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 February 28, 2009
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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
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(I.R.S. Employer
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incorporation or
organization)
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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 March 16, 2009 was: 4,983,414,000.
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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February 28,
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May 31,
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(in millions, except per share data)
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2009
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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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8,211
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$
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8,262
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Marketable securities
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3,083
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2,781
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Trade receivables, net of allowances of $281 and $303 as of
February 28, 2009 and May 31, 2008
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3,025
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5,127
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Deferred tax assets
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635
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853
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Prepaid expenses and other current assets
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657
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1,080
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Total current assets
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15,611
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18,103
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Non-current assets:
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Property, net
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1,914
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1,688
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Intangible assets: software support agreements and related
relationships, net
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3,550
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3,797
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Intangible assets: other, net
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4,154
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4,598
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Goodwill
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18,642
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17,991
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Other assets
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1,078
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1,091
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Total non-current assets
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29,338
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29,165
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Total assets
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$
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44,949
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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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272
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383
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Accrued compensation and related benefits
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1,073
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1,770
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Deferred revenues
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3,952
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4,492
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Other current liabilities
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1,673
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2,383
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Total current liabilities
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7,972
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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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1,802
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1,566
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Deferred tax liabilities
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942
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1,218
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Other non-current liabilities
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920
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1,195
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Total non-current liabilities
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13,900
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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, $0.01 par value and additional paid in
capitalauthorized: 11,000 shares; outstanding:
4,983 shares as of February 28, 2009 and
5,150 shares as of May 31, 2008
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12,758
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12,446
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Retained earnings
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10,468
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9,961
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Accumulated other comprehensive (loss) income
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(149
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)
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618
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Total stockholders equity
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23,077
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23,025
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Total liabilities and stockholders equity
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$
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44,949
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$
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47,268
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See notes to condensed consolidated financial statements.
1
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Three Months Ended
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Nine Months Ended
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February 28,
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February 29,
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February 28,
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February 29,
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(in millions, except per share data)
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2009
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2008
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2009
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2008
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Revenues:
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New software licenses
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$
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1,516
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$
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1,616
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$
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4,379
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$
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4,371
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Software license updates and product support
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2,917
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2,624
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8,702
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7,497
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Software revenues
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4,433
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4,240
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13,081
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11,868
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Services
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1,020
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1,109
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3,310
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3,323
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Total revenues
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5,453
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5,349
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16,391
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15,191
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Operating expenses:
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Sales and marketing
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1,054
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1,083
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3,312
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3,153
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Software license updates and product support
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256
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254
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795
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729
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Cost of services
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855
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989
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2,820
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2,911
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Research and development
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677
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682
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2,037
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2,007
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General and administrative
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192
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206
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571
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608
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Amortization of intangible assets
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437
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292
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1,276
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867
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Acquisition related and other
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27
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(40
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)
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98
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28
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Restructuring
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15
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8
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46
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14
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Total operating expenses
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3,513
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3,474
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10,955
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10,317
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Operating income
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1,940
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1,875
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5,436
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4,874
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Interest expense
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(154
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)
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(82
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)
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(471
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)
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(265
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)
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Non-operating income, net
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24
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84
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114
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284
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Income before provision for income taxes
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1,810
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1,877
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5,079
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4,893
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Provision for income taxes
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481
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537
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1,377
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1,409
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Net income
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$
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1,329
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$
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1,340
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$
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3,702
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$
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3,484
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Earnings per share:
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Basic
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$
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0.27
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$
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0.26
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$
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0.73
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$
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0.68
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Diluted
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$
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0.26
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$
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0.26
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$
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0.72
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$
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0.67
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Weighted average common shares outstanding:
|
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Basic
|
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5,005
|
|
|
|
5,148
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|
|
|
5,095
|
|
|
|
5,128
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Diluted
|
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5,056
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5,235
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5,159
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5,228
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
See notes to condensed consolidated financial statements.
2
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|
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Nine Months Ended
|
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|
|
February 28,
|
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February 29,
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(in millions)
|
|
2009
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2008
|
|
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Cash Flows From Operating Activities:
|
|
|
|
|
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Net income
|
|
$
|
3,702
|
|
|
$
|
3,484
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|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
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Depreciation
|
|
|
198
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|
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|
202
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|
Amortization of intangible assets
|
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|
1,276
|
|
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|
867
|
|
Deferred income taxes
|
|
|
(302
|
)
|
|
|
(130
|
)
|
Minority interests in income
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58
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|
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|
45
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Stock-based compensation
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|
274
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|
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|
233
|
|
Tax benefits on the exercise of stock options
|
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|
141
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|
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|
492
|
|
Excess tax benefits on the exercise of stock options
|
|
|
(92
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)
|
|
|
(403
|
)
|
In-process research and development
|
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|
10
|
|
|
|
7
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Other gains, net
|
|
|
|
|
|
|
(64
|
)
|
Changes in operating assets and liabilities, net of effects from
acquisitions:
|
|
|
|
|
|
|
|
|
Decrease in trade receivables, net
|
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|
1,848
|
|
|
|
980
|
|
Decrease in prepaid expenses and other assets
|
|
|
336
|
|
|
|
61
|
|
Decrease in accounts payable and other liabilities
|
|
|
(1,097
|
)
|
|
|
(482
|
)
|
Decrease in income taxes payable
|
|
|
(51
|
)
|
|
|
(273
|
)
|
(Decrease) increase in deferred revenues
|
|
|
(54
|
)
|
|
|
88
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
6,247
|
|
|
|
5,107
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|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
Purchases of marketable securities and other investments
|
|
|
(6,906
|
)
|
|
|
(3,629
|
)
|
Proceeds from maturities and sales of marketable securities and
other investments
|
|
|
6,397
|
|
|
|
2,532
|
|
Acquisitions, net of cash acquired
|
|
|
(1,165
|
)
|
|
|
(700
|
)
|
Capital expenditures
|
|
|
(491
|
)
|
|
|
(195
|
)
|
Proceeds from sale of property
|
|
|
|
|
|
|
153
|
|
|
|
|
|
|
|
|
|
|
Net cash used for investing activities
|
|
|
(2,165
|
)
|
|
|
(1,839
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
Payments for repurchases of common stock
|
|
|
(3,704
|
)
|
|
|
(1,520
|
)
|
Proceeds from issuances of common stock
|
|
|
448
|
|
|
|
1,047
|
|
Repayments of borrowings
|
|
|
(4
|
)
|
|
|
(1,362
|
)
|
Excess tax benefits on the exercise of stock options
|
|
|
92
|
|
|
|
403
|
|
Distributions to minority interests
|
|
|
(53
|
)
|
|
|
(49
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used for financing activities
|
|
|
(3,221
|
)
|
|
|
(1,481
|
)
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(912
|
)
|
|
|
404
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(51
|
)
|
|
|
2,191
|
|
Cash and cash equivalents at beginning of period
|
|
|
8,262
|
|
|
|
6,218
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
8,211
|
|
|
$
|
8,409
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
4
|
|
|
$
|
(21
|
)
|
See notes to condensed consolidated financial statements.
3
|
|
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
that 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. 161, Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB
Statement No. 133, for which we have provided
disclosures in Note 7 and 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 and other 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 (income), 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
|
|
|
Nine Months Ended
|
|
|
|
February 28,
|
|
|
February 29,
|
|
|
February 28,
|
|
|
February 29,
|
|
(in millions)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
In-process research and development
|
|
$
|
4
|
|
|
$
|
|
|
|
$
|
10
|
|
|
$
|
7
|
|
Transitional and other employee related costs
|
|
|
8
|
|
|
|
6
|
|
|
|
39
|
|
|
|
27
|
|
Stock-based compensation
|
|
|
3
|
|
|
|
3
|
|
|
|
14
|
|
|
|
39
|
|
Professional fees and other, net
|
|
|
12
|
|
|
|
3
|
|
|
|
24
|
|
|
|
7
|
|
Business combination adjustments
|
|
|
|
|
|
|
5
|
|
|
|
11
|
|
|
|
5
|
|
Gain on sale of property
|
|
|
|
|
|
|
(57
|
)
|
|
|
|
|
|
|
(57
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total acquisition related and other expenses
|
|
$
|
27
|
|
|
$
|
(40
|
)
|
|
$
|
98
|
|
|
$
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In December 2007, we sold certain of our land and buildings for
$153 million in cash. Concurrent with the sale, we leased
the property back from the buyer for a period of up to three
years. We have accounted for this transaction in accordance with
FASB Statement No. 28, Accounting for Sales with
Leasebacks, FASB Statement No. 66, Accounting for
Sales of Real Estate, and FASB Statement No. 98,
Accounting for Leases, et al. We deferred
$19 million of the gain on the sale representing the
present value of the operating lease commitment and recognized a
gain of approximately $57 million during the three and nine
months ended February 29, 2008.
