e10vq
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
FORM 10-Q
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x QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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For the Quarterly Period Ended November 30, 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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For the transition period from
to
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Commission file number:
000-51788
Oracle Corporation
(Exact name of registrant as
specified in its charter)
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Delaware
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54-2185193
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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)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. YES x NO o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, 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
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Smaller reporting
company o
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(Do not check if a smaller reporting company)
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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 number of shares of registrants common stock
outstanding as of December 15, 2008 was: 5,046,177,000.
ORACLE
CORPORATION
FORM 10-Q
QUARTERLY REPORT
TABLE OF
CONTENTS
PART I.
FINANCIAL INFORMATION
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Item 1.
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Financial
Statements (Unaudited)
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As of November 30, 2008 and May 31, 2008
(Unaudited)
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November 30,
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May 31,
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(in millions, except per share data)
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2008
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2008
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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7,353
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$
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8,262
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Marketable securities
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3,293
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2,781
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Trade receivables, net of allowances of $301 and $303 as of
November 30, 2008 and May 31, 2008
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3,253
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5,127
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Deferred tax assets
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634
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853
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Prepaid expenses and other current assets
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605
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1,080
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Total current assets
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15,138
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18,103
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Non-current assets:
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Property, net
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1,907
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1,688
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Intangible assets: software support agreements and related
relationships, net
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3,682
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3,797
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Intangible assets: other, net
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4,419
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4,598
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Goodwill
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18,587
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17,991
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Other assets
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1,069
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1,091
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Total non-current assets
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29,664
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29,165
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Total assets
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$
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44,802
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$
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47,268
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current liabilities:
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Notes payable, current and other current borrowings
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$
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1,002
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$
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1,001
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Accounts payable
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346
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383
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Accrued compensation and related benefits
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1,062
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1,770
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Deferred revenues
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3,881
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4,492
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Other current liabilities
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1,672
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2,383
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Total current liabilities
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7,963
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10,029
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Non-current liabilities:
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Notes payable and other non-current borrowings
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10,236
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10,235
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Income taxes payable
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1,680
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1,566
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Deferred tax liabilities
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1,062
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1,218
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Other non-current liabilities
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1,040
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1,195
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Total non-current liabilities
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14,018
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14,214
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Commitments and contingencies
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Stockholders equity:
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Preferred stock, $0.01 par valueauthorized:
1.0 shares; outstanding: none
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Common stock, $0.01 par value and additional paid in
capitalauthorized: 11,000 shares; outstanding:
5,046 shares as of November 30, 2008 and
5,150 shares as of May 31, 2008
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12,743
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12,446
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Retained earnings
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10,177
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9,961
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Accumulated other comprehensive (loss) income
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(99
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)
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618
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Total stockholders equity
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22,821
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23,025
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Total liabilities and stockholders equity
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$
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44,802
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$
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47,268
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See notes to condensed consolidated financial statements.
1
For the Three and Six Months Ended November 30, 2008
and 2007
(Unaudited)
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Three Months Ended
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Six Months Ended
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November 30,
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November 30,
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(in millions, except per share data)
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2008
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2007
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2008
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2007
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Revenues:
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New software licenses
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$
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1,626
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$
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1,668
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$
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2,863
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$
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2,756
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Software license updates and product support
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2,850
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2,491
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5,785
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4,873
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Software revenues
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4,476
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4,159
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8,648
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7,629
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Services
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1,131
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1,154
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2,290
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2,213
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Total revenues
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5,607
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5,313
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10,938
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9,842
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Operating expenses:
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Sales and marketing
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1,146
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1,095
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2,258
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2,070
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Software license updates and product support
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257
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246
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539
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474
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Cost of services
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939
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992
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1,965
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1,922
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Research and development
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651
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674
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1,360
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1,326
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General and administrative
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174
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206
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379
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402
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Amortization of intangible assets
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427
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290
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839
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575
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Acquisition related and other
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21
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22
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71
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68
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Restructuring
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17
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6
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31
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6
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Total operating expenses
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3,632
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3,531
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7,442
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6,843
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Operating income
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1,975
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1,782
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3,496
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2,999
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Interest expense
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(157
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)
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(89
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)
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(317
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)
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(183
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)
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Non-operating income, net
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8
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122
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90
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199
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Income before provision for income taxes
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1,826
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1,815
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3,269
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3,015
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Provision for income taxes
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530
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512
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896
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871
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Net income
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$
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1,296
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$
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1,303
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$
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2,373
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$
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2,144
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Earnings per share:
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Basic
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$
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0.25
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$
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0.25
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$
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0.46
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$
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0.42
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Diluted
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$
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0.25
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$
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0.25
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$
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0.46
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$
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0.41
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Weighted average common shares outstanding:
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Basic
|
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5,127
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|
|
|
5,125
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|
|
|
5,140
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|
|
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5,117
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Diluted
|
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5,187
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5,232
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5,211
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|
|
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5,224
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to condensed consolidated financial statements.
2
For the Six Months Ended November 30, 2008 and
2007
(Unaudited)
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Six Months Ended
|
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November 30,
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(in millions)
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2008
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2007
|
|
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Cash Flows From Operating Activities:
|
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Net income
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$
|
2,373
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|
$
|
2,144
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|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
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Depreciation
|
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134
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|
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|
137
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Amortization of intangible assets
|
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839
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|
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|
575
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Deferred income taxes
|
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|
(151
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)
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|
(72
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)
|
Minority interests in income
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35
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|
|
|
29
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Stock-based compensation
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|
186
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|
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|
168
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|
Tax benefits on the exercise of stock options
|
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|
121
|
|
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|
262
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|
Excess tax benefits on the exercise of stock options
|
|
|
(79
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)
|
|
|
(187
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)
|
In-process research and development
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|
6
|
|
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|
7
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Other gains, net
|
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|
(2
|
)
|
|
|
(2
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)
|
Changes in operating assets and liabilities, net of effects from
acquisitions:
|
|
|
|
|
|
|
|
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Decrease in trade receivables, net
|
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|
1,642
|
|
|
|
937
|
|
Decrease in prepaid expenses and other assets
|
|
|
388
|
|
|
|
27
|
|
Decrease in accounts payable and other liabilities
|
|
|
(1,022
|
)
|
|
|
(551
|
)
|
Decrease in income taxes payable
|
|
|
(273
|
)
|
|
|
(241
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)
|
(Decrease) increase in deferred revenues
|
|
|
(207
|
)
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|
70
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
3,990
|
|
|
|
3,303
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|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities:
|
|
|
|
|
|
|
|
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Purchases of marketable securities and other investments
|
|
|
(5,105
|
)
|
|
|
(1,953
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)
|
Proceeds from maturities and sales of marketable securities and
other investments
|
|
|
4,362
|
|
|
|
1,273
|
|
Acquisitions, net of cash acquired
|
|
|
(1,065
|
)
|
|
|
(651
|
)
|
Capital expenditures
|
|
|
(399
|
)
|
|
|
(156
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used for investing activities
|
|
|
(2,207
|
)
|
|
|
(1,487
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
Payments for repurchases of common stock
|
|
|
(2,344
|
)
|
|
|
(1,023
|
)
|
Proceeds from issuances of common stock
|
|
|
371
|
|
|
|
682
|
|
Repayments of borrowings
|
|
|
(4
|
)
|
|
|
(1,362
|
)
|
Excess tax benefits on the exercise of stock options
|
|
|
79
|
|
|
|
187
|
|
Distributions to minority interests
|
|
|
(30
|
)
|
|
|
(28
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used for financing activities
|
|
|
(1,928
|
)
|
|
|
(1,544
|
)
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(764
|
)
|
|
|
243
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(909
|
)
|
|
|
515
|
|
Cash and cash equivalents at beginning of period
|
|
|
8,262
|
|
|
|
6,218
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
7,353
|
|
|
$
|
6,733
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing transactions:
|
|
|
|
|
|
|
|
|
Fair value of stock awards assumed in connection with
acquisitions
|
|
$
|
1
|
|
|
$
|
15
|
|
Increase (decrease) in unsettled repurchases of common stock
|
|
$
|
152
|
|
|
$
|
(23
|
)
|
See notes to condensed consolidated financial statements.
3
ORACLE
CORPORATION
November 30, 2008
(Unaudited)
|
|
1.
|
BASIS OF
PRESENTATION AND RECENT ACCOUNTING PRONOUNCEMENTS
|
Basis of
Presentation
We have prepared the condensed consolidated financial statements
included herein, without audit, pursuant to the rules and
regulations of the U.S. Securities and Exchange Commission
(SEC). Certain information and footnote disclosures normally
included in financial statements prepared in accordance with
U.S. generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations.
However, we believe that the disclosures are adequate to ensure
the information presented is not misleading. These unaudited
condensed consolidated financial statements should be read in
conjunction with the audited financial statements and the notes
thereto included in our Annual Report on
Form 10-K
for the fiscal year ended May 31, 2008.
We believe that all necessary adjustments, which consisted only
of normal recurring items, have been included in the
accompanying financial statements to present fairly the results
of the interim periods. The results of operations for the
interim periods presented are not necessarily indicative of the
operating results to be expected for any subsequent interim
period or for our fiscal year ending May 31, 2009. There
have been no significant changes in our adoption of new
accounting pronouncements or in our application of our
significant accounting policies that were disclosed in our
Annual Report on
Form 10-K
for the fiscal year ended May 31, 2008 other than the
impact of our adoption of Financial Accounting Standards Board
(FASB) Statement No. 157, Fair Value Measurements,
and certain related FASB staff positions for which we have
established a policy and provided disclosures in Note 3.
Acquisition
Related and Other Expenses
Acquisition related and other expenses consist of in-process
research and development expenses, personnel related costs for
transitional employees, stock-based compensation expenses,
integration related professional services, certain business
combination adjustments after the purchase price allocation
period has ended, and certain other operating expenses, net.
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 original terms of those options.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
November 30,
|
|
|
November 30,
|
|
(in millions)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
In-process research and development
|
|
$
|
2
|
|
|
$
|
|
|
|
$
|
6
|
|
|
$
|
7
|
|
Transitional employee related costs
|
|
|
4
|
|
|
|
15
|
|
|
|
31
|
|
|
|
19
|
|
Stock-based compensation
|
|
|
6
|
|
|
|
4
|
|
|
|
11
|
|
|
|
37
|
|
Professional fees and other, net
|
|
|
8
|
|
|
|
3
|
|
|
|
13
|
|
|
|
5
|
|
Business combination adjustments
|
|
|
1
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total acquisition related and other expenses
|
|
$
|
21
|
|
|
$
|
22
|
|
|
$
|
71
|
|
|
$
|
68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Operating
Income, net
Non-operating income, net consists primarily of interest income,
net foreign currency exchange gains (losses), the minority
owners shares in the net profits of our majority-owned
subsidiaries (Oracle Financial Services Software Limited,
formerly i-flex solutions limited, and Oracle Japan), and other
income, net, including net realized gains and losses related to
all of our investments and net unrealized gains and losses
related to the small portion of our investment portfolio that we
classify as trading.
4
ORACLE
CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
November 30, 2008
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
November 30,
|
|
|
November 30,
|
|
(in millions)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Interest income
|
|
$
|
97
|
|
|
$
|
89
|
|
|
$
|
185
|
|
|
$
|
163
|
|
Foreign currency gains (losses), net
|
|
|
(22
|
)
|
|
|
21
|
|
|
|
(12
|
)
|
|
|
27
|
|
Minority interests in income
|
|
|
(19
|
)
|
|
|
(16
|
)
|
|
|
(35
|
)
|
|
|
(29
|
)
|
Other income (losses), net
|
|
|
(48
|
)
|
|
|
28
|
|
|
|
(48
|
)
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-operating income, net
|
|
$
|
8
|
|
|
$
|
122
|
|
|
$
|
90
|
|
|
$
|
199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Income
Comprehensive income consists of the following, net of income
tax effects: net income, foreign currency translation gains and
losses, gains and losses related to certain of our derivative
financial instruments that are reflected in stockholders
equity instead of net income, and unrealized gains and losses on
marketable debt and equity securities that we classify as
available-for-sale. The following table sets forth the
calculation of comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
November 30,
|
|
|
November 30,
|
|
(in millions)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Net income
|
|
$
|
1,296
|
|
|
$
|
1,303
|
|
|
$
|
2,373
|
|
|
$
|
2,144
|
|
Change in foreign currency translation gains (losses), net
|
|
|
(440
|
)
|
|
|
187
|
|
|
|
(683
|
)
|
|
|
209
|
|
Unrealized losses on derivative financial instruments, net
|
|
|
(63
|
)
|
|
|
(32
|
)
|
|
|
(44
|
)
|
|
|
(52
|
)
|
Unrealized gains on marketable securities, net
|
|
|
10
|
|
|
|
1
|
|
|
|
10
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
803
|
|
|
$
|
1,459
|
|
|
$
|
1,656
|
|
|
$
|
2,302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recent
Accounting Pronouncements
Equity Method Investment Accounting: In
November 2008, the FASB ratified Emerging Issues Task Force
(EITF) Issue
No. 08-6,
Equity Method Investment Accounting Considerations.
EITF 08-6
clarifies the accounting for certain transactions and impairment
considerations involving equity method investments.
EITF 08-6
is effective for fiscal years beginning after December 15,
2008, with early adoption prohibited. We do not currently have
any investments that are accounted for under the equity method.
The pending adoption of
EITF 08-6
is not expected to have an impact on our consolidated financial
statements.
Defensive Intangible Assets: In
November 2008, the FASB ratified Emerging Issues Task Force
Issue
No. 08-7,
Accounting for Defensive Intangible Assets.
EITF 08-7
clarifies the accounting for certain separately identifiable
intangible assets which an acquirer does not intend to actively
use but intends to hold to prevent its competitors from
obtaining access to them.
EITF 08-7
requires an acquirer in a business combination to account for a
defensive intangible asset as a separate unit of accounting
which should be amortized to expense over the period the asset
diminishes in value.
EITF 08-7
is effective for fiscal years beginning after December 15,
2008, with early adoption prohibited. We are currently
evaluating the impact of the pending adoption of
EITF 08-7
on our consolidated financial statements.
Determination of the Useful Life of Intangible
Assets: In April 2008, the FASB issued FASB
Staff Position (FSP)
FAS 142-3,
Determination of the Useful Life of Intangible Assets. FSP
FAS 142-3
amends the factors that should be considered in developing
renewal or extension assumptions used to determine the useful
life of a recognized intangible asset under FASB Statement
No. 142, Goodwill and Other Intangible Assets. FSP
FAS 142-3
5
ORACLE
CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
November 30, 2008
(Unaudited)
is effective for fiscal years beginning after December 15,
2008 and early adoption is prohibited. We are currently
evaluating the impact of the pending adoption of FSP
FAS 142-3
on our consolidated financial statements.
Derivative Instruments and Hedging Activities
Disclosures: In March 2008, the FASB issued
Statement No. 161, Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB
Statement No. 133. Statement 161 requires disclosure of
how and why an entity uses derivative instruments, how
derivative instruments and related hedged items are accounted
for under Statement 133 and its related interpretations and how
derivative instruments and related hedged items affect an
entitys financial position, financial performance, and
cash flows. Statement 161 is effective for fiscal years and
interim periods beginning after November 15, 2008, with
early adoption permitted. We are currently evaluating the impact
of the pending adoption of Statement 161 on our consolidated
financial statements.
Business Combinations: In December
2007, the FASB issued Statement No. 141 (revised 2007),
Business Combinations. The standard changes the
accounting for business combinations including the measurement
of acquirer shares issued in consideration for a business
combination, the recognition of contingent consideration, the
accounting for pre-acquisition gain and loss contingencies, the
recognition of capitalized in-process research and development,
the accounting for acquisition related restructuring
liabilities, the treatment of acquisition related transaction
costs and the recognition of changes in the acquirers
income tax valuation allowance. Statement 141(R) is effective
for fiscal years beginning after December 15, 2008, with
early adoption prohibited. We are currently evaluating the
impact of the pending adoption of Statement 141(R) on our
consolidated financial statements. 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 are
currently capitalized pursuant to existing accounting standards,
amongst other potential impacts.
Accounting and Reporting of Noncontrolling
Interests: In December 2007, the FASB issued
Statement No. 160, Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB
No. 51. The standard changes the accounting for
noncontrolling (minority) interests in consolidated financial
statements including the requirements to classify noncontrolling
interests as a component of consolidated stockholders
equity, and the elimination of minority interest
accounting in results of operations with earnings attributable
to noncontrolling interests reported as a part of consolidated
earnings. Additionally, Statement 160 revises the accounting for
both increases and decreases in a parents controlling
ownership interest. Statement 160 is effective for fiscal years
beginning after December 15, 2008, with early adoption
prohibited. We are currently evaluating the impact of the
pending adoption of Statement 160 on our consolidated financial
statements.
Fair Value Measurements: In September
2006, the FASB issued Statement No. 157, Fair Value
Measurements. Statement 157 defines fair value,
establishes a framework for measuring fair value and expands
fair value measurement disclosures. In February 2008, the FASB
issued FASB Staff Position
No. FAS 157-1,
Application of FASB Statement No. 157 to FASB Statement
No. 13 and Other Accounting Pronouncements That Address
Fair Value Measurements for Purposes of Lease Classification or
Measurement under Statement 13 and FASB Staff Position
No. FAS 157-2,
Effective Date of FASB Statement No. 157.
Collectively, the Staff Positions defer the effective date of
Statement 157 to fiscal years beginning after November 15,
2008 for nonfinancial assets and nonfinancial liabilities except
for items that are recognized or disclosed at fair value on a
recurring basis at least annually, and amend the scope of
Statement 157. In addition, in October 2008 the FASB issued FASB
Staff Position
FAS 157-3,
Determining the Fair Value of a Financial Asset When the
Market for That Asset Is Not Active, which clarified the
application of how the fair value of a financial asset is
determined when the market for that financial asset is inactive.
FSP
No. 157-3
was effective upon issuance, including prior periods for which
financial statements had not been issued. As described in
Note 3, we have adopted Statement 157 and the related FASB
staff positions except for those items specifically deferred
under FSP
No. FAS 157-2.
We are currently evaluating the impact of the full adoption of
Statement 157 on our consolidated financial statements.
6
ORACLE
CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
November 30, 2008
(Unaudited)
Fiscal
2009 Acquisitions
During the first half of fiscal 2009, we acquired several
companies and purchased certain technology and development
assets primarily to expand our offering of applications
products. These acquisitions were not individually significant.
In the aggregate, the total purchase price for these
acquisitions was approximately $1.1 billion, which
consisted of $1.1 billion in cash, $1 million for the
fair value of stock awards assumed and $9 million for
transaction costs. In allocating the total purchase price for
these acquisitions based on estimated fair values, we
preliminarily recorded $654 million of goodwill,
$545 million of identifiable intangible assets,
$98 million of net tangible liabilities (resulting
primarily from deferred tax and restructuring liabilities
assumed as a part of these transactions) and $6 million of
in-process research and development. The preliminary allocations
of the various purchase prices were based upon preliminary
valuations and our estimates and assumptions are subject to
change. The primary areas of the purchase price allocations that
were not yet finalized related to certain restructuring
liabilities, intangible assets, legal matters, income and
non-income based taxes and residual goodwill.
