|
|
|
|
1,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
5,521
|
|
|
$
|
4,274
|
|
|
$
|
3,381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.08
|
|
|
$
|
0.83
|
|
|
$
|
0.65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
1.06
|
|
|
$
|
0.81
|
|
|
$
|
0.64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
5,133
|
|
|
|
5,170
|
|
|
|
5,196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
5,229
|
|
|
|
5,269
|
|
|
|
5,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
68
ORACLE
CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
For the Years Ended May 31, 2008, 2007 and 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and Additional Paid
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
in Capital
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Comprehensive
|
|
|
Number of
|
|
|
|
|
|
Retained
|
|
|
Deferred
|
|
|
Comprehensive
|
|
|
|
|
(in millions)
|
|
Income
|
|
|
Shares
|
|
|
Amount
|
|
|
Earnings
|
|
|
Compensation
|
|
|
Income
|
|
|
Total
|
|
|
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
|
&n |