4
ORACLE
CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
February 28, 2009
(Unaudited)
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 (losses), 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
February 28,
|
|
|
February 29,
|
|
|
February 28,
|
|
|
February 29,
|
|
(in millions)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Interest income
|
|
$
|
58
|
|
|
$
|
89
|
|
|
$
|
243
|
|
|
$
|
253
|
|
Foreign currency (losses) gains, net
|
|
|
(9
|
)
|
|
|
20
|
|
|
|
(22
|
)
|
|
|
47
|
|
Minority interests in income
|
|
|
(23
|
)
|
|
|
(17
|
)
|
|
|
(58
|
)
|
|
|
(45
|
)
|
Other (losses) income, net
|
|
|
(2
|
)
|
|
|
(8
|
)
|
|
|
(49
|
)
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-operating income, net
|
|
$
|
24
|
|
|
$
|
84
|
|
|
$
|
114
|
|
|
$
|
284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
Nine Months Ended
|
|
|
|
February 28,
|
|
|
February 29,
|
|
|
February 28,
|
|
|
February 29,
|
|
(in millions)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Net income
|
|
$
|
1,329
|
|
|
$
|
1,340
|
|
|
$
|
3,702
|
|
|
$
|
3,484
|
|
Foreign currency translation (losses) gains, net
|
|
|
(56
|
)
|
|
|
78
|
|
|
|
(739
|
)
|
|
|
287
|
|
Unrealized gains (losses) on derivative financial instruments,
net
|
|
|
10
|
|
|
|
(40
|
)
|
|
|
(34
|
)
|
|
|
(92
|
)
|
Unrealized (losses) gains on marketable securities, net
|
|
|
(4
|
)
|
|
|
|
|
|
|
6
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
1,279
|
|
|
$
|
1,378
|
|
|
$
|
2,935
|
|
|
$
|
3,680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
5
ORACLE
CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
February 28, 2009
(Unaudited)
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
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.
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 and to apply these financial statement presentation
requirements retrospectively. 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)
February 28, 2009
(Unaudited)
Fiscal
2009 Acquisitions
During the first nine months of fiscal 2009, we acquired several
companies and purchased certain technology and development
assets primarily to expand our product offerings. These
acquisitions were not individually significant. We have included
the financial results of these companies in our fiscal 2009
consolidated results from their respective acquisition dates. In
the aggregate, the total purchase price for these acquisitions
was approximately $1.2 billion, which consisted of
$1.2 billion in cash, $1 million for the fair value of
stock awards assumed and $11 million for transaction costs.
In allocating the total purchase price for these acquisitions
based on estimated fair values, we preliminarily recorded
$703 million of goodwill, $585 million of identifiable
intangible assets, $95 million of net tangible liabilities
(resulting primarily from deferred tax and restructuring
liabilities assumed as a part of these transactions) and
$10 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 relate 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, $856 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 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
7
ORACLE
CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
February 28, 2009
(Unaudited)
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 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
nine months ended February 28, 2009 combined the historical
results of Oracle for the three and nine months ended
February 28, 2009 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 effects of the pro
forma adjustments listed above.
The unaudited pro forma financial information for the three and
nine months ended February 29, 2008 combined the historical
results of Oracle for the three and nine months ended
February 29, 2008 and, due to differences in our reporting
periods, the historical results of BEA for the three and nine
months ended January 31, 2008, 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 effects of the pro
forma adjustments listed above. The unaudited pro forma
financial information was as follows for the three and nine
months ended February 28, 2009 and February 29, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
February 28,
|
|
|
February 29,
|
|
|
February 28,
|
|
|
February 29,
|
|
(in millions, except per share data)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Total revenues
|
|
$
|
5,455
|
|
|
$
|
5,865
|
|
|
$
|
16,510
|
|
|
$
|
16,626
|
|
Net income
|
|
$
|
1,329
|
|
|
$
|
1,277
|
|
|
$
|
3,685
|
|
|
$
|
3,218
|
|
Basic earnings per share
|
|
$
|
0.27
|
|
|
$
|
0.25
|
|
|
$
|
0.72
|
|
|
$
|
0.63
|
|
Diluted earnings per share
|
|
$
|
0.26
|
|
|
$
|
0.24
|
|
|
$
|
0.71
|
|
|
$
|
0.61
|
|
|
|
3.
|
FAIR
VALUE MEASUREMENTS
|
On June 1, 2008, we adopted FASB Statement No. 157,
Fair Value Measurements and subsequently adopted 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
8
ORACLE
CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
February 28, 2009
(Unaudited)
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 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 February 28, 2009 (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
|
|
$
|
955
|
|
|
$
|
|
|
|
$
|
955
|
|
U.S. Treasury, U.S. government and U.S. government agency
debt securities
|
|
|
1,839
|
|
|
|
|
|
|
|
1,839
|
|
Commercial paper debt securities
|
|
|
|
|
|
|
2,666
|
|
|
|
2,666
|
|
Corporate debt securities and other
|
|
|
|
|
|
|
1,251
|
|
|
|
1,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial assets
|
|
$
|
2,794
|
|
|
$
|
3,917
|
|
|
$
|
6,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instrument liabilities
|
|
$
|
|
|
|
$
|
50
|
|
|
$
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial liabilities
|
|
$
|
|
|
|
$
|
50
|
|
|
$
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
9
ORACLE
CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
February 28, 2009
(Unaudited)
|
|
4.
|
GOODWILL
AND INTANGIBLE ASSETS
|
The changes in intangible assets for fiscal 2009 and the net
book value of intangible assets at February 28, 2009 and
May 31, 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible Assets, Gross
|
|
|
Accumulated Amortization
|
|
|
Intangible Assets, Net
|
|
|
Weighted
|
|
|
May 31,
|
|
|
|
|
|
February 28,
|
|
|
May 31,
|
|
|
|
|
|
February 28,
|
|
|
May 31,
|
|
|
February 28,
|
|
|
Average
|
(Dollars in millions)
|
|
2008
|
|
|
Additions
|
|
|
2009
|
|
|
2008
|
|
|
Expense
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
Useful Life
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software support agreements and related relationships
|
|
$
|
4,849
|
|
|
$
|
163
|
|
|
$
|
5,012
|
|
|
$
|
(1,052
|
)
|
|
$
|
(410
|
)
|
|
$
|
(1,462
|
)
|
|
$
|
3,797
|
|
|
$
|
3,550
|
|
|
9 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Developed technology
|
|
|
3,607
|
|
|
|
236
|
|
|
|
3,843
|
|
|
|
(1,203
|
)
|
|
|
(538
|
)
|
|
|
(1,741
|
)
|
|
|
2,404
|
|
|
|
2,102
|
|
|
5 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core technology
|
|
|
1,427
|
|
|
|
75
|
|
|
|
1,502
|
|
|
|
(432
|
)
|
|
|
(190
|
)
|
|
|
(622
|
)
|
|
|
995
|
|
|
|
880
|
|
|
6 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
|
1,183
|
|
|
|
101
|
|
|
|
1,284
|
|
|
|
(170
|
)
|
|
|
(111
|
)
|
|
|
(281
|
)
|
|
|
1,013
|
|
|
|
1,003
|
|
|
8 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
|
|
262
|
|
|
|
10
|
|
|
|
272
|
|
|
|
(76
|
)
|
|
|
(27
|
)
|
|
|
(103
|
)
|
|
|
186
|
|
|
|
169
|
|
|
7 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
11,328
|
|
|
$
|
585
|
|
|
$
|
11,913
|
|
|
$
|
(2,933
|
)
|
|
$
|
(1,276
|
)
|
|
$
|
(4,209
|
)
|
|
$
|
8,395
|
|
|
$
|
7,704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortization expense related to our intangible assets was
$437 million and $1.3 billion for the three and nine
months ended February 28, 2009, respectively, and
$292 million and $867 million for the three and nine
months ended February 29, 2008, respectively. As of
February 28, 2009, estimated future amortization expense
related to our intangible assets was $453 million for the
remainder of fiscal 2009, $1.7 billion in fiscal 2010,
$1.4 billion in fiscal 2011, $1.2 billion in fiscal
2012, $1.1 billion in fiscal 2013, $881 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 nine months ended February 28, 2009, 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
|
|
|
369
|
|
|
|
280
|
|
|
|
54
|
|
|
|
|
|
|
|
703
|
|
Goodwill
adjustments(2)
|
|
|
(14
|
)
|
|
|
(31
|
)
|
|
|
(7
|
)
|
|
|
|
|
|
|
(52
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of February 28, 2009
|
|
$
|
5,671
|
|
|
$
|
11,184
|
|
|
$
|
1,787
|
|
|
$
|
|
|
|
$
|
18,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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
2009 Oracle Restructuring Plan
During the third quarter of fiscal 2009, our management
approved, committed to and initiated plans to restructure and
further improve efficiencies in our Oracle-based operations (the
2009 Plan). The total estimated restructuring costs associated
with the 2009 Plan are $213 million and will be recorded to
the restructuring expense line item within our consolidated
statements of operations as they are recognized. In the first
nine months of fiscal 2009 we recorded $18 million of
restructuring expenses in connection with the 2009 Plan. We
expect to incur the majority of the remaining $195 million
during the remainder of calendar 2009. Any changes to the
estimates of executing the 2009 Plan will be reflected in our
future results of operations.