Fiscal
2008 Acquisitions
BEA
Systems, Inc.
We acquired BEA Systems, Inc. on April 29, 2008 by means of
a merger of one of our wholly-owned subsidiaries with and into
BEA such that BEA became a wholly-owned subsidiary of Oracle. We
acquired BEA to, among other things, expand our offering of
middleware products. We have included the financial results of
BEA in our consolidated financial results effective
April 29, 2008.
The total purchase price for BEA was $8.6 billion which
consisted of $8.3 billion in cash paid to acquire the
outstanding common stock of BEA, $225 million for the fair
value of BEA options assumed and restricted stock awards
exchanged and $10 million for acquisition related
transaction costs. In allocating the purchase price based on
estimated fair values, we preliminarily recorded approximately
$4.4 billion of goodwill, $3.3 billion of identifiable
intangible assets, $860 million of net tangible assets and
$17 million of in-process research and development. The
preliminary allocation of the purchase price was based upon a
preliminary valuation and our estimates and assumptions are
subject to change. The primary areas of those purchase price
allocations that are not yet finalized relate to certain
restructuring liabilities, legal matters, income and non-income
based taxes and residual goodwill.
Other
Acquisitions
During fiscal 2008, we acquired several other companies and
purchased certain technology and development assets. Our fiscal
2008 acquisitions, other than BEA, were not significant
individually or in the aggregate. We have included the effects
of these transactions in our results of operations prospectively
from the respective dates of the acquisitions. The preliminary
purchase price allocations for each of these acquisitions were
based upon a preliminary valuation and our estimates and
assumptions for certain of these acquisitions are subject to
change. The primary areas of those purchase price allocations
that are not yet finalized relate to certain legal matters,
income and non-income based taxes and residual goodwill.
Unaudited
Pro Forma Financial Information
The unaudited pro forma financial information in the table below
summarizes the combined results of operations for Oracle, BEA
and certain other companies that we acquired since the beginning
of fiscal 2008 (which were collectively significant for purposes
of unaudited pro forma financial information disclosure) as
though the companies were combined as of the beginning of fiscal
2008. The pro forma financial information for all periods
presented also includes the business combination accounting
effects resulting from these acquisitions including
7
ORACLE
CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
November 30, 2008
(Unaudited)
amortization charges from acquired intangible assets,
stock-based compensation charges for unvested stock awards
assumed, adjustments to interest expense for borrowings and the
related tax effects as though the aforementioned companies were
combined as of the beginning of fiscal 2008. The pro forma
financial information as presented below is for informational
purposes only and is not indicative of the results of operations
that would have been achieved if the acquisitions and any
borrowings undertaken to finance these acquisitions had taken
place at the beginning of fiscal 2008.
The unaudited pro forma financial information for the three and
six months ended November 30, 2008 combined the historical
results of Oracle for the three and six months ended
November 30, 2008 and the historical results of certain
other companies that we acquired since the beginning of fiscal
2009 (which were collectively significant for purposes of
unaudited pro forma financial information disclosure) based upon
their respective previous reporting periods and the dates that
these companies were acquired by us, and the pro forma
adjustments effects listed above.
The unaudited pro forma financial information for the three and
six months ended November 30, 2007 combined the historical
results of Oracle for the three and six months ended
November 30, 2007 and, due to differences in our reporting
periods, the historical results of BEA for the three and six
months ended October 31, 2007, and the historical results
of certain other companies that we acquired since the beginning
of fiscal 2008 (which were collectively significant for purposes
of unaudited pro forma financial information disclosure) based
upon their respective previous reporting periods and the dates
these companies were acquired by us, and the pro forma
adjustments effects listed above. The unaudited proforma
financial information was as follows for the three and six
months ended November 30, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
November 30,
|
|
|
November 30,
|
|
(in millions, except per share data)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Total revenues
|
|
$
|
5,644
|
|
|
$
|
5,777
|
|
|
$
|
11,045
|
|
|
$
|
10,755
|
|
Net income
|
|
$
|
1,294
|
|
|
$
|
1,208
|
|
|
$
|
2,362
|
|
|
$
|
1,939
|
|
Basic earnings per share
|
|
$
|
0.25
|
|
|
$
|
0.24
|
|
|
$
|
0.46
|
|
|
$
|
0.38
|
|
Diluted earnings per share
|
|
$
|
0.25
|
|
|
$
|
0.23
|
|
|
$
|
0.45
|
|
|
$
|
0.37
|
|
|
|
3.
|
FAIR
VALUE MEASUREMENTS
|
On June 1, 2008, we adopted FASB Statement No. 157,
Fair Value Measurements and certain related FASB staff
positions. The adoption of Statement 157 and related positions
did not have a material impact on our consolidated financial
statements. Statement 157 defines fair value as the price that
would be received from selling an asset or paid to transfer a
liability in an orderly transaction between market participants
at the measurement date. When determining the fair value
measurements for assets and liabilities required to be recorded
at fair value, we consider the principal or most advantageous
market in which we would transact and consider assumptions that
market participants would use when pricing the asset or
liability, such as inherent risk, transfer restrictions, and
risk of nonperformance.
Statement 157 also establishes a fair value hierarchy that
requires an entity to maximize the use of observable inputs and
minimize the use of unobservable inputs when measuring fair
value. A financial instruments categorization within the
fair value hierarchy is based upon the lowest level of input
that is significant to the fair value measurement. Statement 157
establishes three levels of inputs that may be used to measure
fair value:
|
|
|
|
|
Level 1: quoted prices in active markets for
identical assets or liabilities;
|
|
|
|
Level 2: inputs other than Level 1 that are
observable, either directly or indirectly, such as quoted prices
in active markets for similar assets or liabilities, quoted
prices for identical or similar assets or liabilities in
|
8
ORACLE
CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
November 30, 2008
(Unaudited)
|
|
|
|
|
markets that are not active, or other inputs that are observable
or can be corroborated by observable market data for
substantially the full term of the assets or liabilities; or
|
|
|
|
|
|
Level 3: unobservable inputs that are supported
by little or no market activity and that are significant to the
fair value of the assets or liabilities.
|
Financial
Assets and Liabilities Measured at Fair Value on a Recurring
Basis
Our significant financial assets and liabilities measured at
fair value on a recurring basis, excluding accrued interest
components, consisted of the following types of instruments as
of November 30, 2008 (Level 1 and 2 inputs are defined
above):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using Input Type
|
|
(in millions)
|
|
Level 1
|
|
|
Level 2
|
|
|
Total
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
487
|
|
|
$
|
|
|
|
$
|
487
|
|
U.S. Treasury, U.S. government and U.S. government agency debt
securities
|
|
|
1,171
|
|
|
|
|
|
|
|
1,171
|
|
Commercial paper debt securities
|
|
|
|
|
|
|
2,230
|
|
|
|
2,230
|
|
Corporate debt securities and other
|
|
|
|
|
|
|
1,156
|
|
|
|
1,156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial assets
|
|
$
|
1,658
|
|
|
$
|
3,386
|
|
|
$
|
5,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instrument liabilities
|
|
$
|
|
|
|
$
|
67
|
|
|
$
|
67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial liabilities
|
|
$
|
|
|
|
$
|
67
|
|
|
$
|
67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our valuation techniques used to measure the fair values of our
money market funds and U.S. Treasury, U.S. government
and U.S. government agency debt securities were derived
from quoted market prices as substantially all of these
instruments have maturity dates (if any) within one year from
our date of purchase and active markets for these instruments
exist. Our valuation techniques used to measure the fair values
of all other instruments listed in the table above,
substantially all of which mature within one year and the
counterparties to which have high credit ratings, were derived
from the following: non-binding market consensus prices that are
corroborated by observable market data; quoted market prices for
similar instruments; or pricing models, such as discounted cash
flow techniques, with all significant inputs derived from or
corroborated by observable market data. Our discounted cash flow
techniques use observable market inputs, such as LIBOR-based
yield curves, and currency spot and forward rates.
|
|
4.
|
GOODWILL
AND INTANGIBLE ASSETS
|
The changes in intangible assets for fiscal 2009 and the net
book value of intangible assets at November 30, 2008 and
May 31, 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Intangible Assets, Gross
|
|
|
Accumulated Amortization
|
|
|
Intangible Assets, Net
|
|
|
Average
|
|
|
May 31,
|
|
|
|
|
|
November 30,
|
|
|
May 31,
|
|
|
|
|
|
November 30,
|
|
|
May 31,
|
|
|
November 30,
|
|
|
Useful
|
(Dollars in millions)
|
|
2008
|
|
|
Additions
|
|
|
2008
|
|
|
2008
|
|
|
Expense
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
Life
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software support agreements and related relationships
|
|
$
|
4,849
|
|
|
$
|
157
|
|
|
$
|
5,006
|
|
|
$
|
(1,052
|
)
|
|
$
|
(272
|
)
|
|
$
|
(1,324
|
)
|
|
$
|
3,797
|
|
|
$
|
3,682
|
|
|
9 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Developed technology
|
|
|
3,607
|
|
|
|
210
|
|
|
|
3,817
|
|
|
|
(1,203
|
)
|
|
|
(354
|
)
|
|
|
(1,557
|
)
|
|
|
2,404
|
|
|
|
2,260
|
|
|
5 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core technology
|
|
|
1,427
|
|
|
|
69
|
|
|
|
1,496
|
|
|
|
(432
|
)
|
|
|
(125
|
)
|
|
|
(557
|
)
|
|
|
995
|
|
|
|
939
|
|
|
6 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
|
1,183
|
|
|
|
100
|
|
|
|
1,283
|
|
|
|
(170
|
)
|
|
|
(72
|
)
|
|
|
(242
|
)
|
|
|
1,013
|
|
|
|
1,041
|
|
|
8 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
|
|
262
|
|
|
|
9
|
|
|
|
271
|
|
|
|
(76
|
)
|
|
|
(16
|
)
|
|
|
(92
|
)
|
|
|
186
|
|
|
|
179
|
|
|
7 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
11,328
|
|
|
$
|
545
|
|
|
$
|
11,873
|
|
|
$
|
(2,933
|
)
|
|
$
|
(839
|
)
|
|
$
|
(3,772
|
)
|
|
$
|
8,395
|
|
|
$
|
8,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
ORACLE
CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
November 30, 2008
(Unaudited)
Total amortization expense related to our intangible assets was
$427 million and $839 million for the three and six
months ended November 30, 2008, respectively and
$290 million and $575 million for the three and six
months ended November 30, 2007, respectively. As of
November 30, 2008, estimated future amortization expense
related to our intangible assets was $886 million for the
remainder of fiscal 2009, $1.6 billion in fiscal 2010,
$1.4 billion in fiscal 2011, $1.2 billion in fiscal
2012, $1.1 billion in fiscal 2013, $876 million in
fiscal 2014 and $1.1 billion thereafter.
The changes in the carrying amount of goodwill, which is
generally not deductible for tax purposes, by operating segment
for the six months ended November 30, 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License
|
|
|
|
|
|
|
|
|
|
|
|
|
New
|
|
|
Updates and
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
|
|
|
Product
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Licenses
|
|
|
Support
|
|
|
Services
|
|
|
Other(1)
|
|
|
Total
|
|
|
Balances as of May 31, 2008
|
|
$
|
4,058
|
|
|
$
|
8,028
|
|
|
$
|
1,550
|
|
|
$
|
4,355
|
|
|
$
|
17,991
|
|
Allocation of
goodwill(1)
|
|
|
1,258
|
|
|
|
2,907
|
|
|
|
190
|
|
|
|
(4,355
|
)
|
|
|
|
|
Other acquisition goodwill
|
|
|
342
|
|
|
|
262
|
|
|
|
48
|
|
|
|
2
|
|
|
|
654
|
|
Goodwill
adjustments(2)
|
|
|
(13
|
)
|
|
|
(37
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
(58
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of November 30, 2008
|
|
$
|
5,645
|
|
|
$
|
11,160
|
|
|
$
|
1,780
|
|
|
$
|
2
|
|
|
$
|
18,587
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents the goodwill allocation
associated with certain acquisitions that was allocated to our
operating segments upon the completion of certain valuations.
|
|
(2) |
|
Pursuant to our business
combinations accounting policy, we record goodwill adjustments
for the effect on goodwill of changes to net assets acquired
during the purchase price allocation period (generally, up to
one year from date of acquisition).
|
|
|
5.
|
RESTRUCTURING
ACTIVITIES
|
Fiscal
2008 Oracle Restructuring Plan
During the second quarter of fiscal 2008, our management
approved, committed to and initiated plans to restructure and
improve efficiencies in our Oracle-based operations as a result
of certain management and organizational changes and our recent
acquisitions (the 2008 Plan). During the fourth quarter of
fiscal 2008, the 2008 Plan was amended to include the expected
effects resulting from our acquisition of BEA. The total
estimated restructuring costs (primarily related to employee
severance) associated with the 2008 Plan are $111 million
and will be recorded to the restructuring expense line item
within our consolidated statements of operations as they are
recognized. In the first half of fiscal 2009 we recorded
$31 million of restructuring expenses and in fiscal 2008 we
recorded $41 million of restructuring expenses in
connection with the 2008 Plan. We expect to incur the majority
of the remaining $39 million over the remainder of fiscal
2009. Any changes to the estimates of executing the 2008 Plan
will be reflected in our future results of operations.
Acquisition
Related Restructuring Plans
During the fourth quarter of fiscal 2008, fourth quarter of
fiscal 2007 and third quarter of fiscal 2006, our management
approved, committed to and initiated plans to restructure
certain operations of pre-merger BEA (BEA Restructuring Plan),
Hyperion Solutions Corporation (Hyperion Restructuring Plan) and
Siebel Systems, Inc. (Siebel Restructuring Plan), respectively.
Our management initiated these plans as a result of our
acquisitions of these companies in order to improve the cost
efficiencies in our operations. The total estimated
restructuring costs associated with exiting activities of BEA
were $230 million, consisting of estimated severance,
excess facilities obligations through fiscal 2014 as well as
other restructuring costs. The total restructuring costs
associated with
10
ORACLE
CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
November 30, 2008
(Unaudited)
exiting activities of Hyperion were $108 million,
consisting of severance, excess facilities obligations through
fiscal 2017, as well as other restructuring costs. The total
restructuring costs associated with exiting activities of Siebel
were $583 million, consisting of severance, excess
facilities obligations through fiscal 2022, and other
restructuring costs.
These costs were originally recognized as liabilities assumed in
each of the respective business combinations and included in the
allocation of the cost to acquire these companies and,
accordingly, have resulted in an increase to goodwill. Our
restructuring expenses may change as our management executes the
approved plans. Future decreases to the estimates of executing
the restructuring plans will be recorded as an adjustment to
goodwill indefinitely. Increases to the estimates of the BEA
Restructuring Plan will be recorded as an adjustment to goodwill
during the purchase accounting allocation period and as an
adjustment to operating expenses thereafter. Increases to the
estimates of the Hyperion and Siebel Restructuring Plans will be
recorded to operating expenses.
11
ORACLE
CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
November 30, 2008
(Unaudited)
Summary
of Restructuring Plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Total
|
|
|
|
Accrued
|
|
|
Six Months Ended November 30, 2008
|
|
|
Accrued
|
|
|
Costs
|
|
|
Expected
|
|
|
|
May 31,
|
|
|
Initial
|
|
|
Adj. to
|
|
|
Cash
|
|
|
|
|
|
Nov. 30,
|
|
|
Accrued
|
|
|
Program
|
|
(in millions)
|
|
2008(2)
|
|
|
Costs(3)
|
|
|
Cost(4)
|
|
|
Payments
|
|
|
Other(5)
|
|
|
2008(2)
|
|
|
to Date
|
|
|
Costs
|
|
|
Fiscal 2008 Oracle Restructuring Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New software licenses
|
|
$
|
10
|
|
|
$
|
12
|
|
|
$
|
|
|
|
$
|
(12
|
)
|
|
$
|
|
|
|
$
|
10
|
|
|
$
|
29
|
|
|
$
|
55
|
|
Software license updates and product support
|
|
|
5
|
|
|
|
1
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
4
|
|
|
|
7
|
|
|
|
8
|
|
Services
|
|
|
6
|
|
|
|
15
|
|
|
|
|
|
|
|
(15
|
)
|
|
|
|
|
|
|
6
|
|
|
|
25
|
|
|
|
31
|
|
Other(1)
|
|
|
2
|
|
|
|
3
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
2
|
|
|
|
11
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fiscal 2008 Oracle Restructuring
|
|
$
|
23
|
|
|
$
|
31
|
|
|
$
|
|
|
|
$
|
(32
|
)
|
|
$
|
|
|
|
$
|
22
|
|
|
$
|
72
|
|
|
$
|
111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BEA Restructuring Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
$
|
112
|
|
|
$
|
(5
|
)
|
|
$
|
|
|
|
$
|
(38
|
)
|
|
$
|
(2
|
)
|
|
$
|
67
|
|
|
$
|
148
|
|
|
$
|
148
|
|
Facilities
|
|
|
63
|
|
|
|
2
|
|
|
|
|
|
|
|
(11
|
)
|
|
|
(3
|
)
|
|
|
51
|
|
|
|
65
|
|
|
|
65
|
|
Contracts and other
|
|
|
14
|
|
|
|
2
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
13
|
|
|
|
17
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total BEA Restructuring
|
|
$
|
189
|
|
|
$
|
(1
|
)
|
|
$
|
|
|
|
$
|
(52
|
)
|
|
$
|
(5
|
)
|
|
$
|
131
|
|
|
$
|
230
|
|
|
$
|
230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hyperion Restructuring Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
$
|
33
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(7
|
)
|
|
$
|
(2
|
)
|
|
$
|
24
|
|
|
$
|
47
|
|
|
$
|
47
|
|
Facilities
|
|
|
34
|
|
|
|
|
|
|
|
(10
|
)
|
|
|
(8
|
)
|
|
|
(5
|
)
|
|
|
11
|
|
|
|
40
|
|
|
|
40
|
|
Contracts and other
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
13
|
|
|
|
21
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Hyperion Restructuring
|
|
$
|
81
|
|
|
$
|
|
|
|
$
|
(10
|
)
|
|
$
|
(16
|
)
|
|
$
|
(7
|
)
|
|
$
|
48
|
|
|
$
|
108
|
|
|
$
|
108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Siebel Restructuring Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1
|
|
|
$
|
60
|
|
|
$
|
60
|
|
Facilities
|
|
|
179
|
|
|
|
|
|
|
|
8
|
|
|
|
(24
|
)
|
|
|
(16
|
)
|
|
|
147
|
|
|
|
482
|
|
|
|
482
|
|
Contracts and other
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
41
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Siebel Restructuring
|
|
$
|
192
|
|
|
$
|
|
|
|
$
|
8
|
|
|
$
|
(24
|
)
|
|
$
|
(16
|
)
|
|
$
|
160
|
|
|
$
|
583
|
|
|
$
|
583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other Restructuring Plans
|
|
$
|
83
|
|
|
$
|
|
|
|
$
|
2
|
|
|
$
|
(18
|
)
|
|
$
|
(8
|
)
|
|
$
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Restructuring
Plans(6)
|
|
$
|
568
|
|
|
$
|
30
|
|
|
$
|
|
|
|
$
|
(142
|
)
|
|
$
|
(36
|
)
|
|
$
|
420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes severance costs associated
with research and development, and general and administrative
functions, and certain other facility related costs.
|
|
(2) |
|
Accrued restructuring at
November 30, 2008 and May 31, 2008 was
$420 million and $568 million, respectively. The
balances include $236 million and $308 million
recorded in other current liabilities and $184 million and
$260 million recorded in other non-current liabilities in
the accompanying condensed consolidated balance sheets at
November 30, 2008 and May 31, 2008, respectively.
|
|
(3) |
|
Initial costs recorded for the
respective restructuring plans.
|
|
(4) |
|
Adjustment increases to the Siebel
Restructuring Plan were included in our condensed consolidated
statement of operations (acquisition related and other expenses)
for the first half of fiscal 2009. Adjustment decreases to the
Hyperion Restructuring Plan were recorded to goodwill.
|
|
(5) |
|
Primarily represents foreign
currency translation adjustments.
|
|
(6) |
|
Restructuring plans included in
this footnote represent those plans that management has deemed
significant.
|
12
ORACLE
CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
November 30, 2008
(Unaudited)
Deferred revenues consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
November 30,
|
|
|
May 31,
|
|
(in millions)
|
|
2008
|
|
|
2008
|
|
|
Software license updates and product support
|
|
$
|
3,450
|
|
|
$
|
3,939
|
|
Services
|
|
|
266
|
|
|
|
333
|
|
New software licenses
|
|
|
165
|
|
|
|
220
|
|
|
|
|
|
|
|
|
|
|
Deferred revenues, current
|
|
|
3,881
|
|
|
|
4,492
|
|
Deferred revenues, non-current
|
|
|
211
|
|
|
|
262
|
|
|
|
|
|
|
|
|
|
|
Total deferred revenues
|
|
$
|
4,092
|
|
|
$
|
4,754
|
|
|
|
|
|
|
|
|
|
|
Deferred software license updates and product support revenues
represent customer payments made in advance for annual support
contracts. Software license updates and product support
contracts are typically billed on a per annum basis in advance
and revenues are recognized ratably over the support periods.
Deferred service revenues include prepayments for consulting, On
Demand and education services. Revenue for these services is
recognized as the services are performed. Deferred new software
license revenues typically result from undelivered products or
specified enhancements, customer specific acceptance provisions,
software license transactions that cannot be segmented from
consulting services or certain extended payment term
arrangements.
In connection with the purchase price allocations related to our
acquisitions, we have estimated the fair values of the support
obligations assumed. The estimated fair values of the support
obligations assumed were determined using a cost
build-up
approach. The cost
build-up
approach determines fair value by estimating the costs relating
to fulfilling the obligations plus a normal profit margin. The
sum of the costs and operating profit approximates, in theory,
the amount that we would be required to pay a third party to
assume the support obligations. These fair value adjustments
reduce the revenues recognized over the support contract term of
our acquired contracts and, as a result, we did not recognize
software license updates and product support revenues related to
support contracts assumed from our acquisitions in the amount of
$80 million and $51 million for the three months ended
November 30, 2008 and 2007, respectively, and
$171 million and $115 million for the six months ended
November 30, 2008 and 2007, respectively, which would have
been otherwise recorded by our acquired businesses as
independent entities.
|
|
7.
|
COMMITMENTS
AND CONTINGENCIES
|
In June 2003, in response to our tender offer, PeopleSoft, Inc.
implemented what it referred to as the customer assurance
program (CAP). The CAP incorporated a provision in
PeopleSofts standard licensing arrangement that purports
to contractually burden Oracle, as a result of our acquisition
of PeopleSoft, with a contingent obligation to make payments to
PeopleSoft customers should we fail to take certain business
actions for a fixed period. PeopleSoft ceased using the CAP on
December 29, 2004, the date on which we acquired a
controlling interest in PeopleSoft. The contingent payment
obligation, which typically expires four years from the date of
the contract, is fixed at an amount generally between two and
five times the license and first year support fees paid to
PeopleSoft in the applicable license transaction. PeopleSoft
customers retain rights to the licensed products whether or not
the CAP payments are triggered.
13
ORACLE
CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
November 30, 2008
(Unaudited)
The maximum potential penalty under the CAP, by version, as of
November 30, 2008 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum Potential
|
|
|
|
Dates Offered to
Customers(1)
|
|
Penalty
|
|
CAP Version
|
|
Start Date
|
|
End Date
|
|
(in millions)
|
|
|
Version 1
|
|
June 1, 2003
|
|
September 12, 2003
|
|
$
|
|
|
Version 2
|
|
September 12, 2003
|
|
September 30, 2003
|
|
|
|
|
Version 3
|
|
September 30, 2003
|
|
November 7, 2003
|
|
|
|
|
Version 4
|
|
November 18, 2003
|
|
June 30, 2004
|
|
|
|
|
Version 5
|
|
June 16, 2004
|
|
December 28, 2004
|
|
|
|
|
Version 6
|
|
October 12, 2004
|
|
December 28, 2004
|
|
|
843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Some contracts originally submitted
to customers prior to these end dates were executed following
such dates. The substantial majority of the CAP provisions will
expire no later than four years after the contract date.
|
We have concluded that, as of the date of the acquisition, the
penalty provisions under the CAP represented a contingent
liability of Oracle. The aggregate potential CAP obligation as
of November 30, 2008 was $843 million. Most of the CAP
provisions have expired or have been removed from these
licensing arrangements. We expect the significant majority of
the remaining CAP provisions to expire by the end of calendar
2008. We have not recorded a liability related to the CAP, as we
do not believe it is probable that our post-acquisition
activities related to the PeopleSoft and JD Edwards product
lines will trigger an obligation to make any payment pursuant to
the CAP. While no assurance can be given as to the ultimate
outcome of any litigation, we believe we would also have
substantial defenses with respect to the legality and
enforceability of the CAP contract provisions in response to any
claims seeking payment from us under the CAP terms.
Stock
Repurchases
Our Board of Directors has approved a program for Oracle to
repurchase shares of our common stock. On October 20, 2008
we announced that our Board of Directors had approved the
expansion of our repurchase program by $8.0 billion and as
of November 30, 2008, approximately $7.7 billion was
available for share repurchases pursuant to our stock repurchase
program. We repurchased approximately 140.1 million shares
for $2.5 billion during the six months ended
November 30, 2008 (including approximately
11.0 million shares for $176 million that were
repurchased but not settled at November 30, 2008) and
49.0 million shares for $1.0 billion during the six
months ended November 30, 2007 (including approximately
1.2 million shares for $24 million that were
repurchased but not settled at November 30,
2007) under the applicable repurchase programs authorized.
Our stock repurchase authorization does not have an expiration
date and the pace of our repurchase activity will depend on
factors such as our working capital needs, our cash requirements
for acquisitions, our debt repayment obligations or repurchases
of our debt, our stock price, and economic and market
conditions. Our stock repurchases may be effected from time to
time through open market purchases or pursuant to a
Rule 10b5-1
plan. Our stock repurchase program may be accelerated,
suspended, delayed or discontinued at any time.
14
ORACLE
CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
November 30, 2008
(Unaudited)
Stock-Based
Compensation Expense and Valuation of Awards
Stock-based compensation is included in the following operating
expense line items in our condensed consolidated statements of
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
November 30,
|
|
|
November 30,
|
|
(in millions)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Sales and marketing
|
|
$
|
16
|
|
|
$
|
13
|
|
|
$
|
35
|
|
|
$
|
26
|
|
Software license updates and product support
|
|
|
3
|
|
|
|
3
|
|
|
|
6
|
|
|
|
7
|
|
Cost of services
|
|
|
3
|
|
|
|
3
|
|
|
|
6
|
|
|
|
8
|
|
Research and development
|
|
|
45
|
|
|
|
25
|
|
|
|
82
|
|
|
|
52
|
|
General and administrative
|
|
|
22
|
|
|
|
19
|
|
|
|
46
|
|
|
|
38
|
|
Acquisition related and other
|
|
|
6
|
|
|
|
4
|
|
|
|
11
|
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation
|
|
$
|
95
|
|
|
$
|
67
|
|
|
$
|
186
|
|
|
$
|
168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarterly, we assess whether there have been any significant
changes in facts and circumstances that would affect our
estimated forfeiture rate. The net effect of forfeiture
adjustments based upon actual results was a decrease of
$7 million and an increase of $8 million to our
stock-based compensation expense for the six months ended
November 30, 2008 and 2007, respectively (nominal for all
other periods presented).
We estimate the fair value of our share-based payments using the
Black-Scholes-Merton option-pricing model, which was developed
for use in estimating the fair value of traded options that have
no vesting restrictions and are fully transferable. Option
valuation models, including the Black-Scholes-Merton
option-pricing model, require the input of assumptions,
including stock price volatility. Changes in the input
assumptions can materially affect the fair value estimates and
ultimately how much we recognize as stock-based compensation
expense. The fair value of employee and director stock options
granted and options assumed from acquisitions, were estimated at
the date of grant or date of acquisition for acquired options
assumed. The weighted average input assumptions used and
resulting fair values were as follows for the three and six
months ended November 30, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
November 30,
|
|
|
November 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Expected life (in years)
|
|
|
4.9
|
|
|
|
4.7
|
|
|
|
5.3
|
|
|
|
5.3
|
|
Risk-free interest rate
|
|
|
2.7%
|
|
|
|
4.2%
|
|
|
|
3.3%
|
|
|
|
5.0%
|
|
Volatility
|
|
|
40%
|
|
|
|
31%
|
|
|
|
36%
|
|
|
|
27%
|
|
Dividend yield
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average fair value of grants
|
|
$
|
6.76
|
|
|
$
|
7.10
|
|
|
$
|
7.91
|
|
|
$
|
7.10
|
|
The expected life input is based on historical exercise patterns
and post-vesting termination behavior, the risk-free interest
rate input is based on United States Treasury instruments and
the volatility input is calculated based on the implied
volatility of our longest-term, traded options. Our expected
dividend yield input is zero as we do not currently pay cash
dividends on our common stock and do not anticipate doing so for
the foreseeable future.
The effective tax rate for the periods presented is the result
of the mix of income earned in various tax jurisdictions that
apply a broad range of income tax rates. Our 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
15
ORACLE
CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
November 30, 2008
(Unaudited)
in foreign operations. Our effective tax rate was 29.0% and
27.4% for the three and six months ended November 30, 2008,
respectively, and 28.2% and 28.9% for the three and six months
ended November 30, 2007, respectively.
Domestically, U.S. federal and state taxing authorities are
currently examining income tax returns of Oracle and various
acquired entities for years through fiscal 2006. Our
U.S. federal and, with some exceptions, our state income
tax returns have been examined for all years prior to fiscal
2000, and we are no longer subject to audit for those periods.
Internationally, tax authorities for numerous
non-U.S. jurisdictions
are also examining returns affecting unrecognized tax benefits.
With some exceptions, we are generally no longer subject to tax
examinations in
non-U.S. jurisdictions
for years prior to fiscal 1998.
We believe that we have adequately provided for any reasonably
foreseeable outcomes related to our tax audits and that any
settlement will not have a material adverse effect on our
consolidated financial position or results of operations.
However, there can be no assurances as to the possible outcomes.
We previously negotiated three unilateral Advance Pricing
Agreements with the U.S. Internal Revenue Service (IRS)
that cover many of our intercompany transfer pricing issues and
preclude the IRS from making a transfer pricing adjustment
within the scope of these agreements. 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 January 25, 2008. There can be no
guarantee that such negotiations will result in an agreement.
FASB Statement No. 131, Disclosures about Segments of an
Enterprise and Related Information, establishes standards
for reporting information about operating segments. Operating
segments are defined as components of an enterprise about which
separate financial information is available that is evaluated
regularly by the chief operating decision maker, or decision
making group, in deciding how to allocate resources and in
assessing performance. Our chief operating decision maker is our
Chief Executive Officer. We are organized geographically and by
line of business. While our Chief Executive Officer evaluates
results in a number of different ways, the line of business
management structure is the primary basis for which the
allocation of resources and financial results are assessed. We
have two businesses, software and services, which are further
divided into five operating segments. Our software business is
comprised of two operating segments: (1) new software
licenses and (2) software license updates and product
support. Our services business is comprised of three operating
segments: (1) consulting, (2) On Demand and
(3) education.
The new software license line of business is engaged in the
licensing of database and middleware software as well as
applications software. Database and middleware software includes
database management software, application server software,
business intelligence software, identification and access
management software, analytics software, content management
software, development tools and data integration software.
Applications software provides enterprise information that
enables companies to manage their business cycles and provide
intelligence in functional areas such as customer relationship
management, enterprise performance management, financials, human
resources, maintenance management, manufacturing, marketing,
order fulfillment, product lifecycle management, procurement,
projects, sales, services, enterprise resource planning and
supply chain planning. The software license updates and product
support line of business provides customers with rights to
unspecified software product upgrades and maintenance releases,
internet access to technical content, as well as internet and
16
ORACLE
CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
November 30, 2008
(Unaudited)
telephone access to technical support personnel during the
support period. In addition, the software license updates and
product support line of business offers customers Oracle
Unbreakable Linux Support, which provides enterprise level
support for the Linux operating system, and also offers support
for Oracle VM server virtualization software.
The consulting line of business provides services to customers
in business strategy and analysis, business process
optimization, and the implementation, deployment and upgrade of
our database, middleware and applications software. On Demand
includes Oracle On Demand, CRM On Demand and Advanced Customer
Services. Oracle On Demand provides multi-featured software and
hardware management and maintenance services for customers that
deploy our database, middleware and applications software 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 solution support centers, business
critical assistance, technical account management, expert
services, configuration and performance analysis, personalized
support and annual
on-site
technical services. The education line of business provides
instructor-led, media-based and internet-based training in the
use of our database, middleware and applications software.
We do not track our assets by operating segments. Consequently,
it is not practical to show assets by operating segments.
17
ORACLE
CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
November 30, 2008
(Unaudited)
The following table presents a summary of our businesses and
operating segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
November 30,
|
|
|
November 30,
|
|
(in millions)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
New software licenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues(1)
|
|
$
|
1,623
|
|
|
$
|
1,665
|
|
|
$
|
2,857
|
|
|
$
|
2,750
|
|
Sales and distribution expenses
|
|
|
980
|
|
|
|
934
|
|
|
|
1,948
|
|
|
|
1,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Margin(2)
|
|
$
|
643
|
|
|
$
|
731
|
|
|
$
|
909
|
|
|
$
|
979
|
|
Software license updates and product support:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues(1)
|
|
$
|
2,930
|
|
|
$
|
2,542
|
|
|
$
|
5,956
|
|
|
$
|
4,987
|
|
Cost of services
|
|
|
240
|
|
|
|
229
|
|
|
|
504
|
|
|
|
443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Margin(2)
|
|
|
2,690
|
|
|
$
|
2,313
|
|
|
$
|
5,452
|
|
|
$
|
4,544
|
|
Total software business:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues(1)
|
|
$
|
4,553
|
|
|
$
|
4,207
|
|
|
$
|
8,813
|
|
|
$
|
7,737
|
|
Expenses
|
|
|
1,220
|
|
|
|
1,163
|
|
|
|
2,452
|
|
|
|
2,214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Margin(2)
|
|
$
|
3,333
|
|
|
$
|
3,044
|
|
|
$
|
6,361
|
|
|
$
|
5,523
|
|
Consulting:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues(1)
|
|
$
|
836
|
|
|
$
|
871
|
|
|
$
|
1,694
|
|
|
$
|
1,666
|
|
Cost of services
|
|
|
684
|
|
|
|
723
|
|
|
|
1,440
|
|
|
|
1,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Margin(2)
|
|
$
|
152
|
|
|
$
|
148
|
|
|
$
|
254
|
|
|
$
|
269
|
|
On Demand:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues(1)
|
|
$
|
189
|
|
|
$
|
167
|
|
|
$
|
384
|
|
|
$
|
326
|
|
Cost of services
|
|
|
136
|
|
|
|
143
|
|
|
|
282
|
|
|
|
280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Margin(2)
|
|
$
|
53
|
|
|
$
|
24
|
|
|
$
|
102
|
|
|
$
|
46
|
|
Education:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues(1)
|
|
$
|
109
|
|
|
$
|
119
|
|
|
$
|
218
|
|
|
$
|
228
|
|
Cost of services
|
|
|
74
|
|
|
|
80
|
|
|
|
153
|
|
|
|
155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Margin(2)
|
|
$
|
35
|
|
|
$
|
39
|
|
|
$
|
65
|
|
|
$
|
73
|
|
Total services business:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues(1)
|
|
$
|
1,134
|
|
|
$
|
1,157
|
|
|
$
|
2,296
|
|
|
$
|
2,220
|
|
Cost of services
|
|
|
894
|
|
|
|
946
|
|
|
|
1,875
|
|
|
|
1,832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Margin(2)
|
|
$
|
240
|
|
|
$
|
211
|
|
|
$
|
421
|
|
|
$
|
388
|
|
Totals:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues(1)
|
|
$
|
5,687
|
|
|
$
|
5,364
|
|
|
$
|
11,109
|
|
|
$
|
9,957
|
|
Expenses
|
|
|
2,114
|
|
|
|
2,109
|
|
|
|
4,327
|
|
|
|
4,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Margin(2)
|
|
$
|
3,573
|
|
|
$
|
3,255
|
|
|
$
|
6,782
|
|
|
$
|
5,911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Operating segment revenues differ
from the external reporting classifications due to certain
software license products that are classified as service
revenues for management reporting purposes. Additionally,
software license updates and product support revenues for
management reporting included $80 million and
$51 million of revenues that we did not recognize in the
accompanying condensed consolidated statements of operations for
the three months ended November 30, 2008 and 2007,
respectively, and $171 million and $115 million for
the six months ended November 30, 2008 and 2007,
respectively. See Note 6 for an explanation of these
adjustments and the following table for a reconciliation of
operating segment revenues to total revenues.
|
|
(2) |
|
The margins reported reflect only
the direct controllable costs of each line of business and do
not represent the actual margins for each operating segment
because they do not contain an allocation of product
development, information technology, marketing and partner
programs, and corporate and general and administrative expenses
incurred in support of the lines of business. Additionally, the
margins do not reflect the amortization of intangible assets,
restructuring costs, acquisition related and other expenses or
stock-based compensation.