10
ORACLE
CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
February 28, 2009
(Unaudited)
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
Oracle-based effects resulting from our acquisition of BEA.
During the third quarter of fiscal 2009, we further refined our
estimates of total costs that we expect to incur pursuant to the
2008 Plan. Estimated restructuring costs relating to employees
included in the 2008 plan that had not yet been notified as of
the third quarter of fiscal 2009 were transferred to the 2009
Plan. The total estimated restructuring costs (primarily related
to employee severance) associated with the 2008 Plan were
$69 million; these costs were recorded to the restructuring
expense line item within our consolidated statements of
operations. In the first nine months of fiscal 2009 we recorded
$28 million of restructuring expenses and in fiscal year
2008 we recorded $41 million of restructuring expenses in
connection with the 2008 Plan. 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 pre-acquisition operations of BEA (BEA Restructuring
Plan), Hyperion Solutions Corporation (Hyperion Restructuring
Plan) and Siebel Systems, Inc. (Siebel Restructuring Plan),
respectively. Our management initiated these plans in connection
with 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 $229 million, consisting of estimated severance,
excess facilities obligations through fiscal 2014 as well as
other restructuring costs. The total restructuring costs
associated with exiting activities of Hyperion were
$109 million, consisting of severance, excess facilities
obligations through fiscal 2016, as well as other restructuring
costs. The total restructuring costs associated with exiting
activities of Siebel were $584 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)
February 28, 2009
(Unaudited)
Summary
of Restructuring Plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Total
|
|
|
|
Accrued
|
|
|
Nine Months Ended February 28, 2009
|
|
|
Accrued
|
|
|
Costs
|
|
|
Expected
|
|
|
|
May 31,
|
|
|
Initial
|
|
|
Adj. to
|
|
|
Cash
|
|
|
|
|
|
Feb. 28,
|
|
|
Accrued
|
|
|
Program
|
|
(in millions)
|
|
2008(2)
|
|
|
Costs(3)
|
|
|
Cost(4)
|
|
|
Payments
|
|
|
Other(5)
|
|
|
2009(2)
|
|
|
to Date
|
|
|
Costs
|
|
|
Fiscal 2009 Oracle Restructuring Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New software licenses
|
|
$
|
|
|
|
$
|
10
|
|
|
$
|
|
|
|
$
|
(7
|
)
|
|
$
|
|
|
|
$
|
3
|
|
|
$
|
10
|
|
|
$
|
86
|
|
Software license updates and product support
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
Services
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
1
|
|
|
|
2
|
|
|
|
85
|
|
Other(1)
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
4
|
|
|
|
6
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fiscal 2009 Oracle Restructuring
|
|
$
|
|
|
|
$
|
18
|
|
|
$
|
|
|
|
$
|
(10
|
)
|
|
$
|
|
|
|
$
|
8
|
|
|
$
|
18
|
|
|
$
|
213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2008 Oracle Restructuring Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New software licenses
|
|
$
|
10
|
|
|
$
|
11
|
|
|
$
|
|
|
|
$
|
(15
|
)
|
|
$
|
|
|
|
$
|
6
|
|
|
$
|
28
|
|
|
$
|
28
|
|
Software license updates and product support
|
|
|
5
|
|
|
|
1
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
3
|
|
|
|
7
|
|
|
|
7
|
|
Services
|
|
|
6
|
|
|
|
14
|
|
|
|
|
|
|
|
(18
|
)
|
|
|
|
|
|
|
2
|
|
|
|
24
|
|
|
|
24
|
|
Other(1)
|
|
|
2
|
|
|
|
2
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
1
|
|
|
|
10
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fiscal 2008 Oracle Restructuring
|
|
$
|
23
|
|
|
$
|
28
|
|
|
$
|
|
|
|
$
|
(39
|
)
|
|
$
|
|
|
|
$
|
12
|
|
|
$
|
69
|
|
|
$
|
69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BEA Restructuring Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
$
|
112
|
|
|
$
|
(1
|
)
|
|
$
|
|
|
|
$
|
(45
|
)
|
|
$
|
(3
|
)
|
|
$
|
63
|
|
|
$
|
152
|
|
|
$
|
152
|
|
Facilities
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
(17
|
)
|
|
|
(4
|
)
|
|
|
42
|
|
|
|
63
|
|
|
|
63
|
|
Contracts and other
|
|
|
14
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
8
|
|
|
|
14
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total BEA Restructuring
|
|
$
|
189
|
|
|
$
|
(2
|
)
|
|
$
|
|
|
|
$
|
(67
|
)
|
|
$
|
(7
|
)
|
|
$
|
113
|
|
|
$
|
229
|
|
|
$
|
229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hyperion Restructuring Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
$
|
33
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(8
|
)
|
|
$
|
(3
|
)
|
|
$
|
22
|
|
|
$
|
47
|
|
|
$
|
47
|
|
Facilities
|
|
|
34
|
|
|
|
|
|
|
|
(9
|
)
|
|
|
(10
|
)
|
|
|
(6
|
)
|
|
|
9
|
|
|
|
41
|
|
|
|
41
|
|
Contracts and other
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
13
|
|
|
|
21
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Hyperion Restructuring
|
|
$
|
81
|
|
|
$
|
|
|
|
$
|
(9
|
)
|
|
$
|
(19
|
)
|
|
$
|
(9
|
)
|
|
$
|
44
|
|
|
$
|
109
|
|
|
$
|
109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Siebel Restructuring Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1
|
|
|
$
|
60
|
|
|
$
|
60
|
|
Facilities
|
|
|
179
|
|
|
|
|
|
|
|
9
|
|
|
|
(32
|
)
|
|
|
(19
|
)
|
|
|
137
|
|
|
|
483
|
|
|
|
483
|
|
Contracts and other
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
41
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Siebel Restructuring
|
|
$
|
192
|
|
|
$
|
|
|
|
$
|
9
|
|
|
$
|
(32
|
)
|
|
$
|
(19
|
)
|
|
$
|
150
|
|
|
$
|
584
|
|
|
$
|
584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other Restructuring Plans
|
|
$
|
83
|
|
|
$
|
|
|
|
$
|
4
|
|
|
$
|
(21
|
)
|
|
$
|
(4
|
)
|
|
$
|
62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Restructuring
Plans(6)
|
|
$
|
568
|
|
|
$
|
44
|
|
|
$
|
4
|
|
|
$
|
(188
|
)
|
|
$
|
(39
|
)
|
|
$
|
389
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes severance costs associated
with research and development, general and administrative
functions, and certain other facility related costs.
|
|
(2) |
|
Accrued restructuring at
February 28, 2009 and May 31, 2008 was
$389 million and $568 million, respectively. The
balances include $214 million and $308 million
recorded in other current liabilities and $175 million and
$260 million recorded in other non-current liabilities in
the accompanying condensed consolidated balance sheets at
February 28, 2009 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 nine months 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)
February 28, 2009
(Unaudited)
Deferred revenues consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
February 28,
|
|
|
May 31,
|
|
(in millions)
|
|
2009
|
|
|
2008
|
|
|
Software license updates and product support
|
|
$
|
3,509
|
|
|
$
|
3,939
|
|
Services
|
|
|
261
|
|
|
|
333
|
|
New software licenses
|
|
|
182
|
|
|
|
220
|
|
|
|
|
|
|
|
|
|
|
Deferred revenues, current
|
|
|
3,952
|
|
|
|
4,492
|
|
Deferred revenues, non-current
|
|
|
198
|
|
|
|
262
|
|
|
|
|
|
|
|
|
|
|
Total deferred revenues
|
|
$
|
4,150
|
|
|
$
|
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
$51 million and $22 million for the three months ended
February 28, 2009 and February 29, 2008, respectively,
and $222 million and $138 million for the nine months
ended February 28, 2009 and February 29, 2008,
respectively, which would have been otherwise recorded by our
acquired businesses as independent entities.
|
|
7.
|
COMMITMENTS
AND CONTINGENCIES
|
Derivative
Financial Instruments
On December 1, 2008, we adopted FASB Statement
No. 161, Disclosures about Derivative Instruments and
Hedging Activities, an amendment of FASB Statement 133. The
adoption of Statement 161 had no financial impact on our
consolidated financial statements and only required additional
financial statement disclosures. We have applied the
requirements of Statement 161 on a prospective basis.