|
18
ORACLE
CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
November 30, 2008
(Unaudited)
The following table reconciles operating segment revenues to
total revenues as well as operating segment margin to income
before provision for income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
November 30,
|
|
|
November 30,
|
|
(in millions)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Total revenues for reportable segments
|
|
$
|
5,687
|
|
|
$
|
5,364
|
|
|
$
|
11,109
|
|
|
$
|
9,957
|
|
Software license updates and product support
revenues(1)
|
|
|
(80
|
)
|
|
|
(51
|
)
|
|
|
(171
|
)
|
|
|
(115
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
5,607
|
|
|
$
|
5,313
|
|
|
$
|
10,938
|
|
|
$
|
9,842
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total margin for reportable segments
|
|
$
|
3,573
|
|
|
$
|
3,255
|
|
|
$
|
6,782
|
|
|
$
|
5,911
|
|
Software license updates and product support
revenues(1)
|
|
|
(80
|
)
|
|
|
(51
|
)
|
|
|
(171
|
)
|
|
|
(115
|
)
|
Product development and information technology expenses
|
|
|
(698
|
)
|
|
|
(745
|
)
|
|
|
(1,465
|
)
|
|
|
(1,459
|
)
|
Marketing and partner program expenses
|
|
|
(116
|
)
|
|
|
(122
|
)
|
|
|
(210
|
)
|
|
|
(214
|
)
|
Corporate and general and administrative expenses
|
|
|
(146
|
)
|
|
|
(168
|
)
|
|
|
(312
|
)
|
|
|
(333
|
)
|
Amortization of intangible assets
|
|
|
(427
|
)
|
|
|
(290
|
)
|
|
|
(839
|
)
|
|
|
(575
|
)
|
Acquisition related and other
|
|
|
(21
|
)
|
|
|
(22
|
)
|
|
|
(71
|
)
|
|
|
(68
|
)
|
Restructuring
|
|
|
(17
|
)
|
|
|
(6
|
)
|
|
|
(31
|
)
|
|
|
(6
|
)
|
Stock-based compensation
|
|
|
(89
|
)
|
|
|
(63
|
)
|
|
|
(175
|
)
|
|
|
(131
|
)
|
Interest expense
|
|
|
(157
|
)
|
|
|
(89
|
)
|
|
|
(317
|
)
|
|
|
(183
|
)
|
Non-operating income, net
|
|
|
4
|
|
|
|
116
|
|
|
|
78
|
|
|
|
188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
$
|
1,826
|
|
|
$
|
1,815
|
|
|
$
|
3,269
|
|
|
$
|
3,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Software license updates and
product support revenues for management reporting include
$80 million and $51 million of revenues that we did
not recognize in the accompanying condensed consolidated
statements of operations for the three months ended
November 30, 2008 and 2007, respectively and
$171 million and $115 million for the six months ended
November 30, 2008 and 2007, respectively. See Note 6
for an explanation of these adjustments and this table for a
reconciliation of operating segment revenues to total revenues.
|
19
ORACLE
CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
November 30, 2008
(Unaudited)
Basic earnings per share is computed by dividing net income for
the period by the weighted average number of common shares
outstanding during the period. Diluted earnings per share is
computed by dividing net income for the period by the weighted
average number of common shares outstanding during the period,
plus the dilutive effect of outstanding stock awards and shares
issuable under the employee stock purchase plan using the
treasury stock method. The following table sets forth the
computation of basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
November 30,
|
|
|
November 30,
|
|
(in millions, except per share data)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Net income
|
|
$
|
1,296
|
|
|
$
|
1,303
|
|
|
$
|
2,373
|
|
|
$
|
2,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
5,127
|
|
|
|
5,125
|
|
|
|
5,140
|
|
|
|
5,117
|
|
Dilutive effect of employee stock plans
|
|
|
60
|
|
|
|
107
|
|
|
|
71
|
|
|
|
107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average common shares outstanding
|
|
|
5,187
|
|
|
|
5,232
|
|
|
|
5,211
|
|
|
|
5,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.25
|
|
|
$
|
0.25
|
|
|
$
|
0.46
|
|
|
$
|
0.42
|
|
Diluted earnings per share
|
|
$
|
0.25
|
|
|
$
|
0.25
|
|
|
$
|
0.46
|
|
|
$
|
0.41
|
|
Shares subject to anti-dilutive stock options excluded from
calculation(1)
|
|
|
185
|
|
|
|
100
|
|
|
|
164
|
|
|
|
96
|
|
|
|
|
(1) |
|
These weighted shares relate to
anti-dilutive stock options as calculated using the treasury
stock method (described above) and could be dilutive in the
future.
|
Securities
Class Action
Stockholder class actions were filed in the United States
District Court for the Northern District of California against
us and our Chief Executive Officer on and after March 9,
2001. Between March 2002 and March 2003, the court dismissed
plaintiffs consolidated complaint, first amended complaint
and a revised second amended complaint. The last dismissal was
with prejudice. On September 1, 2004, the United States
Court of Appeals for the Ninth Circuit reversed the dismissal
order and remanded the case for further proceedings. The revised
second amended complaint named our Chief Executive Officer, our
then Chief Financial Officer (who currently is Chairman of our
Board of Directors) and a former Executive Vice President as
defendants. This complaint was brought on behalf of purchasers
of our stock during the period from December 14, 2000
through March 1, 2001. Plaintiffs alleged that the
defendants made false and misleading statements about our actual
and expected financial performance and the performance of
certain of our applications products, while certain individual
defendants were selling Oracle stock in violation of federal
securities laws. Plaintiffs further alleged that certain
individual defendants sold Oracle stock while in possession of
material non-public information. Plaintiffs also allege that the
defendants engaged in accounting violations. On July 26,
2007, defendants filed a motion for summary judgment, and
plaintiffs filed a motion for partial summary judgment against
all defendants and a motion for summary judgment against our
Chief Executive Officer. On August 7, 2007, plaintiffs
filed amended versions of these motions. On October 5,
2007, plaintiffs filed a motion seeking a default judgment
against defendants or various other sanctions because of
defendants alleged destruction of evidence. A hearing on
all these motions was held on December 20, 2007. On
April 7, 2008, the case was reassigned to a new judge. On
June 27, 2008, the court ordered supplemental briefing on
plaintiffs sanctions motion. On September 2, 2008,
the court issued an order denying plaintiffs motion for
partial summary judgment against all defendants. The order also
denied in part and granted in part plaintiffs motion for
sanctions. The court denied plaintiffs request that
judgment be entered in plaintiffs favor due to the alleged
destruction of evidence, and the court found that no sanctions
were appropriate for several categories of evidence. The court
found that sanctions in the form of adverse inferences were
appropriate for two categories of evidence:
e-mails from
our Chief Executive Officers account, and materials that
had been
20
ORACLE
CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
November 30, 2008
(Unaudited)
created in connection with a book regarding our Chief Executive
Officer. The court then denied defendants motion for
summary judgment and plaintiffs motion for summary
judgment against our Chief Executive Officer and directed the
parties to revise and re-file these motions to clearly specify
the precise contours of the adverse inferences that should be
drawn, and to take these inferences into account with regard to
the propriety of summary judgment. The court also directed the
parties to address certain legal issues in the briefing. On
October 20, 2008, defendants filed a motion for summary
judgment, and plaintiffs filed a motion for summary judgment
against our Chief Executive Officer. The parties also filed
several motions challenging the admissibility of the testimony
of various expert witnesses. Opposition briefs were filed on
November 17, and reply briefs were filed on
December 12, 2008. A hearing on all these motions is
scheduled for January 30, 2009. On October 13, 2008,
the parties participated in a court-ordered mediation, which did
not result in a settlement. A trial date has been set for
March 30, 2009. Plaintiffs seek unspecified damages plus
interest, attorneys fees and costs, and equitable and
injunctive relief. We believe that we have meritorious defenses
against this action, and we will continue to vigorously
defend it.
EpicRealm
Intellectual Property Litigation
On June 30, 2006, we filed a declaratory judgment action
against EpicRealm Licensing, LP (EpicRealm) in the
United States District Court, District of Delaware, seeking a
judicial declaration of noninfringement and invalidity of
U.S. Patent Nos. 5,894,554 (the 554 Patent) and
6,415,335B1 (the 335 Patent). We filed the lawsuit
following the resolution of an indemnification claim by one of
our customers related to EpicRealms assertion of the
554 Patent and 335 Patent against the customer
in a patent infringement case in the United States District
Court for the Eastern District of Texas.
On April 13, 2007, EpicRealm filed an Answer and
Counterclaim in which it: (1) denies our noninfringement
and invalidity allegations; (2) alleges that we have
willfully infringed, and are willfully infringing, the 554
Patent and 335 Patent; and (3) requests a permanent
injunction, an award of unspecified money damages, interest,
attorneys fees, and costs. On May 7, 2007, we filed
an Answer to EpicRealms infringement counterclaim, denying
EpicRealms infringement allegations and asserting
affirmative defenses.
The parties have completed discovery and filed briefing on claim
construction and summary judgment motions. A Markman hearing and
oral argument on summary judgment motions were held
October 3, 2008. A court-ordered mediation was held on
October 8, 2008, which did not result in a settlement. On
December 4, 2008, the court issued an order granting
summary judgment that our Web Cache, Internet Application
Server, and RAC Database do not infringe the patents. The court
also denied our motion for summary judgment that the patents are
invalid, and denied in part and granted in
part EpicRealms motion for summary judgment that
certain prior art references do not invalidate the patents
through anticipation. Trial is scheduled to begin on
January 12, 2009, on issues of invalidity, with a pretrial
conference set for January 7, 2009. We will continue to
pursue this action vigorously.
SAP
Intellectual Property Litigation
On March 22, 2007, Oracle Corporation, Oracle USA, Inc. and
Oracle International Corporation (collectively, Oracle) filed a
complaint in the United States District Court for the Northern
District of California against SAP AG, its wholly owned
subsidiary, SAP America, Inc., and its wholly owned subsidiary,
TomorrowNow, Inc., (collectively, the SAP Defendants) alleging
violations of the Federal Computer Fraud and Abuse Act and the
California Computer Data Access and Fraud Act, civil conspiracy,
trespass, conversion, violation of the California Unfair
Business Practices Act, and intentional and negligent
interference with prospective economic advantage. Oracle alleged
that SAP unlawfully accessed Oracles Customer Connection
support website and improperly took and used Oracles
intellectual property, including software code and knowledge
management solutions. The complaint seeks unspecified damages
and preliminary and permanent injunctive relief. On June 1,
2007, Oracle filed its First Amended Complaint, adding claims
for infringement of the federal Copyright Act and breach of
contract, and
21
ORACLE
CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
November 30, 2008
(Unaudited)
dropping the conversion and separately pled conspiracy claims.
On July 2, 2007 the SAP Defendants filed their Answer
and Affirmative Defenses, acknowledging that TomorrowNow had
made some inappropriate downloads and otherwise
denying the claims alleged in the First Amended Complaint. The
parties are engaged in discovery and continue to negotiate a
Preservation Order. At case management conferences held on
February 12, 2008 and April 24, 2008, Oracle advised
the Court that Oracle intended to file a Second Amended
Complaint, based on new facts learned during the course of
discovery.
On July 28, 2008, Oracle filed a Second Amended Complaint,
which added additional allegations based on facts learned during
discovery. Among the new allegations contained in the Second
Amended Complaint, Oracle alleges that TomorrowNows
business model relied on illegal copies of Oracles
underlying software applications and that TomorrowNow used these
copies as generic software environments that TomorrowNow then
used to create fixes and updates, to service customers and to
train employees. The Second Amended Complaint also alleges that
these practices may have extended to other Oracle products,
including Siebel products.
On October 8, 2008, Oracle filed a Third Amended Complaint
pursuant to stipulation. The Third Amended Complaint made some
changes relating to the Oracle plaintiff entities (removing
Oracle Corporation and adding Oracle Systems Corporation, Oracle
EMEA Ltd., and J.D. Edwards Europe Ltd.) but did not change the
substantive allegations. On October 15, 2008, the SAP
Defendants filed a motion to dismiss portions of the Third
Amended Complaint, and after full briefing, the court heard oral
argument on November 26, 2008. On December 15, 2008,
the court issued an order granting in part and denying in part
the motion. The court dismissed with prejudice the claims
asserted by plaintiffs JD Edwards Europe Ltd. and Oracle Systems
Corporation, and denied the motion in all other respects. The
parties are engaged in discovery. The case is scheduled for
trial in February 2010.
Other
Litigation
We are party to various legal proceedings and claims, either
asserted or unasserted, which arise in the ordinary course of
business, including proceedings and claims that relate to
acquisitions we have completed or to companies we have acquired
or are attempting to acquire. While the outcome of these matters
cannot be predicted with certainty, we do not believe that the
outcome of any of these claims or any of the above mentioned
legal matters will have a materially adverse effect on our
consolidated financial position, results of operations or cash
flows.
22
|
|
Item 2.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
We begin Managements Discussion and Analysis of Financial
Condition and Results of Operations with an overview of our key
operating business segments and significant trends. This
overview is followed by a summary of our critical accounting
policies and estimates that we believe are important to
understanding the assumptions and judgments incorporated in our
reported financial results. We then provide a more detailed
analysis of our results of operations and financial condition.
In addition to historical information, this Quarterly Report on
Form 10-Q
contains forward-looking statements that involve risks and
uncertainties that could cause our actual results to differ
materially. When used in this report, the words
expects, anticipates,
intends, plans, believes,
seeks, estimates and similar expressions
are generally intended to identify forward-looking statements.
You should not place undue reliance on these forward-looking
statements, which reflect our opinions only as of the date of
this Quarterly Report. We undertake no obligation to publicly
release any revisions to the forward-looking statements after
the date of this document. You should carefully review the risk
factors described in other documents we file from time to time
with the U.S. Securities and Exchange Commission, including
our Annual Report on
Form 10-K
for our fiscal year ended May 31, 2008 and our other
Quarterly Reports on
Form 10-Q
to be filed by us in our fiscal year 2009, which runs from
June 1, 2008 to May 31, 2009.
Business
Overview
We are the worlds largest enterprise software company. We
develop, manufacture, market, distribute and service database
and middleware software as well as applications software
designed to help our customers manage and grow their business
operations. We believe our organic growth and continued
innovation with respect to our software products and services
offerings provide the foundation for our long-term strategic
plan. These offerings are enhanced by our acquisitions. We
invest billions of dollars in research and development each year
to enhance our existing portfolio of products and services and
to develop new products, features and services.
We are organized into two businesses, software and services,
which are further divided into five operating segments. Each of
these operating segments has unique characteristics and faces
different opportunities and challenges. Although we report our
actual results in U.S. Dollars, we conduct a significant
number of transactions in currencies other than
U.S. Dollars. Therefore, we present constant currency
information to provide a framework for assessing how our
underlying business performed excluding the effect of foreign
currency rate fluctuations. An overview of our five operating
segments follows.
Software
Business
Our software business, which represented 80% of our total
revenues on a trailing
4-quarter
basis, 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 our
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 provides additional visibility into the underlying
performance of our new software license business. New software
license revenues represent 32% of our total revenues on a
trailing
4-quarter
basis. Our new software license margins have historically
trended upward over the course of the four quarters within a
particular fiscal year due to the historical upward trend of our
revenues over those quarterly periods and because certain of our
costs are predominantly fixed in the short term.
23
However, 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 in recent 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 also offer support for our 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 our 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 approximately 48% of our total revenues on a
trailing
4-quarter
basis, is our highest margin business unit. Support margins over
the trailing
4-quarters
were 84%, and account for 78% of our total margins over the same
respective period. Our software license update and product
support margins have been affected by fair value adjustments
relating to support obligations assumed in business acquisitions
(described further below) and by amortization of intangible
assets. However, over the longer term, we believe that software
license updates and product support revenues and margins will
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 in comparison to the corresponding prior year period
assuming renewal and cancellation rates and foreign currency
rates remained relatively constant since substantially all new
software license transactions add to our support contract base;
|
|
|
|
our acquisitions have increased our support contract base, as
well as the portfolio of products available to be licensed and
supported.
|
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
$80 million and $51 million in the three months ended
November 30, 2008 and 2007, respectively, and
$171 million and $115 million in the six months ended
November 30, 2008 and 2007, 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.
24
Services
Business
Our services business consists of consulting, On Demand and
education. Our services business, which represented 20% of our
total revenues on a trailing
4-quarter
basis has significantly lower margins than our software business.
Consulting: Consulting revenues have
increased on a constant currency basis primarily due to an
increase in application implementations resulting from higher
sales of certain of our new software applications over the past
year and our recent acquisitions. The amount of consulting
revenues recognized tends to lag software revenue recognition by
several quarters since consulting services, if purchased, are
typically performed after the purchase of new software licenses.
Our consulting revenues are dependent upon general economic
conditions and the level of new software license sales,
particularly our application product sales. To the extent we are
able to grow our new software license revenues, in particular
our application product revenues, we would also expect to be
able to grow our consulting revenues.
On Demand: On Demand includes Oracle On
Demand, CRM On Demand and our 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 historically 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 are impacted by
general economic conditions, personnel reductions in our
customers information technology departments, tighter
controls over discretionary spending and greater use of
outsourcing solutions.
Acquisitions
An active acquisition program is another important element of
our corporate strategy. In recent years, we have invested
billions of dollars 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 Condensed 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.
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:
25
|
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|
|
Business Combinations
|
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|
|
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.
During the first half of fiscal 2009, there were no significant
changes in our critical accounting policies and estimates. You
should refer to Managements Discussion and Analysis of
Financial Condition and Results of Operations contained in
Part II, Item 7 of our Annual Report on
Form 10-K
for our fiscal year ended May 31, 2008 for a more complete
discussion of our critical accounting policies and estimates.
Results
of Operations
The comparability of our operating results in the second quarter
and first half of fiscal 2009 compared with the same periods in
fiscal 2008 is impacted by our acquisitions, primarily the
acquisition of BEA in our fourth quarter of fiscal 2008.
In our discussion of changes in our results of operations from
the second quarter and first half of fiscal 2009 compared to the
corresponding periods in the prior year, we quantify the
contribution of our acquired products (for acquisitions that
were completed since the beginning of the second quarter of
fiscal 2008) to the growth in new software license revenues
and to the growth in software license updates and product
support revenues. We also present supplemental disclosures
related to certain charges. Although certain revenue and expense
contributions from our acquisitions are quantifiable, we are
unable to identify the following:
|
|
|
|
|
the contribution of the significant majority of our services
revenues from acquired companies during the second quarter and
first half of fiscal 2009 as the significant majority of these
services had been fully integrated into our existing
operations; and
|
|
|
|
the contribution of the significant majority of the expenses
associated with acquired products and services during the second
quarter and first half of fiscal 2009 as the significant
majority of these expenses had been fully integrated into our
existing operations.
|
We caution readers that, while pre- and post-acquisition
comparisons as well as the quantified amounts themselves may
provide indications of general trends, the information has
inherent limitations for the following reasons:
|
|
|
|
|
the quantifications cannot address the substantial effects
attributable to our sales force integration efforts, in
particular the effect of having a single sales force offer
similar products. We believe that if our sales forces had not
been integrated, the relative mix of products sold would have
been different;
|
|
|
|
our acquisitions in the periods presented did not result in our
entry into a new line of business or product
categorytherefore, we provided multiple products with
substantially similar features and functionality; and
|
|
|
|
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 revenues in our
supplemental disclosure related to certain charges (see below)
are not necessarily indicative of revenue improvements we will
achieve upon contract renewal to the extent customers do not
renew.
|
26
Separately, our quarterly revenues have historically been
affected by a variety of seasonal factors, including the
structure of our sales force incentive compensation plans, which
are common in the software industry. The operating margins of
our businesses are affected by seasonal factors in a similar
manner as our revenues (in particular, our new software licenses
business) as certain expenses within our cost structure are
relatively fixed in the short-term.
Constant
Currency Presentation
Our international operations have provided and 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 U.S. Dollar against major
international currencies. In order to provide a framework for
assessing how our underlying businesses performed excluding the
effect of foreign currency fluctuations, we compare the percent
change in the results from one period to another period in this
Quarterly Report using constant currency disclosure. 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, 2008, which was the last
day of our prior fiscal year, rather than the actual exchange
rates in effect during the respective periods. For example, if
an entity reporting in Euros had revenues of 1.0 million
Euros from products sold on November 30, 2008 and
November 30, 2007, our financial statements would reflect
revenues of $1.30 million in the first half of fiscal 2009
(using 1.30 as the month-end average exchange rate for the
period) and $1.48 million in the first half of fiscal 2008
(using 1.48 as the month-end average exchange rate for the
period). The constant currency presentation would translate the
results for the three and six months ended November 30,
2008 and 2007 using the May 31, 2008 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, unrounded results in reported currency
and in constant currency.
Total
Revenues and Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended November 30,
|
|
|
Six Months Ended November 30,
|
|
|
|
|
|
|
Percent Change
|
|
|
|
|
|
|
|
|
Percent Change
|
|
|
|
|
(Dollars in millions)
|
|
2008
|
|
|
Actual
|
|
|
Constant
|
|
|
2007
|
|
|
2008
|
|
|
Actual
|
|
|
Constant
|
|
|
2007
|
|
|
Total Revenues by Geography:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
2,904
|
|
|
|
9%
|
|
|
|
12%
|
|
|
$
|
2,674
|
|
|
$
|
5,591
|
|
|
|
11%
|
|
|
|
12%
|
|
|
$
|
5,049
|
|
EMEA(1)
|
|
|
1,881
|
|
|
|
1%
|
|
|
|
13%
|
|
|
|
1,865
|
|
|
|
3,711
|
|
|
|
9%
|
|
|
|
13%
|
|
|
|
3,394
|
|
Asia
Pacific(2)
|
|
|
822
|
|
|
|
6%
|
|
|
|
13%
|
|
|
|
774
|
|
|
|
1,636
|
|
|
|
17%
|
|
|
|
18%
|
|
|
|
1,399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
5,607
|
|
|
|
6%
|
|
|
|
12%
|
|
|
|
5,313
|
|
|
|
10,938
|
|
|
|
11%
|
|
|
|
13%
|
|
|
|
9,842
|
|
Total Operating Expenses
|
|
|
3,632
|
|
|
|
3%
|
|
|
|
8%
|
|
|
|
3,531
|
|
|
|
7,442
|
|
|
|
9%
|
|
|
|
10%
|
|
|
|
6,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Margin
|
|
$
|
1,975
|
|
|
|
11%
|
|
|
|
20%
|
|
|
$
|
1,782
|
|
|
$
|
3,496
|
|
|
|
17%
|
|
|
|
19%
|
|
|
$
|
2,999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Margin %
|
|
|
35%
|
|
|
|
|
|
|
|
|
|
|
|
34%
|
|
|
|
32%
|
|
|
|
|
|
|
|
|
|
|
|
31%
|
|
% Revenues by Geography:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
|
52%
|
|
|
|
|
|
|
|
|
|
|
|
50%
|
|
|
|
51%
|
|
|
|
|
|
|
|
|
|
|
|
51%
|
|
EMEA
|
|
|
34%
|
|
|
|
|
|
|
|
|
|
|
|
35%
|
|
|
|
34%
|
|
|
|
|
|
|
|
|
|
|
|
35%
|
|
Asia Pacific
|
|
|
14%
|
|
|
|
|
|
|
|
|
|
|
|
15%
|
|
|
|
15%
|
|
|
|
|
|
|
|
|
|
|
|
14%
|
|
Total Revenues by Business:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
|
|
$
|
4,476
|
|
|
|
8%
|
|
|
|
14%
|
|
|
$
|
4,159
|
|
|
$
|
8,648
|
|
|
|
13%
|
|
|
|
15%
|
|
|
$
|
7,629
|
|
Services
|
|
|
1,131
|
|
|
|
-2%
|
|
|
|
5%
|
|
|
|
1,154
|
|
|
|
2,290
|
|
|
|
3%
|
|
|
|
6%
|
|
|
|
2,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
5,607
|
|
|
|
6%
|
|
|
|
12%
|
|
|
$
|
5,313
|
|
|
$
|
10,938
|
|
|
|
11%
|
|
|
|
13%
|
|
|
$
|
9,842
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Revenues by Business:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
|
|
|
80%
|
|
|
|
|
|
|
|
|
|
|
|
78%
|
|
|
|
79%
|
|
|
|
|
|
|
|
|
|
|
|
78%
|
|
Services
|
|
|
20%
|
|
|
|
|
|
|
|
|
|
|
|
22%
|
|
|
|
21%
|
|
|
|
|
|
|
|
|
|
|
|
22%
|
|
|
|
|
(1) |
|
Comprised of Europe, the Middle
East and Africa
|
|
(2) |
|
Asia Pacific includes Japan
|
27
Fiscal Second Quarter 2009 Compared to Fiscal Second
Quarter 2008: Our operating results for the
second quarter of fiscal 2009 were significantly impacted by the
strengthening of the U.S. Dollar relative to other major
international currencies. These currency variances resulted in a
reduction to our total revenues growth of 6 percentage
points during the second quarter of fiscal 2009. On a constant
currency basis, total revenues increased in the second quarter
of fiscal 2009 primarily due to higher new software license
revenues in all regions resulting from increased demand for our
database and middleware products, higher software license update
and product support revenues in all regions due to the high
attachment rate of support contracts to our new software
licenses and the renewal of substantially all of our customer
support contracts, and incremental revenues from our recent
acquisitions. On a constant currency basis, new software license
revenues contributed 13% to the growth in total revenues,
software license updates and product support revenues
contributed 78% and services revenues contributed 9%. Excluding
the effect of currency rate fluctuations, the Americas
contributed 46% to the increase in total revenues, EMEA
contributed 39% and Asia Pacific contributed 15%.
Currency variances resulted in a reduction to our operating
expense growth of 5 percentage points during the second
quarter of fiscal 2009. Excluding the effect of currency rate
fluctuations, the increase in operating expenses in the second
quarter of fiscal 2009 is primarily due to higher salary
expenses and travel expenses (a portion of our travel expenses
are rebillable to our customers as consulting revenues)
associated with increased headcount levels (primarily resulting
from our acquisition of BEA in the fourth quarter of fiscal
2008), higher stock-based compensation expenses (resulting from
our assumption of BEA stock options and a higher fair value
associated with our fiscal 2009 grants that is primarily
attributable to a higher volatility input) and higher
amortization of intangible assets resulting from our
acquisitions (primarily BEA) that we completed since the second
quarter of fiscal 2008. These increases were partially offset by
constant currency decreases in our commissions and bonus
expenses and benefits expenses. The decrease in our benefits
expenses resulted primarily from a $70 million change in
expenses related to our deferred compensation plan liability.
This benefits expense decrease was offset by a loss in our
deferred compensation plan assets. See discussion under
Non-Operating Income, net below.
Currency variances resulted in a reduction of 9 percentage
points to our total operating margin growth during the second
quarter of fiscal 2009. On a constant currency basis and
reported currency basis, total operating margin and total
operating margin as a percentage of total revenues increased
during the second quarter of fiscal 2009 as the growth rate of
our total revenues exceeded the growth rate of our total
operating expenses due to the relatively fixed nature of certain
of our operating expenses in the short-term.
First Half Fiscal 2009 Compared to First Half Fiscal
2008: Currency variances resulted in a
reduction to our total revenues of 2 percentage points
during the first half of fiscal 2009. Excluding these currency
variances, total revenues increased in the first half of fiscal
2009 due to similar reasons as noted above. Excluding the
effects of currency rate fluctuations, new software license
revenues contributed 15% to the growth in total revenues,
software license updates and product support revenues
contributed 75% and services revenues contributed 10%. Excluding
the effect of currency rate fluctuations, the Americas
contributed 46% to the increase in total revenues, EMEA
contributed 34% and Asia Pacific contributed 20%.
On a constant currency basis, the increase in operating
expenses, operating margin and operating margin as a percentage
of revenues in the first half of fiscal 2009 was primarily due
to similar reasons as noted above.
Supplemental
Disclosure Related to Certain Charges
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.
28
Our operating results include the following business combination
accounting adjustments and expenses related to acquisitions as
well as certain other significant expense items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
November 30,
|
|
|
November 30,
|
|
(in millions)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Support deferred
revenues(1)
|
|
$
|
80
|
|
|
$
|
51
|
|
|
$
|
171
|
|
|
$
|
115
|
|
Amortization of intangible
assets(2)
|
|
|
427
|
|
|
|
290
|
|
|
|
839
|
|
|
|
575
|
|
Acquisition related
charges(3)(5)
|
|
|
21
|
|
|
|
22
|
|
|
|
71
|
|
|
|
68
|
|
Restructuring(4)
|
|
|
17
|
|
|
|
6
|
|
|
|
31
|
|
|
|
6
|
|
Stock-based
compensation(5)
|
|
|
89
|
|
|
|
63
|
|
|
|
175
|
|
|
|
131
|
|
Income tax
effect(6)
|
|
|
(184
|
)
|
|
|
(122
|
)
|
|
|
(353
|
)
|
|
|
(259
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
450
|
|
|
$
|
310
|
|
|
$
|
934
|
|
|
$
|
636
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 $80 million and $51 million for the
three months ended November 30, 2008 and 2007,
respectively, and $171 million and $115 million for
the six months ended November 30, 2008 and 2007,
respectively. Approximately $71 million and
$20 million of estimated software license updates and
product support revenues related to support contracts assumed
will not be recognized during the remainder of fiscal 2009 and
fiscal 2010, respectively, that would otherwise be recognized by
the acquired businesses as independent entities due to the
application of these business combination accounting rules. To
the extent customers renew these support contracts, we expect to
recognize revenues for the full contract value over the support
renewal period.
|
|
(2) |
|
Represents the amortization of
intangible assets acquired in connection with our acquisitions,
primarily BEA, Hyperion, Siebel and PeopleSoft. As of
November 30, 2008, estimated future amortization expenses
related to intangible assets are as follows (in millions):
|
|
|
|
|
|
Remainder of Fiscal 2009
|
|
$
|
886
|
|
Fiscal 2010
|
|
|
1,645
|
|
Fiscal 2011
|
|
|
1,356
|
|
Fiscal 2012
|
|
|
1,209
|
|
Fiscal 2013
|
|
|
1,077
|
|
Fiscal 2014
|
|
|
876
|
|
Thereafter
|
|
|
1,052
|
|
|
|
|
|
|
Total
|
|
$
|
8,101
|
|
|
|
|
|
|
|
|
|
(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
adjustments after the purchase price allocation period has
ended, and certain other operating expenses, net.
|
|
(4) |
|
Restructuring expenses during the
first half of fiscal 2009 and fiscal 2008 relate to Oracle
employee severance in connection with a restructuring plan
initiated in the second quarter, and amended in the fourth
quarter, of fiscal 2008.
|
|
(5) |
|
Stock-based compensation is
included in the following operating expense line items of our
condensed consolidated statements of operations (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
November 30,
|
|
|
November 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Sales and marketing
|
|
$
|
16
|
|
|
$
|
13
|
|
|
$
|
35
|
|
|
$
|
26
|
|
Software license updates and product support
|
|
|
3
|
|
|
|
3
|
|
|
|
6
|
|
|
|
7
|
|
Cost of services
|
|
|
3
|
|
|
|
3
|
|
|
|
6
|
|
|
|
8
|
|
Research and development
|
|
|
45
|
|
|
|
25
|
|
|
|
82
|
|
|
|
52
|
|
General and administrative
|
|
|
22
|
|
|
|
19
|
|
|
|
46
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
89
|
|
|
|
63
|
|
|
|
175
|
|
|
|
131
|
|
Acquisition related charges and other
|
|
|
6
|
|
|
|
4
|
|
|
|
11
|
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
95
|
|
|
$
|
67
|
|
|
$
|
186
|
|
|
$
|
168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
|
|
(6) |
|
The income tax effects presented
were calculated as if the above described charges were not
included in our results of operations for each of the respective
periods presented.
|
29
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended November 30,
|
|
|
Six Months Ended November 30,
|
|
|
|
|
|
|
Percent Change
|
|
|
|
|
|
|
|
|
Percent Change
|
|
|
|
|
(Dollars in millions)
|
|
2008
|
|
|
Actual
|
|
|
Constant
|
|
|
2007
|
|
|
2008
|
|
|
Actual
|
|
|
Constant
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Software License Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
751
|
|
|
|
0%
|
|
|
|
3%
|
|
|
$
|
752
|
|
|
$
|
1,286
|
|
|
|
3%
|
|
|
|
4%
|
|
|
$
|
1,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EMEA
|
|
|
557
|
|
|
|
-7%
|
|
|
|
7%
|
|
|
|
598
|
|
|
|
978
|
|
|
|
0%
|
|
|
|
6%
|
|
|
|
976
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia Pacific
|
|
|
318
|
|
|
|
0%
|
|
|
|
5%
|
|
|
|
318
|
|
|
|
599
|
|
|
|
13%
|
|
|
|
15%
|
|
|
|
529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,626
|
|
|
|
-3%
|
|
|
|
5%
|
|
|
|
1,668
|
|
|
|
2,863
|
|
|
|
4%
|
|
|
|
7%
|
|
|
|
2,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and
marketing(1)
|
|
|
1,130
|
|
|
|
4%
|
|
|
|
11%
|
|
|
|
1,082
|
|
|
|
2,223
|
|
|
|
9%
|
|
|
|
10%
|
|
|
|
2,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
16
|
|
|
|
25%
|
|
|
|
25%
|
|
|
|
13
|
|
|
|
35
|
|
|
|
36%
|
|
|
|
36%
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangible
assets(2)
|
|
|
201
|
|
|
|
51%
|
|
|
|
51%
|
|
|
|
132
|
|
|
|
394
|
|
|
|
51%
|
|
|
|
51%
|
|
|
|
261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expense
|
|
|
1,347
|
|
|
|
10%
|
|
|
|
15%
|
|
|
|
1,227
|
|
|
|
2,652
|
|
|
|
14%
|
|
|
|
15%
|
|
|
|
2,331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Margin
|
|
$
|
279
|
|
|
|
-37%
|
|
|
|
-23%
|
|
|
$
|
441
|
|
|
$
|
211
|
|
|
|
-50%
|
|
|
|
-35%
|
|
|
$
|
425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Margin %
|
|
|
17%
|
|
|
|
|
|
|
|
|
|
|
|
26%
|
|
|
|
7%
|
|
|
|
|
|
|
|
|
|
|
|
15%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Revenues by Geography:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
|
46%
|
|
|
|
|
|
|
|
|
|
|
|
45%
|
|
|
|
45%
|
|
|
|
|
|
|
|
|
|
|
|
46%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EMEA
|
|
|
34%
|
|
|
|
|
|
|
|
|
|
|
|
36%
|
|
|
|
34%
|
|
|
|
|
|
|
|
|
|
|
|
35%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia Pacific
|
|
|
20%
|
|
|
|
|
|
|
|
|
|
|
|
19%
|
|
|
|
21%
|
|
|
|
|
|
|
|
|
|
|
|
19%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues by Product:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Database and middleware
|
|
$
|
1,146
|
|
|
|
4%
|
|
|
|
12%
|
|
|
$
|
1,102
|
|
|
$
|
2,034
|
|
|
|
13%
|
|
|
|
16%
|
|
|
$
|
1,796
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Applications
|
|
|
469
|
|
|
|
-15%
|
|
|
|
-9%
|
|
|
|
553
|
|
|
|
799
|
|
|
|
-14%
|
|
|
|
-11%
|
|
|
|
929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues by product
|
|
|
1,615
|
|
|
|
-3%
|
|
|
|
5%
|
|
|
|
1,655
|
|
|
|
2,833
|
|
|
|
4%
|
|
|
|
7%
|
|
|
|
2,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenues
|
|
|
11
|
|
|
|
-19%
|
|
|
|
-17%
|
|
|
|
13
|
|
|
|
30
|
|
|
|
-5%
|
|
|
|
-5%
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total new software license revenues
|
|
$
|
1,626
|
|
|
|
-3%
|
|
|
|
5%
|
|
|
$
|
1,668
|
|
|
$
|
2,863
|
|
|
|
4%
|
|
|
|
7%
|
|
|
$
|
2,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Revenues by Product:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Database and middleware
|
|
|
71%
|
|
|
|
|
|
|
|
|
|
|
|
67%
|
|
|
|
72%
|
|
|
|
|
|
|
|
|
|
|
|
66%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Applications
|
|
|
29%
|
|
|
|
|
|
|
|
|
|
|
|
33%
|
|
|
|
28%
|
|
|
|
|
|
|
|
|
|
|
|
34%
|
|
|
|
|
(1) |
|
Excluding stock-based compensation
|
|
(2) |
|
Included as a component of
Amortization of Intangible Assets in our condensed
consolidated statements of operations
|
Fiscal Second Quarter 2009 Compared to Fiscal Second
Quarter 2008: New software license revenues
growth was unfavorably affected by foreign currency rate
fluctuations of 8 percentage points in the second quarter
of fiscal 2009. Excluding the effect of currency rate
fluctuations, total new software license revenues increased by
5% in the second quarter of fiscal 2009 as a result of a 12%
increase in database and middleware revenues, partially offset
by a 9% decrease in applications revenues. Excluding the effect
of currency rate fluctuations, the Americas contributed 29%,
EMEA contributed 50% and Asia Pacific contributed 21% to the
increase in new software license revenues.
Excluding the effect of currency rate fluctuations of
8 percentage points, database and middleware revenues grew
12% in the second quarter of fiscal 2009 and 15% over the
trailing
4-quarters
as a result of increased demand for our database and middleware
products as well as incremental revenues from acquired
companies. In reported currency, BEA products contributed
$127 million, and other recently acquired products
contributed $5 million to the total database and middleware
revenues growth in the second quarter of fiscal 2009.
30
Excluding the effect of currency rate fluctuations of
6 percentage points, application new software license
revenues generally decreased on a constant currency basis across
all geographic regions. The decline in our applications revenues
growth for the second quarter of fiscal 2009 was affected by the
high growth in our applications revenues for the second quarter
of fiscal 2008 against which our current quarters
applications revenues were compared. In reported currency, our
recently acquired products contributed $10 million to our
applications revenues in the second quarter of fiscal 2009. On a
constant currency basis, applications revenues increased by 6%
over the trailing
4-quarters
due to our offering of a broad suite of products to a diverse
customer base and incremental revenues from acquired companies.