Accordingly, disclosures related to interim periods prior to the
date of adoption have not been presented.
Interest
Rate Swap Agreements
We use interest rate swaps to manage the economic effect of
variable interest obligations associated with our floating rate
senior notes so that the interest payable on the senior notes
effectively becomes fixed at a certain rate, thereby reducing
the impact of future interest rate changes on our future
interest expense. As of February 28, 2009, we have two
interest rate swap agreements that have the economic effect of
modifying the variable interest obligations associated with our
floating rate senior notes due in May 2009 and May 2010 so that
the interest payable
13
ORACLE
CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
February 28, 2009
(Unaudited)
on the senior notes effectively becomes fixed at a rate of 4.62%
and 4.59%, respectively. The critical terms of the interest rate
swap agreements and the senior notes due in May 2009 and May
2010 match, including the notional amounts, interest rate reset
dates, maturity dates and underlying market indices.
Accordingly, we have designated these swaps as qualifying
instruments and are accounting for these swaps as cash flow
hedges pursuant to FASB Statement No. 133, Accounting
for Derivative Instruments and Hedging Activities. The
unrealized losses on these interest rate swaps are included in
accumulated other comprehensive (loss) income and the
corresponding fair value payables are included in other current
liabilities in our consolidated balance sheet. The periodic
interest settlements, which occur at the same interval as the
senior notes due in May 2009 and May 2010, are recorded as
interest expense.
Net
Investment Hedges
Periodically, we hedge net assets of certain of our
international subsidiaries using foreign currency forward
contracts to offset the translation and economic exposures
related to our foreign currency-based investments in these
subsidiaries. These contracts have been designated as net
investment hedges pursuant to Statement 133. We use the spot
method to measure the effectiveness of our net investment
hedges. Under this method for each reporting period, the change
in fair value of the forward contracts attributable to the
changes in spot exchange rates (the effective portion) is
reported in accumulated other comprehensive (loss) income on our
consolidated balance sheet and the remaining change in fair
value of the forward contract (the ineffective portion, if any)
is recognized in non-operating income, net, in our consolidated
statement of operations. We record settlements under these
forward contracts in a similar manner. The fair value of the
effective and ineffective portions is recorded to our
consolidated balance sheet as prepaid expenses and other current
assets for amounts receivable from the counterparties or other
current liabilities for amounts payable to the counterparties.
As of February 28, 2009, we had one net investment hedge in
Japanese Yen. The Yen investment hedge minimizes currency risk
arising from net assets held in Yen as a result of equity
capital raised during the initial public offering and secondary
offering of our majority owned subsidiary, Oracle Japan. As of
February 28, 2009, the fair value of our net investment
hedge in Japanese Yen was nominal and had a notional amount of
$681 million.
Foreign
Currency Forward Contracts Not Designated as
Hedges
We transact business in various foreign currencies and have
established a program that primarily utilizes foreign currency
forward contracts to offset the risks associated with the
effects of certain foreign currency exposures. Under this
program, our strategy is to have increases or decreases in our
foreign currency exposures offset by gains or losses on the
foreign currency forward contracts to mitigate the risks and
volatility associated with foreign currency transaction gains or
losses. These foreign currency exposures typically arise from
intercompany sublicense fees and other intercompany
transactions. Our foreign currency forward contracts generally
settle within 90 days. We do not use these forward
contracts for trading purposes. We do not designate these
forward contracts as hedging instruments pursuant to Statement
133. Accordingly, we record the fair value of these contracts as
of the end of our reporting period to our consolidated balance
sheet with changes in fair value recorded in our consolidated
statement of operations. The balance sheet classification for
the fair values of these forward contracts is to prepaid
expenses and other current assets for unrealized gains and to
other current liabilities for unrealized losses. The statement
of operations classification for the fair values of these
forward contracts is to non-operating income, net, for both
realized and unrealized gains and losses.
As of February 28, 2009, the notional amounts of the
forward contracts we held to purchase and sell U.S. Dollars
in exchange for other major international currencies were
$783 million and $997 million, respectively, and the
notional amounts of the foreign currency forward contracts we
held to purchase European Euros in exchange for other major
international currencies were 109 million.
14
ORACLE
CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
February 28, 2009
(Unaudited)
The effects of derivative instruments on our condensed
consolidated financial statements were as follows as of
February 28, 2009 and for the three months then ended
(amounts presented exclude any income tax effects):
Fair
Value of Derivative Instruments in Condensed Consolidated
Balance Sheet
|
|
|
|
|
|
|
|
|
February 28, 2009
|
|
(in millions)
|
|
Balance Sheet Location
|
|
Fair Value
|
|
|
Interest rate swap agreements designated as cash flow hedges
|
|
Other current liabilities
|
|
$
|
45
|
|
Foreign currency forward contracts designated as net investment
hedges
|
|
Other current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as hedging instruments
|
|
|
|
$
|
45
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts not designated as hedges
|
|
Other current liabilities
|
|
$
|
5
|
|
|
|
|
|
|
|
|
Total derivatives
|
|
|
|
$
|
50
|
|
|
|
|
|
|
|
|
Effects
of Derivative Instruments on Income and Other Comprehensive
Income (OCI)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain
|
|
|
|
|
|
|
|
(Loss) Recognized in
|
|
|
Amount and Location of
|
|
Amount and Location of Gain (Loss)
|
|
|
Accumulated OCI on
|
|
|
Gain (Loss) Reclassified
|
|
Recognized in Income on Derivative
|
|
|
Derivative (Effective
|
|
|
from Accumulated OCI into
|
|
(Ineffective Portion and Amount
|
|
|
Portion)
|
|
|
Income (Effective Portion)
|
|
Excluded from Effectiveness Testing)
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
Three Months Ended
|
(in millions)
|
|
February 28, 2009
|
|
|
February 28, 2009
|
|
February 28, 2009
|
|
Cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
3
|
|
|
$
|
(13
|
)
|
|
Interest Expense
|
|
$
|
|
|
|
Non-operating Income, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward
contracts
|
|
$
|
10
|
|
|
$
|
|
|
|
Not Applicable
|
|
$
|
3
|
|
|
Non-operating Income, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount and Location of Gain (Loss)
|
|
|
Recognized in Income on Derivative
|
|
|
Three Months Ended
|
(in millions)
|
|
February 28, 2009
|
|
Derivatives Not Designated as Hedges:
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
$
|
(25
|
)
|
|
Non-operating income, net
|
|
|
|
|
|
|
|
Peoplesoft
Customer Assurance Program
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. As of February 28, 2009,
substantially all of our contingent obligations related to the
CAP had expired, and we do not believe it is probable that our
post-acquisition activities have triggered any obligations to
make any payments pursuant to the CAP.
15
ORACLE
CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
February 28, 2009
(Unaudited)
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 February 28, 2009, approximately $6.5 billion was
available for share repurchases pursuant to our stock repurchase
program. We repurchased approximately 211.6 million shares
for $3.7 billion during the nine months ended
February 28, 2009 (including approximately 1.7 million
shares for $28 million that were repurchased but not
settled at February 28, 2009) and 73.2 million
shares for $1.5 billion during the nine months ended
February 29, 2008 (including approximately 1.3 million
shares for $26 million that were repurchased but not
settled at February 29, 2008) 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 and dividend payments (see Note 13), 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.
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
|
|
|
Nine Months Ended
|
|
|
|
February 28,
|
|
|
February 29,
|
|
|
February 28,
|
|
|
February 29,
|
|
(in millions)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Sales and marketing
|
|
$
|
16
|
|
|
$
|
12
|
|
|
$
|
51
|
|
|
$
|
38
|
|
Software license updates and product support
|
|
|
3
|
|
|
|
1
|
|
|
|
10
|
|
|
|
8
|
|
Cost of services
|
|
|
3
|
|
|
|
2
|
|
|
|
9
|
|
|
|
9
|
|
Research and development
|
|
|
39
|
|
|
|
31
|
|
|
|
121
|
|
|
|
84
|
|
General and administrative
|
|
|
24
|
|
|
|
16
|
|
|
|
69
|
|
|
|
55
|
|
Acquisition related and other
|
|
|
3
|
|
|
|
3
|
|
|
|
14
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation
|
|
$
|
88
|
|
|
$
|
65
|
|
|
$
|
274
|
|
|
$
|
233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
$5 million and an increase of $8 million to our
stock-based compensation expense for the nine months ended
February 28, 2009 and February 29, 2008, 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 values of our stock options were estimated at
the date of grant or date of acquisition for acquired options
assumed. The weighted
16
ORACLE
CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
February 28, 2009
(Unaudited)
average input assumptions used and resulting fair values were as
follows for the three and nine months ended February 28,
2009 and February 29, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
February 28,
|
|
|
February 29,
|
|
|
February 28,
|
|
|
February 29,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Expected life (in years)
|
|
|
4.9
|
|
|
|
4.7
|
|
|
|
5.3
|
|
|
|
5.3
|
|
Risk-free interest rate
|
|
|
2.1%
|
|
|
|
2.8%
|
|
|
|
3.3%
|
|
|
|
5.0%
|
|
Volatility
|
|
|
46%
|
|
|
|
32%
|
|
|
|
37%
|
|
|
|
27%
|
|
Dividend yield
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average fair value of grants
|
|
$
|
6.76
|
|
|
$
|
6.89
|
|
|
$
|
7.89
|
|
|
$
|
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 did not historically pay cash
dividends on our common stock and, as of the date of grant, did
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
in foreign operations. Our effective tax rate was 26.6% and
27.1% for the three and nine months ended February 28,
2009, respectively, and 28.6% and 28.8% for the three and nine
months ended February 29, 2008, respectively. The decreases
in our effective tax rate were the result of a higher proportion
of our worldwide taxable income being earned in lower tax rate
jurisdictions, driven by transfer pricing adjustments. The
effective tax rate was also impacted by a decrease attributable
to changes in tax laws. These decreases were offset, in part, by
an increase in income taxes attributable to unfavorable changes
in foreign currency exchange rates which disproportionately
affected our profits in relatively low-tax jurisdictions.
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 actual 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
17
ORACLE
CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
February 28, 2009
(Unaudited)
renewal for the years ending May 31, 2007 through
May 31, 2011. There can be no guarantee that renewal
negotiations will result in an agreement. We concluded an
additional bilateral agreement to cover the period from
June 1, 2001 through January 25, 2008.
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
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.
18
ORACLE
CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
February 28, 2009
(Unaudited)
The following table presents a summary of our businesses and
operating segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
February 28,
|
|
|
February 29,
|
|
|
February 28,
|
|
|
February 29,
|
|
(in millions)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
New software licenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues(1)
|
|
$
|
1,513
|
|
|
$
|
1,612
|
|
|
$
|
4,370
|
|
|
$
|
4,362
|
|
Sales and distribution expenses
|
|
|
908
|
|
|
|
927
|
|
|
|
2,856
|
|
|
|
2,701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Margin(2)
|
|
$
|
605
|
|
|
$
|
685
|
|
|
$
|
1,514
|
|
|
$
|
1,661
|
|
Software license updates and product support:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues(1)
|
|
$
|
2,968
|
|
|
$
|
2,647
|
|
|
$
|
8,924
|
|
|
$
|
7,634
|
|
Cost of services
|
|
|
239
|
|
|
|
234
|
|
|
|
744
|
|
|
|
676
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Margin(2)
|
|
$
|
2,729
|
|
|
$
|
2,413
|
|
|
$
|
8,180
|
|
|
$
|
6,958
|
|
Total software business:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues(1)
|
|
$
|
4,481
|
|
|
$
|
4,259
|
|
|
$
|
13,294
|
|
|
$
|
11,996
|
|
Expenses
|
|
|
1,147
|
|
|
|
1,161
|
|
|
|
3,600
|
|
|
|
3,377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Margin(2)
|
|
$
|
3,334
|
|
|
$
|
3,098
|
|
|
$
|
9,694
|
|
|
$
|
8,619
|
|
Consulting:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues(1)
|
|
$
|
754
|
|
|
$
|
837
|
|
|
$
|
2,447
|
|
|
$
|
2,504
|
|
Cost of services
|
|
|
621
|
|
|
|
727
|
|
|
|
2,060
|
|
|
|
2,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Margin(2)
|
|
$
|
133
|
|
|
$
|
110
|
|
|
$
|
387
|
|
|
$
|
380
|
|
On Demand:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues(1)
|
|
$
|
191
|
|
|
$
|
174
|
|
|
$
|
576
|
|
|
$
|
501
|
|
Cost of services
|
|
|
134
|
|
|
|
142
|
|
|
|
416
|
|
|
|
419
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Margin(2)
|
|
$
|
57
|
|
|
$
|
32
|
|
|
$
|
160
|
|
|
$
|
82
|
|
Education:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues(1)
|
|
$
|
78
|
|
|
$
|
101
|
|
|
$
|
296
|
|
|
$
|
328
|
|
Cost of services
|
|
|
63
|
|
|
|
74
|
|
|
|
216
|
|
|
|
230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Margin(2)
|
|
$
|
15
|
|
|
$
|
27
|
|
|
$
|
80
|
|
|
$
|
98
|
|
Total services business:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues(1)
|
|
$
|
1,023
|
|
|
$
|
1,112
|
|
|
$
|
3,319
|
|
|
$
|
3,333
|
|
Cost of services
|
|
|
818
|
|
|
|
943
|
|
|
|
2,692
|
|
|
|
2,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Margin(2)
|
|
$
|
205
|
|
|
$
|
169
|
|
|
$
|
627
|
|
|
$
|
560
|
|
Totals:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues(1)
|
|
$
|
5,504
|
|
|
$
|
5,371
|
|
|
$
|
16,613
|
|
|
$
|
15,329
|
|
Expenses
|
|
|
1,965
|
|
|
|
2,104
|
|
|
|
6,292
|
|
|
|
6,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Margin(2)
|
|
$
|
3,539
|
|
|
$
|
3,267
|
|
|
$
|
10,321
|
|
|
$
|
9,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 $51 million and
$22 million of revenues that we did not recognize in the
accompanying condensed consolidated statements of operations for
the three months ended February 28, 2009 and
February 29, 2008, respectively, and $222 million and
$138 million for the nine months ended February 28,
2009 and February 29, 2008, 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.