In reported currency, new software license revenues earned from
transactions over $0.5 million declined by 1% in the second
quarter of fiscal 2009, primarily due to unfavorable currency
variations, and increased to 47% of new software license
revenues in the second quarter of fiscal 2009 from 46% in the
second quarter of fiscal 2008.
Total sales and marketing expenses were favorably impacted by
5 percentage points of currency variations during the
second quarter of fiscal 2009. Excluding the effect of currency
rate fluctuations, sales and marketing expenses increased in the
second quarter of fiscal 2009 primarily due to higher salaries
and travel expenses resulting from increased headcount, higher
commissions expenses associated with increased revenues (on a
constant currency basis) and higher amortization of intangible
assets. These increases were partially offset by a decrease in
our benefits expenses resulting from a current quarter reduction
in our deferred compensation plan liability. This benefits
expense decrease was offset by a loss in our deferred
compensation plan assets. See discussion under
Non-Operating Income, net below.
Total new software license margin and margin as a percentage of
revenues decreased as our total new software license expenses
growth, in particular our higher amortization of intangible
assets, exceeded our revenues growth.
First Half Fiscal 2009 Compared to First Half Fiscal
2008: New software license revenues growth
was unfavorably affected by foreign currency rate fluctuations
of 3 percentage points. Excluding the effect of currency
rate fluctuations, total new software license revenues increased
by 7% in the first half of fiscal 2009 as a result of a 16%
increase in database and middleware revenues, partially offset
by a 11% decrease in applications revenues. Excluding the effect
of currency rate fluctuations, the Americas contributed 28%,
EMEA contributed 32% and Asia Pacific contributed 40% to the
increase in new software license revenues.
In reported currency, BEA products contributed
$211 million, and other recently acquired products
contributed $7 million to the total database and middleware
revenue growth in the first half of fiscal 2009.
In reported currency, recently acquired products contributed
$15 million to applications revenues in the first half of
fiscal 2009.
New software license revenues earned from transactions over
$0.5 million increased by 8% in the first half of fiscal
2009 and increased to 46% of new software license revenues in
the first half of fiscal 2009 from 44% in the first half of
fiscal 2008.
Sales and marketing expenses increased in the first half of
fiscal 2009 primarily due to similar reasons noted above. Total
new software license margin and margin as a percentage of
revenues decreased primarily due to the same reasons noted above.
Software License Updates and Product
Support: Software license updates grant
customers rights to unspecified software product upgrades and
maintenance releases issued during the support period. Product
support includes internet access to technical content as well as
internet and telephone access to technical support personnel in
our global support centers. Expenses associated with our
software license updates and product support line of business
include the cost of providing the support services, largely
personnel related expenses, and the amortization of our
intangible assets associated with software support contracts and
customer relationships obtained from our acquisitions.
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended November 30,
|
|
|
Six Months Ended November 30,
|
|
|
|
|
|
|
Percent Change
|
|
|
|
|
|
|
|
|
Percent Change
|
|
|
|
|
(Dollars in millions)
|
|
2008
|
|
|
Actual
|
|
|
Constant
|
|
|
2007
|
|
|
2008
|
|
|
Actual
|
|
|
Constant
|
|
|
2007
|
|
|
Software License Updates and Product Support
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
1,576
|
|
|
|
16%
|
|
|
|
19%
|
|
|
$
|
1,353
|
|
|
$
|
3,132
|
|
|
|
18%
|
|
|
|
18%
|
|
|
$
|
2,661
|
|
EMEA
|
|
|
924
|
|
|
|
10%
|
|
|
|
22%
|
|
|
|
837
|
|
|
|
1,941
|
|
|
|
19%
|
|
|
|
20%
|
|
|
|
1,631
|
|
Asia Pacific
|
|
|
350
|
|
|
|
17%
|
|
|
|
22%
|
|
|
|
301
|
|
|
|
712
|
|
|
|
22%
|
|
|
|
22%
|
|
|
|
581
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
2,850
|
|
|
|
14%
|
|
|
|
20%
|
|
|
|
2,491
|
|
|
|
5,785
|
|
|
|
19%
|
|
|
|
19%
|
|
|
|
4,873
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software license updates and product
support(1)
|
|
|
254
|
|
|
|
4%
|
|
|
|
11%
|
|
|
|
243
|
|
|
|
533
|
|
|
|
14%
|
|
|
|
15%
|
|
|
|
467
|
|
Stock-based compensation
|
|
|
3
|
|
|
|
1%
|
|
|
|
1%
|
|
|
|
3
|
|
|
|
6
|
|
|
|
-1%
|
|
|
|
-1%
|
|
|
|
7
|
|
Amortization of intangible
assets(2)
|
|
|
212
|
|
|
|
46%
|
|
|
|
46%
|
|
|
|
144
|
|
|
|
417
|
|
|
|
45%
|
|
|
|
45%
|
|
|
|
287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
469
|
|
|
|
20%
|
|
|
|
24%
|
|
|
|
390
|
|
|
|
956
|
|
|
|
25%
|
|
|
|
26%
|
|
|
|
761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Margin
|
|
$
|
2,381
|
|
|
|
13%
|
|
|
|
20%
|
|
|
$
|
2,101
|
|
|
$
|
4,829
|
|
|
|
18%
|
|
|
|
18%
|
|
|
$
|
4,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Margin %
|
|
|
84%
|
|
|
|
|
|
|
|
|
|
|
|
84%
|
|
|
|
84%
|
|
|
|
|
|
|
|
|
|
|
|
84%
|
|
% Revenues by Geography:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
|
55%
|
|
|
|
|
|
|
|
|
|
|
|
54%
|
|
|
|
54%
|
|
|
|
|
|
|
|
|
|
|
|
55%
|
|
EMEA
|
|
|
32%
|
|
|
|
|
|
|
|
|
|
|
|
34%
|
|
|
|
34%
|
|
|
|
|
|
|
|
|
|
|
|
33%
|
|
Asia Pacific
|
|
|
13%
|
|
|
|
|
|
|
|
|
|
|
|
12%
|
|
|
|
12%
|
|
|
|
|
|
|
|
|
|
|
|
12%
|
|
|
|
|
(1) |
|
Excluding stock-based compensation
|
|
(2) |
|
Included as a component of
Amortization of Intangible Assets in our condensed
consolidated statements of operations
|
Fiscal Second Quarter 2009 Compared to Fiscal Second
Quarter 2008: The growth in our software
license updates and product support revenues was unfavorably
affected by foreign currency rate fluctuations of
6 percentage points in the second quarter of fiscal 2009.
Excluding the effect of currency rate fluctuations, software
license updates and product support revenues increased in the
second quarter of fiscal 2009 as a result of new software
licenses sold with substantially all customers electing to
purchase support contracts during the trailing
4-quarter
period (in particular our fourth quarter of fiscal 2008, which
was our largest new software license sales quarter during the
trailing
4-quarter
period), 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 49%, EMEA contributed 38%
and Asia Pacific contributed 13% to the increase in software
license updates and product support revenues.
In reported currency, software license updates and product
support revenues in the second quarter of fiscal 2009 include
incremental revenues of $126 million from BEA and
$8 million from other recently acquired companies. As a
result of our acquisitions, we recorded adjustments to reduce
support obligations assumed to their estimated fair values 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 $80 million and $51 million that would have
been otherwise recorded by our acquired businesses as
independent entities, were not recognized in the second quarter
of fiscal 2009 and 2008, 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.
Total software license updates and product support expenses were
favorably impacted by 4 percentage points of currency
variations during the second quarter of fiscal 2009. Excluding
the effect of currency rate fluctuations, software license
updates and product support expenses increased due to higher
salary expenses associated with increased headcount to support
the expansion of our customer base and higher amortization
expenses resulting from additional intangible assets acquired
since the beginning of fiscal 2008 (primarily our acquisition of
BEA). These
32
increases were partially offset by constant currency decreases
in our commissions and bonus expenses and by a constant and
reported currency decrease in our benefits expenses. The
decrease in our benefits expenses resulted from a current
quarter reduction in our deferred compensation plan liability.
This benefits expense decrease was offset by a loss in our
deferred compensation plan assets. See discussion under
Non-Operating Income, net below.
Total software license updates and product support margin
increased due to an increase in revenues, while margin as a
percentage of revenues remained constant as revenue increases
were offset by increases in our amortization of intangible
assets.
First Half Fiscal 2009 Compared to First Half Fiscal
2008: On a constant currency basis, the
growth in our software license updates and product support
revenues and expenses is primarily attributable to the same
reasons noted above. On a constant currency basis, the Americas
contributed 50%, EMEA contributed 36% and Asia Pacific
contributed 14% to the increase in software license updates and
product support revenues. Software license updates and product
support revenues in the first half of fiscal 2009 included
incremental contributions of $237 million from BEA and
$32 million from other recently acquired companies.
Software license updates and product support revenues related to
support contracts in the amounts of $171 million and
$115 million that would have been otherwise recorded by our
acquired businesses as independent entities, were not recognized
in the first half of fiscal 2009 and 2008, respectively, for the
reasons noted above.
On a constant currency basis, software license updates and
product support expenses increased for similar reasons as noted
above. Total software license updates and product support margin
increased due to an increase in revenues, while margin as a
percentage of revenues remained constant as revenue increases
were offset by increases in our amortization of intangible
assets.
Services
Services consist of consulting, On Demand and education.
Consulting: Consulting revenues are
earned by providing services to customers in the design,
implementation, deployment and upgrade of our database and
middleware software products as well as application software
products. The cost of providing consulting services consists
primarily of personnel related expenditures.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended November 30,
|
|
|
Six Months Ended November 30,
|
|
|
|
|
|
|
Percent Change
|
|
|
|
|
|
|
|
Percent Change
|
|
|
|
(Dollars in millions)
|
|
2008
|
|
|
Actual
|
|
Constant
|
|
2007
|
|
|
2008
|
|
|
Actual
|
|
Constant
|
|
2007
|
|
|
Consulting Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
430
|
|
|
|
0%
|
|
|
4%
|
|
$
|
432
|
|
|
$
|
875
|
|
|
|
1%
|
|
|
3%
|
|
$
|
865
|
|
EMEA
|
|
|
303
|
|
|
|
-8%
|
|
|
3%
|
|
|
331
|
|
|
|
601
|
|
|
|
-1%
|
|
|
3%
|
|
|
604
|
|
Asia Pacific
|
|
|
109
|
|
|
|
-4%
|
|
|
5%
|
|
|
114
|
|
|
|
232
|
|
|
|
11%
|
|
|
14%
|
|
|
209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
842
|
|
|
|
-4%
|
|
|
4%
|
|
|
877
|
|
|
|
1,708
|
|
|
|
2%
|
|
|
5%
|
|
|
1,678
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
services(1)
|
|
|
708
|
|
|
|
-5%
|
|
|
2%
|
|
|
747
|
|
|
|
1,491
|
|
|
|
3%
|
|
|
5%
|
|
|
1,443
|
|
Stock-based compensation
|
|
|
2
|
|
|
|
-20%
|
|
|
-20%
|
|
|
2
|
|
|
|
3
|
|
|
|
-30%
|
|
|
-30%
|
|
|
5
|
|
Amortization of intangible
assets(2)
|
|
|
11
|
|
|
|
10%
|
|
|
10%
|
|
|
10
|
|
|
|
21
|
|
|
|
3%
|
|
|
3%
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
721
|
|
|
|
-5%
|
|
|
2%
|
|
|
759
|
|
|
|
1,515
|
|
|
|
3%
|
|
|
5%
|
|
|
1,468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Margin
|
|
$
|
121
|
|
|
|
2%
|
|
|
13%
|
|
$
|
118
|
|
|
$
|
193
|
|
|
|
-8%
|
|
|
-1%
|
|
$
|
210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Margin %
|
|
|
14%
|
|
|
|
|
|
|
|
|
|
14%
|
|
|
|
11%
|
|
|
|
|
|
|
|
|
|
13%
|
|
% Revenues by Geography:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
|
51%
|
|
|
|
|
|
|
|
|
|
49%
|
|
|
|
51%
|
|
|
|
|
|
|
|
|
|
52%
|
|
EMEA
|
|
|
36%
|
|
|
|
|
|
|
|
|
|
38%
|
|
|
|
35%
|
|
|
|
|
|
|
|
|
|
36%
|
|
Asia Pacific
|
|
|
13%
|
|
|
|
|
|
|
|
|
|
13%
|
|
|
|
14%
|
|
|
|
|
|
|
|
|
|
12%
|
|
|
|
|
(1) |
|
Excluding stock-based compensation
|
|
(2) |
|
Included as a component of
Amortization of Intangible Assets in our condensed
consolidated statements of operations
|
33
Fiscal Second Quarter 2009 Compared to Fiscal Second
Quarter 2008: Consulting revenues growth was
unfavorably affected by foreign currency rate fluctuations of
8 percentage points in the second quarter of fiscal 2009.
Excluding the effect of currency rate fluctuations, consulting
revenues increased during the second quarter of fiscal 2009
primarily due to an increase in application software
implementations associated with the sales of certain of our
application software products and incremental revenues from our
recent acquisitions, primarily BEA. Excluding the effect of
currency rate fluctuations, the Americas contributed 47%, EMEA
contributed 35% and Asia Pacific contributed 18% to the increase
in consulting revenues.
Consulting expenses were favorably impacted by 7 percentage
points of currency variations during the second quarter of
fiscal 2009. Excluding the effect of currency rate fluctuations,
salary expenses were relatively constant with the corresponding
prior year period. Consulting expenses increased on a constant
currency basis during the second quarter of fiscal 2009 as a
result of higher infrastructure and travel expenses (the
majority of which are rebillable to customers). These increases
were partially offset by constant currency decreases in our
commissions and bonus expenses and by a constant and reported
currency decrease in our benefits expenses. The decrease in our
benefits expenses resulted from a current quarter reduction in
our deferred compensation plan liability. This benefits expense
decrease was offset by a loss in our deferred compensation plan
assets. See discussion under Non-Operating Income,
net below.
Total consulting margin and margin as a percentage of revenues
remained constant during the second quarter of fiscal 2009,
primarily as a result of unfavorable currency variations of
11 percentage points.
First Half Fiscal 2009 Compared to First Half Fiscal
2008: Excluding the effect of currency rate
fluctuations, the growth in consulting revenues was generally
due to similar reasons as noted above with the Americas
contributing 34%, EMEA contributing 26% and Asia Pacific
contributing 40% to the growth in consulting revenues.
Consulting expenses generally increased during the first half of
fiscal 2009 for similar reasons as noted above, but also
included an increase in external contractor expenses incurred
during the first quarter of fiscal 2009.
On a constant currency basis, consulting margin and margin as a
percentage of revenues decreased during the first half of fiscal
2009 due to expense growth exceeding revenue growth during the
first quarter of fiscal 2009 and due to the aforementioned
unfavorable currency variations that affected margin during the
second quarter of fiscal 2009.
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.
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended November 30,
|
|
|
Six Months Ended November 30,
|
|
|
|
|
|
|
Percent Change
|
|
|
|
|
|
|
|
Percent Change
|
|
|
|
(Dollars in millions)
|
|
2008
|
|
|
Actual
|
|
Constant
|
|
2007
|
|
|
2008
|
|
|
Actual
|
|
Constant
|
|
2007
|
|
|
On Demand Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
104
|
|
|
|
14%
|
|
|
16%
|
|
$
|
91
|
|
|
$
|
210
|
|
|
|
17%
|
|
|
18%
|
|
$
|
179
|
|
EMEA
|
|
|
58
|
|
|
|
8%
|
|
|
19%
|
|
|
54
|
|
|
|
118
|
|
|
|
13%
|
|
|
15%
|
|
|
104
|
|
Asia Pacific
|
|
|
27
|
|
|
|
22%
|
|
|
31%
|
|
|
22
|
|
|
|
56
|
|
|
|
33%
|
|
|
36%
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
189
|
|
|
|
13%
|
|
|
19%
|
|
|
167
|
|
|
|
384
|
|
|
|
18%
|
|
|
19%
|
|
|
325
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
services(1)
|
|
|
151
|
|
|
|
-5%
|
|
|
1%
|
|
|
158
|
|
|
|
310
|
|
|
|
0%
|
|
|
2%
|
|
|
310
|
|
Stock-based compensation
|
|
|
1
|
|
|
|
22%
|
|
|
22%
|
|
|
1
|
|
|
|
2
|
|
|
|
11%
|
|
|
11%
|
|
|
2
|
|
Amortization of intangible
assets(2)
|
|
|
3
|
|
|
|
-1%
|
|
|
-1%
|
|
|
4
|
|
|
|
7
|
|
|
|
0%
|
|
|
0%
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
155
|
|
|
|
-5%
|
|
|
1%
|
|
|
163
|
|
|
|
319
|
|
|
|
0%
|
|
|
2%
|
|
|
319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Margin
|
|
$
|
34
|
|
|
|
671%
|
|
|
572%
|
|
$
|
4
|
|
|
$
|
65
|
|
|
|
906%
|
|
|
669%
|
|
$
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Margin %
|
|
|
18%
|
|
|
|
|
|
|
|
|
|
3%
|
|
|
|
17%
|
|
|
|
|
|
|
|
|
|
2%
|
|
% Revenues by Geography:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
|
55%
|
|
|
|
|
|
|
|
|
|
55%
|
|
|
|
55%
|
|
|
|
|
|
|
|
|
|
55%
|
|
EMEA
|
|
|
31%
|
|
|
|
|
|
|
|
|
|
32%
|
|
|
|
31%
|
|
|
|
|
|
|
|
|
|
32%
|
|
Asia Pacific
|
|
|
14%
|
|
|
|
|
|
|
|
|
|
13%
|
|
|
|
14%
|
|
|
|
|
|
|
|
|
|
13%
|
|
|
|
|
(1) |
|
Excluding stock-based compensation
|
|
(2) |
|
Included as a component of
Amortization of Intangible Assets in our condensed
consolidated statements of operations
|
Fiscal Second Quarter 2009 Compared to Fiscal Second
Quarter 2008: On Demand revenue growth was
unfavorably affected by foreign currency rate fluctuations of
6 percentage points in the second quarter of fiscal 2009.
Excluding the effect of currency rate fluctuations, On Demand
revenues increased in the second quarter of fiscal 2009 due to
an increase in each service categorys subscription base as
a greater number of customers engaged us to provide IT
outsourcing solutions. On a constant currency basis, Advanced
Customer Services, Oracle On Demand and CRM On Demand
contributed 56%, 39% and 5% to our On Demand revenues growth,
respectively. Excluding the effect of currency rate
fluctuations, the Americas contributed 45%, EMEA contributed 33%
and Asia Pacific contributed 22% to the increase in On Demand
revenues.
Excluding the effect of favorable currency rate fluctuations of
6 percentage points, On Demand expenses increased slightly
in the second quarter of fiscal 2009 due to higher personnel
related costs resulting from additional employees hired to
support the increase in On Demand revenues. This expense
increase was almost entirely offset by a shift of certain
U.S. based costs to global support centers in lower cost
countries, decreases in bonus expenses, and a decrease in
certain of our benefits expenses.