|
19
ORACLE
CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
February 28, 2009
(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
|
|
|
Nine Months Ended
|
|
|
|
February 28,
|
|
|
February 29,
|
|
|
February 28,
|
|
|
February 29,
|
|
(in millions)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Total revenues for reportable segments
|
|
$
|
5,504
|
|
|
$
|
5,371
|
|
|
$
|
16,613
|
|
|
$
|
15,329
|
|
Software license updates and product support
revenues(1)
|
|
|
(51
|
)
|
|
|
(22
|
)
|
|
|
(222
|
)
|
|
|
(138
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
5,453
|
|
|
$
|
5,349
|
|
|
$
|
16,391
|
|
|
$
|
15,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total margin for reportable segments
|
|
$
|
3,539
|
|
|
$
|
3,267
|
|
|
$
|
10,321
|
|
|
$
|
9,179
|
|
Software license updates and product support
revenues(1)
|
|
|
(51
|
)
|
|
|
(22
|
)
|
|
|
(222
|
)
|
|
|
(138
|
)
|
Product development and information technology expenses
|
|
|
(729
|
)
|
|
|
(749
|
)
|
|
|
(2,194
|
)
|
|
|
(2,208
|
)
|
Marketing and partner program expenses
|
|
|
(102
|
)
|
|
|
(108
|
)
|
|
|
(312
|
)
|
|
|
(322
|
)
|
Corporate and general and administrative expenses
|
|
|
(151
|
)
|
|
|
(170
|
)
|
|
|
(461
|
)
|
|
|
(502
|
)
|
Amortization of intangible assets
|
|
|
(437
|
)
|
|
|
(292
|
)
|
|
|
(1,276
|
)
|
|
|
(867
|
)
|
Acquisition related and other
|
|
|
(27
|
)
|
|
|
40
|
|
|
|
(98
|
)
|
|
|
(28
|
)
|
Restructuring
|
|
|
(15
|
)
|
|
|
(8
|
)
|
|
|
(46
|
)
|
|
|
(14
|
)
|
Stock-based compensation
|
|
|
(85
|
)
|
|
|
(62
|
)
|
|
|
(260
|
)
|
|
|
(194
|
)
|
Interest expense
|
|
|
(154
|
)
|
|
|
(82
|
)
|
|
|
(471
|
)
|
|
|
(265
|
)
|
Non-operating income, net
|
|
|
22
|
|
|
|
63
|
|
|
|
98
|
|
|
|
252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
$
|
1,810
|
|
|
$
|
1,877
|
|
|
$
|
5,079
|
|
|
$
|
4,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Software license updates and
product support revenues for management reporting include
$51 million and $22 million of revenues that we did
not recognize in the accompanying condensed consolidated
statements of operations for the three months ended
February 28, 2009 and February 29, 2008, respectively
and $222 million and $138 million for the nine months
ended February 28, 2009 and February 29, 2008,
respectively. See Note 6 for an explanation of these
adjustments and this table for a reconciliation of operating
segment revenues to total revenues.
|
20
ORACLE
CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
February 28, 2009
(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
|
|
|
Nine Months Ended
|
|
|
|
February 28,
|
|
|
February 29,
|
|
|
February 28,
|
|
|
February 29,
|
|
(in millions, except per share data)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Net income
|
|
$
|
1,329
|
|
|
$
|
1,340
|
|
|
$
|
3,702
|
|
|
$
|
3,484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
5,005
|
|
|
|
5,148
|
|
|
|
5,095
|
|
|
|
5,128
|
|
Dilutive effect of employee stock plans
|
|
|
51
|
|
|
|
87
|
|
|
|
64
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average common shares outstanding
|
|
|
5,056
|
|
|
|
5,235
|
|
|
|
5,159
|
|
|
|
5,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.27
|
|
|
$
|
0.26
|
|
|
$
|
0.73
|
|
|
$
|
0.68
|
|
Diluted earnings per share
|
|
$
|
0.26
|
|
|
$
|
0.26
|
|
|
$
|
0.72
|
|
|
$
|
0.67
|
|
Shares subject to anti-dilutive stock options excluded from
calculation(1)
|
|
|
185
|
|
|
|
99
|
|
|
|
171
|
|
|
|
97
|
|
|
|
|
(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
21
ORACLE
CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
February 28, 2009
(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, 2008 and reply briefs were filed on
December 12, 2008. 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 was scheduled to begin on
January 12, 2009, on issues of invalidity and inequitable
conduct. On December 23, 2008, the parties reached an
agreement allowing EpicRealm to immediately appeal the
courts summary judgment order and preserving Oracles
invalidity and inequitable conduct claims in the event that the
matter is remanded for trial at a later time. On
January 23, 2009, EpicRealm filed a notice of appeal.
Appellate briefs will be filed over the next several months. 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
22
ORACLE
CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
February 28, 2009
(Unaudited)
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 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 will have a materially adverse
effect on our consolidated financial position, results of
operations or cash flows.
Revolving
Credit Agreements
2008
364-Day
Revolving Credit Agreement
On March 17, 2009, our $2.0 billion
364-Day
Revolving Credit Agreement dated March 18, 2008, among
Oracle; Wachovia Bank, National Association (Wachovia), as
administrative agent; and the other agents and lenders named
therein (the 2008 Credit Agreement) terminated pursuant to its
terms. No debt was outstanding pursuant to the 2008 Credit
Agreement as of February 28, 2009, or as of its date of
termination.
2009
364-Day
Revolving Credit Agreement
On March 17, 2009, Oracle entered into a new
$2.0 billion
364-Day
Revolving Credit Agreement (the 2009 Credit Agreement) among
Oracle; the lenders named therein; Wachovia, as administrative
agent; BNP Paribas, as syndication agent; the documentation
agents named therein; and Wachovia Capital Markets, LLC, and BNP
Paribas Securities Corp., as joint lead arrangers and joint
bookrunners.
23
ORACLE
CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)
February 28, 2009
(Unaudited)
The 2009 Credit Agreement provides for an unsecured
$2.0 billion
364-day
revolving credit facility (the 2009 Facility) to Oracle in order
to backstop any commercial paper that Oracle may issue and for
working capital and other general corporate purposes. Subject to
certain conditions stated in the 2009 Credit Agreement, Oracle
may borrow, prepay and reborrow amounts under the 2009 Facility
at any time during the term of the 2009 Credit Agreement. All
amounts under the 2009 Credit Agreement are due on
March 16, 2010, unless (i) the commitments are
terminated earlier either at the request of Oracle or, if an
event of default occurs, by the lenders (or automatically in the
case of certain bankruptcy-related events) or (ii) the 2009
Facility is extended as described below. Interest is based on,
at Oracles election, either (x) the sum of
(A) adjusted LIBOR plus (B) a margin equal to the
published
30-day
moving average credit default swap mid-rate spread for Oracle
for a one-year period, subject to a maximum and minimum rate
based on Oracles credit rating, or (y) a base
rate calculated as the highest of (I) Wachovias
prime rate, (II) the federal funds effective rate plus
0.50% and (III) adjusted LIBOR plus a margin determined in
the manner described in clause (x)(B) above. Oracle may, upon
the agreement of a combination of then existing lenders and
additional banks not currently party to the 2009 Credit
Agreement, extend the termination date of the 2009 Facility by
an additional 364 days.
The 2009 Credit Agreement contains certain customary
representations and warranties, covenants and events of default,
including the requirement that the total net debt to total
capitalization ratio of Oracle not exceed 45%. If any of the
events of default occur and are not cured within applicable
grace periods or waived, any unpaid amounts under the 2009
Credit Agreement may be declared immediately due and payable and
the commitments may be terminated.
Oracle has not borrowed any funds under the 2009 Credit
Agreement.
Dividends
on Common Stock
In March 2009, our Board of Directors declared a quarterly cash
dividend of $0.05 per share of outstanding common stock payable
on May 8, 2009, to stockholders of record as of the close
of business on April 8, 2009. Future declarations of
dividends and the establishment of future record and payment
dates are subject to the final determination of our Board of
Directors.
24
|
|
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 business 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 81% 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, including the high percentage of
customers that renew their software license updates and product
support contracts, and due to our acquisitions, which should
allow us to grow our 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 that we report is affected by the strength of general
economic and business conditions, governmental budgetary
constraints, the competitive position of our software products,
our acquisitions and foreign currency fluctuations. 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 represented 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
25
predominantly fixed in the short term. However, our new software
license margins have been and will continue to be affected by
the amortization of intangible assets associated with companies
that 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 percentage of our support contract
customer base that renews its support contracts, (2) the
amount of new support contracts sold in connection with the sale
of new software licenses, and (3) the number and amount of
support contracts assumed from companies we have acquired.
Software license updates and product support revenues, which
represented approximately 49% 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 79% 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; and
|
|
|
|
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
$51 million and $22 million in the three months ended
February 28, 2009 and February 29, 2008, respectively,
and $222 million and $138 million in the nine months
ended February 28, 2009 and February 29, 2008,
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.
26
Services
Business
Our services business consists of consulting, On Demand and
education. Our services business, which represented 19% of our
total revenues on a trailing
4-quarter
basis, has significantly lower margins than our software
business.
Consulting: Our 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. 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 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:
27
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Business Combinations
|
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|
Goodwill and Intangible AssetsImpairment Assessments
|
|
|
|
Accounting for Income Taxes
|
|
|
|
Legal and Other Contingencies
|
|
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|
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 nine months 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
Impact
of Acquisitions
The comparability of our operating results in the third quarter
and first nine months 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 third quarter and first nine months 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 third 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 and gains. Although certain revenue
and expense contributions from our acquisitions are
quantifiable, we are unable to identify the following:
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|
|
the contribution of the significant majority of our services
revenues from acquired companies during the third quarter and
first nine months of fiscal 2009 as the significant majority of
these services had been fully integrated into our existing
operations; and
|
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|
|
the contribution of the significant majority of the expenses
associated with acquired products and services during the third
quarter and first nine months of fiscal 2009 as the significant
majority of these expenses had been fully integrated into our
existing operations.
|
We caution readers that the contribution from BEA products,
which already have been integrated with Oracles Fusion
Middleware and are sold together, to our total database and
middleware revenues during the third quarter and first nine
months of fiscal 2009 are based on our internal allocations
consistent with previous quarters.
We further caution readers that, while pre- and post-acquisition
comparisons as well as the quantified amounts themselves may
provide indications of general trends, the information has
inherent limitations for the following reasons:
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the quantifications cannot address the substantial effects
attributable to our sales force integration efforts, in
particular the effect of having a single sales force offer
similar products. We believe that if our sales forces had not
been integrated, the relative mix of products sold would have
been different;
|
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|
our acquisitions in the periods presented did not result in our
entry into a new line of business or product
categorytherefore, we provided multiple products with
substantially similar features and functionality; and
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28
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|
|
although substantially all of our customers, including customers
from acquired companies, renew their software license updates
and product support contracts when the contracts are eligible
for renewal, amounts shown as support deferred revenues in our
supplemental disclosure related to certain charges and gains
(see below) are not necessarily indicative of revenue
improvements we will achieve upon contract renewal to the extent
customers do not renew.
|
Seasonality
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 February 28, 2009 and
February 29, 2008, our financial statements would reflect
revenues of $1.27 million in the first nine months of
fiscal 2009 (using 1.27 as the month-end average exchange rate
for the period) and $1.51 million in the first nine months
of fiscal 2008 (using 1.51 as the month-end average exchange
rate for the period). The constant currency presentation would
translate the results for the three and nine months ended
February 28, 2009 and February 29, 2008 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
|
|
|
Nine Months Ended
|
|
|
|
February 28,
|
|
|
Percent Change
|
|
|
February 29,
|
|
|
February 28,
|
|
|
Percent Change
|
|
|
February 29,
|
|
(Dollars in millions)
|
|
2009
|
|
|
Actual
|
|
|
Constant
|
|
|
2008
|
|
|
2009
|
|
|
Actual
|
|
|
Constant
|
|
|
2008
|
|
|
Total Revenues by Geography:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
2,846
|
|
|
|
5%
|
|
|
|
10%
|
|
|
$
|
2,707
|
|
|
$
|
8,437
|
|
|
|
9%
|
|
|
|
11%
|
|
|
$
|
7,756
|
|
EMEA(1)
|
|
|
1,824
|
|
|
|
-3%
|
|
|
|
14%
|
|
|
|
1,871
|
|
|
|
5,535
|
|
|
|
5%
|
|
|
|
13%
|
|
|
|
5,265
|
|
Asia
Pacific(2)
|
|
|
783
|
|
|
|
1%
|
|
|
|
9%
|
|
|
|
771
|
|
|
|
2,419
|
|
|
|
11%
|
|
|
|
15%
|
|
|
|
2,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
5,453
|
|
|
|
2%
|
|
|
|
11%
|
|
|
|
5,349
|
|
|
|
16,391
|
|
|
|
8%
|
|
|
|
12%
|
|
|
|
15,191
|
|
Total Operating Expenses
|
|
|
3,513
|
|
|
|
1%
|
|
|
|
8%
|
|
|
|
3,474
|
|
|
|
10,955
|
|
|
|
6%
|
|
|
|
10%
|
|
|
|
10,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Margin
|
|
$
|
1,940
|
|
|
|
4%
|
|
|
|
17%
|
|
|
$
|
1,875
|
|
|
$
|
5,436
|
|
|
|
12%
|
|
|
|
18%
|
|
|
$
|
4,874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Margin %
|
|
|
36%
|
|
|
|
|
|
|
|
|
|
|
|
35%
|
|
|
|
33%
|
|
|
|
|
|
|
|
|
|
|
|
32%
|
|
% Revenues by Geography:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
|
52%
|
|
|
|
|
|
|
|
|
|
|
|
51%
|
|
|
|
51%
|
|
|
|
|
|
|
|
|
|
|
|
51%
|
|
EMEA
|
|
|
33%
|
|
|
|
|
|
|
|
|
|
|
|
35%
|
|
|
|
34%
|
|
|
|
|
|
|
|
|
|
|
|
35%
|
|
Asia Pacific
|
|
|
15%
|
|
|
|
|
|
|
|
|
|
|
|
14%
|
|
|
|
15%
|
|
|
|
|
|
|
|
|
|
|
|
14%
|
|
Total Revenues by Business:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
|
|
$
|
4,433
|
|
|
|
5%
|
|
|
|
14%
|
|
|
$
|
4,240
|
|
|
$
|
13,081
|
|
|
|
10%
|
|
|
|
15%
|
|
|
$
|
11,868
|
|
Services
|
|
|
1,020
|
|
|
|
-8%
|
|
|
|
2%
|
|
|
|
1,109
|
|
|
|
3,310
|
|
|
|
0%
|
|
|
|
5%
|
|
|
|
3,323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
5,453
|
|
|
|
2%
|
|
|
|
11%
|
|
|
$
|
5,349
|
|
|
$
|
16,391
|
|
|
|
8%
|
|
|
|
12%
|
|
|
$
|
15,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Revenues by Business:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
|
|
|
81%
|
|
|
|
|
|
|
|
|
|
|
|
79%
|
|
|
|
80%
|
|
|
|
|
|
|
|
|
|
|
|
78%
|
|
Services
|
|
|
19%
|
|
|
|
|
|
|
|
|
|
|
|
21%
|
|
|
|
20%
|
|
|
|
|
|
|
|
|
|
|
|
22%
|
|
|
|
|
(1) |
|
Comprised of Europe, the Middle
East and Africa
|
|
(2) |
|
Asia Pacific includes Japan
|
29
Fiscal Third Quarter 2009 Compared to Fiscal Third Quarter
2008: Our operating results for the third
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 9 percentage
points during the third quarter of fiscal 2009. On a constant
currency basis, total revenues increased in the third quarter of
fiscal 2009 primarily due to 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 eligible
customer support contracts, increased demand for our On Demand
service offerings and incremental revenues from our recent
acquisitions, primarily our acquisition of BEA in the fourth
quarter of fiscal 2008. On a constant currency basis, new
software license revenues contributed 8% to the growth in total
revenues, software license updates and product support revenues
contributed 89% and services revenues contributed 3%. Excluding
the effect of currency rate fluctuations, the Americas
contributed 43% to the increase in total revenues, EMEA
contributed 46% and Asia Pacific contributed 11%.
Currency variances resulted in a reduction to our total
operating expense growth of 7 percentage points during the
third quarter of fiscal 2009. Excluding the effect of currency
rate fluctuations, the increase in operating expenses in the
third quarter of fiscal 2009 is primarily due to higher salary
expenses associated with increased headcount levels from
acquisitions (primarily BEA), 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 third
quarter of fiscal 2008. In addition, acquisition related and
other expenses increased during the third quarter of fiscal 2009
due to a $57 million gain on property sale recognized in
the third quarter of fiscal 2008, which decreased operating
expenses in that period. These increases were partially offset
by constant currency decreases in our commissions and bonus
expenses.
Currency variances resulted in a reduction of 13 percentage
points to our total operating margin growth during the third
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 third quarter of fiscal 2009 as the growth rate of
our total revenues exceeded the growth rate of our total
operating expenses (which were significantly impacted by an
increase in our intangible asset expenses from our recent
acquisitions, primarily BEA).
First Nine Months Fiscal 2009 Compared to First Nine
Months Fiscal 2008: Currency variances
resulted in a reduction to our total revenue growth of
4 percentage points during the first nine months of fiscal
2009. Excluding these currency variances, total revenues
increased in the first nine months of fiscal 2009 for reasons
similar to those noted above as well as stronger revenue growth
from our database and middleware products during the first half
of fiscal 2009. Excluding the effects of currency rate
fluctuations, new software license revenues contributed 13% to
the growth in total revenues, software license updates and
product support revenues contributed 79% and services revenues
contributed 8%. Excluding the effect of currency rate
fluctuations, the Americas contributed 45% to the increase in
total revenues, EMEA contributed 38% and Asia Pacific
contributed 17%.