Total On Demand margin and 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
lower level than in the second quarter of fiscal 2008. Our
Advanced Customer Services margin percentages also improved
modestly in comparison to the second quarter of fiscal 2008.
First Half Fiscal 2009 Compared to First Half Fiscal
2008: On a constant currency basis, On Demand
revenues, expenses, margin and margin as a percentage of
revenues increased for similar reasons as noted above. Excluding
the effect of currency rate fluctuations, Advanced Customer
Services, Oracle On Demand and CRM On Demand contributed 53%,
39% and 8%, respectively, to the growth in On Demand revenues.
In constant currency, the Americas contributed 50% to the growth
in On Demand revenues, EMEA contributed 26% and Asia Pacific
contributed 24%.
35
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended November 30,
|
|
|
Six Months Ended November 30,
|
|
|
|
|
|
|
Percent Change
|
|
|
|
|
|
|
|
Percent Change
|
|
|
|
(Dollars in millions)
|
|
2008
|
|
|
Actual
|
|
Constant
|
|
2007
|
|
|
2008
|
|
|
Actual
|
|
Constant
|
|
2007
|
|
|
Education Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
43
|
|
|
|
-7%
|
|
|
-4%
|
|
$
|
46
|
|
|
$
|
87
|
|
|
|
-6%
|
|
|
-6%
|
|
$
|
93
|
|
EMEA
|
|
|
39
|
|
|
|
-12%
|
|
|
-3%
|
|
|
45
|
|
|
|
74
|
|
|
|
-6%
|
|
|
-5%
|
|
|
79
|
|
Asia Pacific
|
|
|
18
|
|
|
|
-5%
|
|
|
1%
|
|
|
19
|
|
|
|
37
|
|
|
|
-1%
|
|
|
0%
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
100
|
|
|
|
-9%
|
|
|
-3%
|
|
|
110
|
|
|
|
198
|
|
|
|
-6%
|
|
|
-4%
|
|
|
210
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
services(1)
|
|
|
77
|
|
|
|
-8%
|
|
|
-2%
|
|
|
84
|
|
|
|
158
|
|
|
|
-2%
|
|
|
-2%
|
|
|
161
|
|
Stock-based compensation
|
|
|
|
|
|
|
*
|
|
|
*
|
|
|
|
|
|
|
1
|
|
|
|
-41%
|
|
|
-41%
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
77
|
|
|
|
-8%
|
|
|
-2%
|
|
|
84
|
|
|
|
159
|
|
|
|
-2%
|
|
|
-2%
|
|
|
162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Margin
|
|
$
|
23
|
|
|
|
-9%
|
|
|
-7%
|
|
$
|
26
|
|
|
$
|
39
|
|
|
|
-17%
|
|
|
-16%
|
|
$
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Margin %
|
|
|
23%
|
|
|
|
|
|
|
|
|
|
24%
|
|
|
|
20%
|
|
|
|
|
|
|
|
|
|
23%
|
|
% Revenues by Geography:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
|
43%
|
|
|
|
|
|
|
|
|
|
41%
|
|
|
|
44%
|
|
|
|
|
|
|
|
|
|
44%
|
|
EMEA
|
|
|
39%
|
|
|
|
|
|
|
|
|
|
41%
|
|
|
|
37%
|
|
|
|
|
|
|
|
|
|
38%
|
|
Asia Pacific
|
|
|
18%
|
|
|
|
|
|
|
|
|
|
18%
|
|
|
|
19%
|
|
|
|
|
|
|
|
|
|
18%
|
|
|
|
|
(1) |
|
Excluding stock-based compensation
|
|
*
|
|
Not meaningful
|
Fiscal Second Quarter 2009 Compared to Fiscal Second
Quarter 2008: Excluding the effect of
unfavorable currency rate fluctuations of 6 percentage
points, education revenues decreased in the second quarter of
fiscal 2009 as customers reduced spending on discretionary
services such as our educational program offerings in the
Americas and EMEA geographic regions. These decreases were
partially offset by incremental revenues from our recently
acquired companies. On a constant currency basis, the Americas
and EMEA geographic regions declined 4% and 3%, respectively, in
the second quarter of fiscal 2009, while the Asia Pacific region
slightly increased.
Excluding the effect of favorable currency rate fluctuations of
6 percentage points, education expenses declined slightly
in comparison to the second quarter of fiscal 2008, primarily as
a result of our headcount reductions pursuant to our 2008 Oracle
Restructuring Plan.
Education margin and margin as a percentage of revenues
decreased in the second quarter of fiscal 2009 due primarily to
a reduction in revenues.
First Half Fiscal 2009 Compared to First Half Fiscal
2008: Excluding the effect of currency rate
fluctuations, the decreases for education revenues, expenses,
margin and margin as a percentage of revenues were due generally
to the same reasons as noted above. On a constant currency
basis, revenues in the Americas and EMEA geographic regions
declined 6% and 5%, respectively, in the first half of fiscal
2009, while the Asia Pacific region was constant.
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.
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended November 30,
|
|
|
Six Months Ended November 30,
|
|
|
|
|
|
|
Percent Change
|
|
|
|
|
|
|
|
Percent Change
|
|
|
|
(Dollars in millions)
|
|
2008
|
|
|
Actual
|
|
Constant
|
|
2007
|
|
|
2008
|
|
|
Actual
|
|
Constant
|
|
2007
|
|
|
Research and
development(1)
|
|
$
|
606
|
|
|
|
-7%
|
|
|
-3%
|
|
$
|
649
|
|
|
$
|
1,278
|
|
|
|
0%
|
|
|
2%
|
|
$
|
1,274
|
|
Stock-based compensation
|
|
|
45
|
|
|
|
83%
|
|
|
83%
|
|
|
25
|
|
|
|
82
|
|
|
|
56%
|
|
|
56%
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
$
|
651
|
|
|
|
-3%
|
|
|
0%
|
|
$
|
674
|
|
|
$
|
1,360
|
|
|
|
3%
|
|
|
4%
|
|
$
|
1,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Total Revenues
|
|
|
12%
|
|
|
|
|
|
|
|
|
|
12%
|
|
|
|
12%
|
|
|
|
|
|
|
|
|
|
13%
|
|
|
|
|
(1) |
|
Excluding stock-based compensation
|
Fiscal Second Quarter 2009 Compared to Fiscal Second
Quarter 2008: Total research and development
expenses were favorably affected by 3 percentage points of
currency variations during the second quarter of fiscal 2009. On
a constant currency basis, total research and development
expenses were constant as increases in salary expenses from
higher headcount and stock-based compensation expenses
(resulting from higher fair values assigned to our fiscal 2009
grants due to a higher volatility input and also due to our
assumption of unvested stock awards for BEA employees) were
offset by a decrease in bonus expenses and a decrease in certain
of our benefits expenses. The decrease in our benefits expenses
resulted from a current quarter reduction in our deferred
compensation plan liability. This benefits expense decrease was
offset by a loss in our deferred compensation plan assets. See
discussion under Non-Operating Income, net below.
The increase in our headcount was the combined result of our
recent acquisitions and our hiring of additional personnel to
develop new functionality for our existing products. Research
and development headcount as of the end of the second quarter of
fiscal 2009 increased by approximately 2,000 employees, or
10%, in comparison to the second quarter of fiscal 2008.
First Half Fiscal 2009 Compared to First Half Fiscal
2008: On a constant currency basis, research
and development expenses increased modestly due to an increase
in salary and stock-based compensation expenses described above,
partially offset by the bonus and benefits expense declines
described above.
General and Administrative
Expenses: General and administrative expenses
primarily consist of personnel related expenditures for
information technology, finance, legal and human resources
support functions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended November 30,
|
|
|
Six Months Ended November 30,
|
|
|
|
|
|
|
Percent Change
|
|
|
|
|
|
|
|
Percent Change
|
|
|
|
(Dollars in millions)
|
|
2008
|
|
|
Actual
|
|
Constant
|
|
2007
|
|
|
2008
|
|
|
Actual
|
|
Constant
|
|
2007
|
|
|
General and
administrative(1)
|
|
$
|
152
|
|
|
|
-19%
|
|
|
-14%
|
|
$
|
187
|
|
|
$
|
333
|
|
|
|
-8%
|
|
|
-7%
|
|
$
|
364
|
|
Stock-based compensation
|
|
|
22
|
|
|
|
16%
|
|
|
16%
|
|
|
19
|
|
|
|
46
|
|
|
|
18%
|
|
|
18%
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
$
|
174
|
|
|
|
-16%
|
|
|
-11%
|
|
$
|
206
|
|
|
$
|
379
|
|
|
|
-6%
|
|
|
-4%
|
|
$
|
402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Total Revenues
|
|
|
3%
|
|
|
|
|
|
|
|
|
|
4%
|
|
|
|
3%
|
|
|
|
|
|
|
|
|
|
4%
|
|
|
|
|
(1) |
|
Excluding stock-based compensation
|
General and administrative expenses were affected by
5 percentage points of favorable currency variations during
the second quarter of fiscal 2009. Excluding the effect of
currency rate fluctuations, general and administrative expenses
decreased during the second quarter of fiscal 2009 as a result
of a decrease in bonus expenses and a decrease in certain of our
benefits expenses. The decrease in our benefits expenses
resulted from a current quarter reduction in our deferred
compensation plan liability. This benefits expense decrease was
offset by a loss in our deferred compensation plan assets (see
discussion under Non-Operating Income, net below).
These decreases were partially offset by slightly higher
personnel related costs associated with increased headcount to
support our expanding operations and increased stock-based
compensation expenses resulting from a higher valuation of our
fiscal 2009 stock option grants (the higher valuation is
attributable to a higher volatility input used in the fair value
calculation and is derived from the implied volatility of our
longest-term, publicly traded options). During the first half of
fiscal 2009, general and administrative expenses decreased for
similar reasons as those noted above.
37
Amortization of Intangible Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended November 30,
|
|
|
Six Months Ended November 30,
|
|
|
|
|
|
|
Percent Change
|
|
|
|
|
|
|
|
Percent Change
|
|
|
|
(Dollars in millions)
|
|
2008
|
|
|
Actual
|
|
Constant
|
|
2007
|
|
|
2008
|
|
|
Actual
|
|
Constant
|
|
2007
|
|
|
Software support agreements and related relationships
|
|
$
|
138
|
|
|
|
42%
|
|
|
42%
|
|
$
|
98
|
|
|
$
|
272
|
|
|
|
40%
|
|
|
40%
|
|
$
|
194
|
|
Developed technology
|
|
|
181
|
|
|
|
45%
|
|
|
45%
|
|
|
124
|
|
|
|
354
|
|
|
|
44%
|
|
|
44%
|
|
|
245
|
|
Core technology
|
|
|
63
|
|
|
|
47%
|
|
|
47%
|
|
|
43
|
|
|
|
125
|
|
|
|
45%
|
|
|
45%
|
|
|
86
|
|
Customer contracts
|
|
|
37
|
|
|
|
118%
|
|
|
118%
|
|
|
17
|
|
|
|
72
|
|
|
|
112%
|
|
|
112%
|
|
|
34
|
|
Trademarks
|
|
|
8
|
|
|
|
0%
|
|
|
0%
|
|
|
8
|
|
|
|
16
|
|
|
|
6%
|
|
|
6%
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortization of intangible assets
|
|
$
|
427
|
|
|
|
47%
|
|
|
47%
|
|
$
|
290
|
|
|
$
|
839
|
|
|
|
46%
|
|
|
46%
|
|
$
|
575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangible assets increased in the fiscal 2009
periods presented above due to the amortization of acquired
intangibles from BEA and other acquisitions that we consummated
since the beginning of the second quarter of fiscal 2008. See
Note 4 of Notes to Condensed Consolidated Financial
Statements for additional information regarding our intangible
assets (including weighted average useful lives) and related
amortization expenses.
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 adjustments
after the purchase price allocation period has ended, and
certain other expenses, 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended November 30,
|
|
|
Six Months Ended November 30,
|
|
|
|
|
|
|
Percent Change
|
|
|
|
|
|
|
|
Percent Change
|
|
|
|
(Dollars in millions)
|
|
2008
|
|
|
Actual
|
|
Constant
|
|
2007
|
|
|
2008
|
|
|
Actual
|
|
Constant
|
|
2007
|
|
|
In-process research and development
|
|
$
|
2
|
|
|
|
*
|
|
|
*
|
|
$
|
|
|
|
$
|
6
|
|
|
|
-19%
|
|
|
-19%
|
|
$
|
7
|
|
Transitional employee related costs
|
|
|
4
|
|
|
|
-73%
|
|
|
-72%
|
|
|
15
|
|
|
|
31
|
|
|
|
66%
|
|
|
68%
|
|
|
19
|
|
Stock-based compensation
|
|
|
6
|
|
|
|
42%
|
|
|
42%
|
|
|
4
|
|
|
|
11
|
|
|
|
-70%
|
|
|
-70%
|
|
|
37
|
|
Business combination adjustments
|
|
|
1
|
|
|
|
*
|
|
|
*
|
|
|
|
|
|
|
10
|
|
|
|
*
|
|
|
*
|
|
|
|
|
Professional fees and other, net
|
|
|
8
|
|
|
|
122%
|
|
|
133%
|
|
|
3
|
|
|
|
13
|
|
|
|
160%
|
|
|
160%
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total acquisition related charges
|
|
$
|
21
|
|
|
|
0%
|
|
|
1%
|
|
$
|
22
|
|
|
$
|
71
|
|
|
|
4%
|
|
|
6%
|
|
$
|
68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Second Quarter 2009 Compared to Fiscal Second
Quarter 2008: Acquisition related charges and
other expenses decreased slightly during the second quarter of
fiscal 2009 due to lower transitional employee related expenses
in comparison to the corresponding prior year period, which
included the settlement of certain acquired company employee
related liabilities.
First Half Fiscal 2009 Compared to First Half Fiscal
2008: On a constant currency basis,
acquisition related charges and other expenses increased
slightly due to higher transitional employee related expenses
resulting primarily from our acquisition of BEA and an increase
in business combination adjustments, partially offset by lower
stock-based compensation expenses from stock option
accelerations.
Restructuring expenses: Restructuring
expenses consist primarily of Oracle employee severance costs
and may include charges for duplicate facilities in order to
improve our Oracle-based cost structure prospectively. For
additional information regarding our Oracle-based restructuring
plans, as well as restructuring activities of our acquired
companies, please see Note 5 of Notes to Condensed
Consolidated Financial Statements.
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended November 30,
|
|
Six Months Ended November 30,
|
|
|
|
|
Percent Change
|
|
|
|
|
|
Percent Change
|
|
|
(Dollars in millions)
|
|
2008
|
|
Actual
|
|
Constant
|
|
2007
|
|
2008
|
|
Actual
|
|
Constant
|
|
2007
|
|
Restructuring expenses
|
|
$
|
17
|
|
|
|
196%
|
|
|
260%
|
|
$
|
6
|
|
|
$
|
31
|
|
|
|
429%
|
|
|
495%
|
|
$
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the second quarter of fiscal 2008, our management
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, of which $31 million and
$6 million were incurred during the first half of fiscal
2009 and 2008, respectively, 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.
Interest
Expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended November 30,
|
|
Six Months Ended November 30,
|
|
|
|
|
Percent Change
|
|
|
|
|
|
Percent Change
|
|
|
(Dollars in millions)
|
|
2008
|
|
Actual
|
|
Constant
|
|
2007
|
|
2008
|
|
Actual
|
|
Constant
|
|
2007
|
|
Interest expense
|
|
$
|
157
|
|
|
|
76%
|
|
|
76%
|
|
$
|
89
|
|
|
$
|
317
|
|
|
|
74%
|
|
|
74%
|
|
$
|
183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense increased in the fiscal 2009 periods presented
above due to higher average borrowings resulting from our
issuance of $5.0 billion of senior notes in April 2008.
Non-Operating Income,
net: Non-operating income, net consists
primarily of interest income, net foreign currency exchange
gains and losses, the minority owners share in the net
profits of our majority-owned Oracle Financial Services Software
Limited (formerly i-flex solutions limited) and Oracle Japan
subsidiaries, and other income including net realized gains and
losses related to all of our investments and net unrealized
gains and losses related to the small portion of our investment
portfolio that we classify as trading.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended November 30,
|
|
|
Six Months Ended November 30,
|
|
|
|
|
|
|
Percent Change
|
|
|
|
|
|
|
|
Percent Change
|
|
|
|
(Dollars in millions)
|
|
2008
|
|
|
Actual
|
|
Constant
|
|
2007
|
|
|
2008
|
|
|
Actual
|
|
Constant
|
|
2007
|
|
|
Interest income
|
|
$
|
97
|
|
|
9%
|
|
20%
|
|
$
|
89
|
|
|
$
|
185
|
|
|
13%
|
|
17%
|
|
$
|
163
|
|
Foreign currency gains (losses), net
|
|
|
(22
|
)
|
|
-205%
|
|
-159%
|
|
|
21
|
|
|
|
(12
|
)
|
|
-146%
|
|
-107%
|
|
|
27
|
|
Minority interests in income
|
|
|
(19
|
)
|
|
-16%
|
|
-22%
|
|
|
(16
|
)
|
|
|
(35
|
)
|
|
-23%
|
|
-28%
|
|
|
(29
|
)
|
Other income (losses), net
|
|
|
(48
|
)
|
|
-272%
|
|
-270%
|
|
|
28
|
|
|
|
(48
|
)
|
|
-226%
|
|
-221%
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-operating income, net
|
|
$
|
8
|
|
|
-94%
|
|
-78%
|
|
$
|
122
|
|
|
$
|
90
|
|
|
-55%
|
|
-45%
|
|
$
|
199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-operating income, net decreased during the second quarter of
fiscal 2009 as a result of net foreign currency transaction
losses of $22 million (in comparison to net foreign
currency transaction gains of $21 million in the
corresponding prior year period), and $53 million of losses
(in comparison to a $17 million gain recognized in the
corresponding prior year period) recognized on marketable
securities that we classify as trading that support our deferred
compensation plan obligations. These amounts are included in
Other income (losses), net in the table above. We
account for our deferred compensation plan assets and
obligations pursuant to
EITF 97-14,
Accounting for Deferred Compensation Arrangements Where
Amounts Earned Are Held in a Rabbi Trust and Invested, which
requires that the changes in obligations associated with our
deferred compensation plan be recorded in our operating expenses
while the corresponding change in the plan assets be recorded in
non-operating income, net. The changes in obligations and asset
values of the plan are equal and offsetting, such that there is
no impact to our income before provision for income taxes during
the second quarter of fiscal 2009 or any other periods
presented. Non-operating income, net decreased during the first
half of fiscal 2009 due to similar reasons as noted above.
Provision for Income Taxes: The
effective tax rate in all periods presented is the result of the
mix of income earned in various tax jurisdictions that apply a
broad range of income tax rates. The provision for income taxes
39
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended November 30,
|
|
|
Six Months Ended November 30,
|
|
|
|
|
|
|
Percent Change
|
|
|
|
|
|
|
|
Percent Change
|
|
|
|
(Dollars in millions)
|
|
2008
|
|
|
Actual
|
|
Constant
|
|
2007
|
|
|
2008
|
|
|
Actual
|
|
Constant
|
|
2007
|
|
|
Provision for income taxes
|
|
$
|
530
|
|
|
|
3%
|
|
|
14%
|
|
$
|
512
|
|
|
$
|
896
|
|
|
|
3%
|
|
|
6%
|
|
$
|
871
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
29.0%
|
|
|
|
|
|
|
|
|
|
28.2%
|
|
|
|
27.4%
|
|
|
|
|
|
|
|
|
|
28.9%
|
|
The provision for income taxes increased during the fiscal 2009
periods presented above in comparison to the corresponding
periods of fiscal 2008. The increases were attributable
primarily to the mix of worldwide income, which was affected by
unfavorable changes in foreign currency exchange rates, which
disproportionately affected our profits in relatively low-tax
jurisdictions. These increases were partially offset by
reinstatement of the U.S. research and development tax
credit under the Emergency Economic Stabilization Act of 2008,
which was signed into law on October 3, 2008, and was
retroactive to January 1, 2008.
Liquidity
and Capital Resources
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30,
|
|
|
|
|
May 31,
|
|
(Dollars in millions)
|
|
2008
|
|
|
Change
|
|
2008
|
|
|
Working capital
|
|
$
|
7,175
|
|
|
-11%
|
|
$
|
8,074
|
|
Cash, cash equivalents and marketable securities
|
|
$
|
10,646
|
|
|
-4%
|
|
$
|
11,043
|
|
Working capital: The decrease in
working capital as of November 30, 2008 in comparison to
May 31, 2008 was primarily due to an increase in our stock
repurchases during the first half of fiscal 2009 in comparison
to recent prior periods (we used $2.3 billion of cash for
stock repurchases during the first half of fiscal 2009 in
comparison to $1.0 billion used for stock repurchases
during the first half of fiscal 2008), cash used for our
acquisitions, and from the decline in value of our net current
assets held by certain of our foreign subsidiaries as result of
the strengthening in the U.S. Dollar during the first half
of fiscal 2009 (the offset to which is recorded to accumulated
other comprehensive income (loss) on our consolidated balance
sheet). Our working capital may be impacted by all three of the
aforementioned factors in future periods, the amounts and timing
of which are variable. These decreases were partially offset by
the favorable impact to our net current assets of our net income
generated during the first half of fiscal 2009.
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 November 30, 2008. The amount of cash, cash equivalents
and marketable securities that we report in U.S. Dollars
for the majority of the cash held by these subsidiaries is
subject to translation variance caused by changes in foreign
currency exchange rates as of the end of each respective
reporting period (the offset to which is recorded to accumulated
other comprehensive income (loss) on our consolidated balance
sheet). As the U.S. Dollar strengthened against most major
international currencies during the first half of fiscal 2009,
the amount of cash, cash equivalents and marketable securities
that we reported in U.S. Dollars for these subsidiaries
declined relative to what we would have reported using a
constant currency rate as of May 31, 2008. The decrease in
cash, cash equivalents and marketable securities at
November 30, 2008 in comparison to May 31, 2008 was
also due to cash used for our acquisitions and repurchases of
our common stock (see discussion above), partially offset by an
increase in our operating cash flows resulting primarily from
the collection of our trade receivables generated from our
higher sales volumes.
Days sales outstanding, which is calculated by dividing period
end accounts receivable by average daily sales for the quarter,
was 52 days at November 30, 2008 compared with
63 days at May 31, 2008. The days sales outstanding
40
calculation excludes the adjustment that reduces our acquired
software license updates and product support obligations to fair
value. Our decline in days sales outstanding is primarily due to
the collection, in our first half of fiscal 2009, of large
license and support balances outstanding as of May 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended November 30,
|
|
(Dollars in millions)
|
|
2008
|
|
|
Change
|
|
2007
|
|
|
Cash provided by operating activities
|
|
$
|
3,990
|
|
|
21%
|
|
$
|
3,303
|
|
Cash used for investing activities
|
|
$
|
(2,207
|
)
|
|
48%
|
|
$
|
(1,487
|
)
|
Cash used for financing activities
|
|
$
|
(1,928
|
)
|
|
25%
|
|
$
|
(1,544
|
)
|
Cash flows from operating
activities: Our largest source of operating
cash flows is cash collections from our customers following the
purchase and renewal of their software license updates and
product support agreements. Payments from customers for software
license updates and product support agreements are generally
received near the beginning of the contracts terms, which
are 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.
Net cash provided by operating activities increased in the first
half of fiscal 2009 primarily due to higher net income and the
collection of fourth quarter fiscal 2008 and first quarter
fiscal 2009 trade receivables associated with higher sales
volumes.
Cash flows from investing
activities: The changes in cash flows from
investing activities primarily relate to acquisitions and the
timing of purchases, maturities and sales of our investments in
marketable securities. We also use cash to invest in capital and
other assets to support our growth.
Net cash used for investing activities increased in the first
half of fiscal 2009 due to an increase in cash used to purchase
marketable securities (net of proceeds received from sales and
maturities), an increase in cash used for acquisitions, net of
cash acquired, and higher capital expenditures primarily related
to real estate assets purchased for operational use.
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.
Net cash used by financing activities in the first half of
fiscal 2009 increased compared to the first half of fiscal 2008
due to increased stock repurchases (see discussion in
Working Capital above and in Note 8 of Notes to
Condensed Consolidated Financial Statements for additional
information). This increase was partially offset by a reduction
in the amount of debt repayments made (the commercial paper
issued to finance the fiscal 2007 acquisition of Hyperion was
repaid in the first quarter of fiscal 2008) and a reduction
in proceeds from the exercise of employee stock options.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trailing 4-Quarters Ended November 30,
|
|
(Dollars in millions)
|
|
2008
|
|
|
Change
|
|
2007
|
|
|
Cash provided by operating activities
|
|
$
|
8,089
|
|
|
16%
|
|
$
|
6,957
|
|
Capital
expenditures(1)
|
|
|
(486
|
)
|
|
32%
|
|
|
(369
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Free cash flow
|
|
$
|
7,603
|
|
|
15%
|
|
$
|
6,588
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
5,750
|
|
|
|
|
$
|
4,781
|
|
|
|
|
|
|
|
|
|
|
|
|
Free cash flow as a percent of net income
|
|
|
132%
|
|
|
|
|
|
138%
|
|
|
|
|
(1) |
|
Represents capital expenditures as
reported in cash flows from investing activities in our
condensed consolidated statements of cash flows presented in
accordance with U.S. generally accepted accounting principles.
|
41
Long-Term
Customer Financing
We offer certain of 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 the first half of fiscal 2009 and 2008,
$442 million and $317 million, respectively, or
approximately 15% and 11%, 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 November 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ending May 31,
|
|
|
|
|
(Dollars in millions)
|
|
Total
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
Thereafter
|
|
|
Principal payments on
borrowings(1)
|
|
$
|
11,250
|
|
|
$
|
1,000
|
|
|
$
|
1,000
|
|
|
$
|
2,250
|
|
|
$
|
|
|
|
$
|
1,250
|
|
|
$
|
|
|
|
$
|
5,750
|
|
Capital
leases(2)
|
|
|
3
|
|
|
|
2
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest payments on
borrowings(1)
|
|
|
5,206
|
|
|
|
299
|
|
|
|
552
|
|
|
|
506
|
|
|
|
392
|
|
|
|
392
|
|
|
|
330
|
|
|
|
2,735
|
|
Operating
leases(3)
|
|
|
1,400
|
|
|
|
205
|
|
|
|
354
|
|
|
|
261
|
|
|
|
190
|
|
|
|
127
|
|
|
|
75
|
|
|
|
188
|
|
Purchase
obligations(4)
|
|
|
371
|
|
|
|
282
|
|
|
|
67
|
|
|
|
5
|
|
|
|
2
|
|
|
|
3
|
|
|
|
3
|
|
|
|
9
|
|
Funding
commitments(5)
|
|
|
3
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
18,233
|
|
|
$
|
1,791
|
|
|
$
|
1,974
|
|
|
$
|
3,022
|
|
|
$
|
584
|
|
|
$
|
1,772
|
|
|
$
|
408
|
|
|
$
|
8,682
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Our borrowings (excluding capital
leases) consist of the following as of November 30, 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 $8
|
|
|
1,992
|
|
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
|
|
$
|
11,235
|
|
|
|
|
|
|
|
|
|
|
|
Our floating rate senior notes due
May 2009 and May 2010 bore interest at a rate of 2.15% and
2.19%, respectively, as of November 30, 2008. In fiscal
2008, we entered into two interest rate swap agreements that
have the economic effect of modifying the variable interest
obligations associated with our floating rate senior notes due
May 2009 and May 2010 so that the interest payable on the senior
notes effectively became fixed at a rate of 4.62% and 4.59%,
respectively. Interest payments were calculated based on terms
of the related agreements and include estimates based on the
effective interest rates as of November 30, 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
$272 million in facility obligations, net of estimated
sublease income, in accrued restructuring for these locations in
our condensed consolidated balance sheet at November 30,
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.
|
42
Excluded from the table above are agreements that we entered
into during fiscal 2009 in which we agreed to acquire certain
companies but, as of November 30, 2008, had not yet closed
these transactions. We expect these transactions, which were not
significant individually or in the aggregate, to close during
the third quarter of fiscal 2009.
As of November 30, 2008, we have $1.7 billion of
unrecognized tax benefits recorded on our condensed consolidated
balance sheet. We have reached certain settlement agreements
with relevant taxing authorities to pay approximately
$68 million of these liabilities (these amounts have been
excluded from the table above due to the uncertainty of when
they might be settled). 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 our
unrecognized tax benefits 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 third 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.
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 November 30, 2008, 55% 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. In recent years, our stock repurchase
program has more than offset the dilutive effect of our stock
option program; however, we may reduce the level of our stock
repurchases in the future as we may use our available cash for
acquisitions, to repay indebtedness or for other purposes. At
November 30, 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 8.0%.
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
43
stock option grants up to 100,000 shares to non-executive
officers and employees. Stock option activity from June 1,
2005 through November 30, 2008 is summarized as follows
(shares in millions):
|
|
|
|
|
Options outstanding at May 31, 2005
|
|
|
469
|
|
Options granted
|
|
|
257
|
|
Options assumed
|
|
|
143
|
|
Options exercised
|
|
|
(362
|
)
|
Forfeitures and cancellations
|
|
|
(101
|
)
|
|
|
|
|
|
Options outstanding at November 30, 2008
|
|
|
406
|
|
|
|
|
|
|
Average annualized options granted and assumed, net of
forfeitures
|
|
|
76
|
|
Average annualized stock repurchases
|
|
|
176
|
|
Shares outstanding at November 30, 2008
|
|
|
5,046
|
|
Basic weighted average shares outstanding from June 1, 2005
through November 30, 2008
|
|
|
5,163
|
|
Options outstanding as a percent of shares outstanding at
November 30, 2008
|
|
|
8.0%
|
|
In the money options outstanding (based on our November 30,
2008 stock price) as a percent of shares outstanding at
November 30, 2008
|
|
|
3.6%
|
|
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 November 30, 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 November 30, 2008
|
|
|
-1.9%
|
|
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. During the first half of fiscal 2009,
we made our annual grant of stock options on July 3, 2008
and made or assumed other grants totaling 67 million
shares, which were partially offset by forfeitures of
5 million shares.
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 Condensed
Consolidated Financial Statements.
|
|
Item 3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
During the first half of fiscal 2009, there were no significant
changes to our quantitative and qualitative disclosures about
market risk. Please refer to Part II, Item 7A.
Quantitative and Qualitative Disclosures about Market Risk
included in our Annual Report on
Form 10-K
for our fiscal year ended May 31, 2008 for a more complete
discussion of the market risks we encounter.
|
|
Item 4.
|
Controls
and Procedures
|
Evaluation of Disclosure Controls and
Procedures. Our Chief Executive Officer and
our Chief Financial Officer, after evaluating the effectiveness
of our disclosure controls and procedures (as
defined in the Securities Exchange Act of 1934 (Exchange Act)
Rules 13a-15(e)
or
15d-15(e))
as of the end of the period covered by this quarterly report,
have concluded that our disclosure controls and procedures are
effective based on their evaluation of these controls and
procedures required by paragraph (b) of Exchange Act
Rules 13a-15
or 15d-15.
Changes in Internal Control over Financial
Reporting. There were no changes in our
internal control over financial reporting that occurred during
our last fiscal quarter that have materially affected, or are
reasonably likely to materially affect, our internal control
over financial reporting.
Inherent Limitations on Effectiveness of
Controls. Our management, including our Chief
Executive Officer and Chief Financial Officer, believes that our
disclosure controls and procedures and internal control over
financial reporting are effective at the reasonable assurance
level. However, our management does not expect that our
disclosure controls and procedures or our internal control over
financial reporting will prevent all errors and all
44
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.
PART II.
OTHER INFORMATION
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Item 1.
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Legal
Proceedings
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The material set forth in Note 12 of Notes to Condensed
Consolidated Financial Statements in Part I, Item 1 of
this quarterly report on
Form 10-Q
is incorporated herein by reference.
The
effects of the recent global economic crisis may impact our
business, operating results or
financial condition.
The recent global economic crisis has caused a general
tightening in the credit markets, lower levels of liquidity,
increases in the rates of default and bankruptcy, and extreme
volatility in credit, equity and fixed income markets. These
macroeconomic developments could negatively affect our business,
operating results or financial condition in a number of ways.
For example, current or potential customers may be unable to
fund software purchases, which could cause them to delay,
decrease or cancel purchases of our products and services or to
not pay us or to delay paying us for previously purchased
products and services. In some financial markets, institutions
may decrease or discontinue their purchase of the long-term
customer financing contracts that we have traditionally sold on
a non-recourse basis. As a result, we may hold more of these
contracts ourselves or require more customers to purchase our
products and services on a cash basis. In addition, financial
institution failures may cause us to incur increased expenses or
make it more difficult either to utilize our existing debt
capacity or otherwise obtain financing for our operations,
investing activities (including the financing of any future
acquisitions), or financing activities (including the timing and
amount of any repurchases of our common stock or debt we may
make in the future). Finally, our investment portfolio, which
includes short-term debt securities, is generally subject to
general credit, liquidity, counterparty, market and interest
rate risks that may be exacerbated by the recent global
financial crisis. If the banking system or the fixed income,
credit or equity markets continue to deteriorate or remain
volatile, our investment portfolio may be impacted and the
values and liquidity of our investments could be adversely
affected.
In addition to the above and other information set forth in this
report, you should carefully consider the factors discussed in
Part I, Item 1A. Risk Factors in our
Annual Report on
Form 10-K
for our fiscal year ended May 31, 2008. The risks discussed
in our Annual Report on
Form 10-K
could materially affect our business, financial condition and
future results. The risks described in our Annual Report on
Form 10-K
are not the only risks facing us. Additional risks and
uncertainties not currently known to us or that we currently
deem to be immaterial also may materially and adversely affect
our business, financial condition or operating results.
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Item 2.
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Unregistered
Sales of Equity Securities and Use of Proceeds
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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 and to repurchase shares
opportunistically. On October 20, 2008 we announced that
our Board of Directors had approved the expansion of our
repurchase program by $8.0 billion
45
and as of November 30, 2008, approximately
$7.7 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 or repurchases
of our debt, our stock price, and economic and market
conditions. Our stock repurchases may be effected from time to
time through open market purchases or pursuant to a
Rule 10b5-1
plan. Our stock repurchase program may be accelerated,
suspended, delayed or discontinued at any time.
The following table summarizes the stock repurchase activity for
the three months ended November 30, 2008 and the
approximate dollar value of shares that may yet be purchased
pursuant to our stock repurchase programs:
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Total Number of
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Approximate Dollar
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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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September 1, 2008September 30, 2008
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8.6
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$
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19.79
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8.6
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$
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1,540.4
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October 1, 2008October 31, 2008
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27.7
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$
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17.00
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27.7
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$
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9,068.8
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November 1, 2008November 30, 2008
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81.1
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$
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16.69
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81.1
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$
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7,713.4
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Total
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117.4
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$
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16.99
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117.4
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Item 4.
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Submission
of Matters to a Vote of Security Holders
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Set forth is information concerning each matter submitted to a
vote at the Annual Meeting of Stockholders on October 10,
2008.
Proposal No. 1: The stockholders elected each of the
following persons as a director to hold office until the 2009
Annual Meeting of Stockholders or until earlier retirement,
resignation or removal.
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Votes For
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Votes Withheld
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Directors Name
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(in millions)
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(in millions)
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Jeffrey O. Henley
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4,623
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86
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Lawrence J. Ellison
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4,579
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130
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Donald L. Lucas
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4,435
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274
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Michael J. Boskin
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4,609
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99
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Jack F. Kemp
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4,612
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97
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Jeffrey S. Berg
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3,685
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1,024
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Safra A. Catz
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4,624
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85
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Hector Garcia-Molina
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3,811
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898
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H. Raymond Bingham
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4,655
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54
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Charles E. Phillips, Jr.
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4,603
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106
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Naomi O. Seligman
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3,824
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885
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George H. Conrades
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4,584
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125
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Bruce R. Chizen
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4,655
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54
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Proposal No. 2: The stockholders approved the adoption
of Oracles Fiscal Year 2009 Executive Bonus Plan with
3,843 million affirmative votes, 821 million negative
votes and 46 million votes abstaining.
Proposal No. 3: The stockholders ratified the
appointment of Ernst & Young LLP as Oracles
independent registered public accounting firm for the fiscal
year ended May 31, 2009 with 4,669 million affirmative
votes, 8 million negative votes and 32 million votes
abstaining.
Proposal No. 4: The stockholders voted against a
stockholder proposal to adopt a policy that provides
stockholders the opportunity at each annual stockholder meeting
to vote on a non-binding, advisory resolution proposed by
management to ratify the compensation of the named executive
officers set forth in the Companys proxy statement
46
Summary Compensation Table and accompanying narrative disclosure
with 1,184 million affirmative votes, 2,692 million
negative votes, 168 million votes abstaining and
665 million broker non-votes.
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Exhibit
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Number
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Exhibit Title
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10
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.24(1)
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Description of the Fiscal Year 2009 Executive Bonus Plan
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31
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.01
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Certification Pursuant to Section 302 of the Sarbanes-Oxley
ActLawrence J. Ellison
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31
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.02
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Certification Pursuant to Section 302 of the Sarbanes-Oxley
ActJeff Epstein
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32
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.01
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Certification Pursuant to Section 906 of the Sarbanes-Oxley
Act
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(1) |
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Incorporated by reference to Oracle
Corporations current report on
Form 8-K
filed on October 16, 2008.
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47
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, Oracle Corporation has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly
authorized.
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ORACLE CORPORATION
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Date: December 22, 2008
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By:
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/s/ Jeff
Epstein
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Jeff Epstein
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Executive Vice President and
Chief Financial Officer
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Date: December 22, 2008
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By:
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/s/ William
Corey West
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William Corey West
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Senior Vice President, Corporate Controller and Chief Accounting
Officer
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48