On a constant currency basis, the increase in operating expenses
was generally due to the same reasons as noted above and was
also due to an increase in travel expenses during the first half
of fiscal 2009 (a portion of which are rebillable to customers
as revenues) as a result of increased headcount from our
acquisitions, primarily BEA. Operating margin and operating
margin as a percentage of revenues increased in the first nine
months of fiscal 2009, for reasons similar to those noted above.
Supplemental
Disclosure Related to Certain Charges and Gains
To supplement our consolidated financial information we believe
the following information is helpful to an overall understanding
of our past financial performance and prospects for the future.
You should review the introduction under Results of
Operations, Impact of Acquisitions (above) for a
discussion of the inherent limitations in comparing pre- and
post-acquisition information.
30
Our operating results include the following business combination
accounting adjustments and expenses related to acquisitions as
well as certain other significant expense and income items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
February 28,
|
|
|
February 29,
|
|
|
February 28,
|
|
|
February 29,
|
|
(in millions)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Support deferred
revenues(1)
|
|
$
|
51
|
|
|
$
|
22
|
|
|
$
|
222
|
|
|
$
|
138
|
|
Amortization of intangible
assets(2)
|
|
|
437
|
|
|
|
292
|
|
|
|
1,276
|
|
|
|
867
|
|
Acquisition related
charges(3)(5)
|
|
|
27
|
|
|
|
(40
|
)
|
|
|
98
|
|
|
|
28
|
|
Restructuring(4)
|
|
|
15
|
|
|
|
8
|
|
|
|
46
|
|
|
|
14
|
|
Stock-based
compensation(5)
|
|
|
85
|
|
|
|
62
|
|
|
|
260
|
|
|
|
194
|
|
Income tax
effect(6)
|
|
|
(164
|
)
|
|
|
(98
|
)
|
|
|
(535
|
)
|
|
|
(357
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
451
|
|
|
$
|
246
|
|
|
$
|
1,367
|
|
|
$
|
884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
In connection with purchase price
allocations related to our acquisitions, we have estimated the
fair values of the support obligations assumed. Due to our
application of business combination accounting rules, we did not
recognize software license updates and product support revenues
related to support contracts that would have otherwise been
recorded by the acquired businesses as independent entities, in
the amounts of $51 million and $22 million for the
three months ended February 28, 2009 and February 29,
2008, respectively, and $222 million and $138 million
for the nine months ended February 28, 2009 and
February 29, 2008, respectively. Approximately
$20 million and $21 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
February 28, 2009, estimated future amortization expenses
related to intangible assets are as follows (in millions):
|
|
|
|
|
|
Remainder of Fiscal 2009
|
|
$
|
453
|
|
Fiscal 2010
|
|
|
1,653
|
|
Fiscal 2011
|
|
|
1,364
|
|
Fiscal 2012
|
|
|
1,216
|
|
Fiscal 2013
|
|
|
1,084
|
|
Fiscal 2014
|
|
|
881
|
|
Thereafter
|
|
|
1,053
|
|
|
|
|
|
|
Total
|
|
$
|
7,704
|
|
|
|
|
|
|
|
|
|
(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 and other employees, certain business
combination adjustments after the purchase price allocation
period has ended, and certain other operating expenses (income),
net. For the three and nine months ended February 29, 2008,
acquisition related and other expenses include a gain on
property sale of $57 million.
|
|
(4) |
|
Restructuring expenses during the
first nine months of fiscal 2009 and fiscal 2008 relate to
Oracle employee severance in connection with our Fiscal 2009
Oracle Restructuring Plan that was initiated in the third
quarter of fiscal 2009 and our Fiscal 2008 Oracle Restructuring
Plan that was initiated in the second quarter, and amended in
the fourth quarter, of fiscal 2008 and further refined during
the third quarter of fiscal 2009.
|
|
(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
|
|
|
Nine Months Ended
|
|
|
|
February 28,
|
|
|
February 29,
|
|
|
February 28,
|
|
|
February 29,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Sales and marketing
|
|
$
|
16
|
|
|
$
|
12
|
|
|
$
|
51
|
|
|
$
|
38
|
|
Software license updates and product support
|
|
|
3
|
|
|
|
1
|
|
|
|
10
|
|
|
|
8
|
|
Cost of services
|
|
|
3
|
|
|
|
2
|
|
|
|
9
|
|
|
|
9
|
|
Research and development
|
|
|
39
|
|
|
|
31
|
|
|
|
121
|
|
|
|
84
|
|
General and administrative
|
|
|
24
|
|
|
|
16
|
|
|
|
69
|
|
|
|
55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
85
|
|
|
|
62
|
|
|
|
260
|
|
|
|
194
|
|
Acquisition related and other
|
|
|
3
|
|
|
|
3
|
|
|
|
14
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
88
|
|
|
$
|
65
|
|
|
$
|
274
|
|
|
$
|
233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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. Income tax effects were calculated reflecting
an effective tax rate of 27.4% for the first nine months of
fiscal 2009 instead of 27.1%, which represented our effective
tax rate as derived per our condensed consolidated statement of
operations, due to the exclusion of the effect of an adjustment
to our non-current deferred tax liability associated with
acquired intangible assets.
|
31
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
|
|
|
Nine Months Ended
|
|
|
|
February 28,
|
|
|
Percent Change
|
|
|
February 29,
|
|
|
February 28,
|
|
|
Percent Change
|
|
|
February 29,
|
|
(Dollars in millions)
|
|
2009
|
|
|
Actual
|
|
|
Constant
|
|
|
2008
|
|
|
2009
|
|
|
Actual
|
|
|
Constant
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Software License Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
673
|
|
|
|
-9%
|
|
|
|
-4%
|
|
|
$
|
737
|
|
|
$
|
1,959
|
|
|
|
-1%
|
|
|
|
2%
|
|
|
$
|
1,987
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EMEA
|
|
|
571
|
|
|
|
-3%
|
|
|
|
12%
|
|
|
|
588
|
|
|
|
1,548
|
|
|
|
-1%
|
|
|
|
8%
|
|
|
|
1,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia Pacific
|
|
|
272
|
|
|
|
-6%
|
|
|
|
1%
|
|
|
|
291
|
|
|
|
872
|
|
|
|
6%
|
|
|
|
10%
|
|
|
|
819
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,516
|
|
|
|
-6%
|
|
|
|
3%
|
|
|
|
1,616
|
|
|
|
4,379
|
|
|
|
0%
|
|
|
|
6%
|
|
|
|
4,371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and
marketing(1)
|
|
|
1,038
|
|
|
|
-3%
|
|
|
|
5%
|
|
|
|
1,071
|
|
|
|
3,261
|
|
|
|
5%
|
|
|
|
9%
|
|
|
|
3,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
16
|
|
|
|
38%
|
|
|
|
38%
|
|
|
|
12
|
|
|
|
51
|
|
|
|
36%
|
|
|
|
36%
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangible
assets(2)
|
|
|
211
|
|
|
|
57%
|
|
|
|
57%
|
|
|
|
134
|
|
|
|
608
|
|
|
|
54%
|
|
|
|
54%
|
|
|
|
395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expense
|
|
|
1,265
|
|
|
|
4%
|
|
|
|
11%
|
|
|
|
1,217
|
|
|
|
3,920
|
|
|
|
10%
|
|
|
|
14%
|
|
|
|
3,548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Margin
|
|
$
|
251
|
|
|
|
-37%
|
|
|
|
-23%
|
|
|
$
|
399
|
|
|
$
|
459
|
|
|
|
-44%
|
|
|
|
-30%
|
|
|
$
|
823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Margin %
|
|
|
17%
|
|
|
|
|
|
|
|
|
|
|
|
25%
|
|
|
|
10%
|
|
|
|
|
|
|
|
|
|
|
|
19%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Revenues by Geography:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
|
44%
|
|
|
|
|
|
|
|
|
|
|
|
46%
|
|
|
|
45%
|
|
|
|
|
|
|
|
|
|
|
|
45%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EMEA
|
|
|
38%
|
|
|
|
|
|
|
|
|
|
|
|
36%
|
|
|
|
35%
|
|
|
|
|
|
|
|
|
|
|
|
36%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia Pacific
|
|
|
18%
|
|
|
|
|
|
|
|
|
|
|
|
18%
|
|
|
|
20%
|
|
|
|
|
|
|
|
|
|
|
|
19%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues by Product:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Database and middleware
|
|
$
|
1,106
|
|
|
|
-4%
|
|
|
|
5%
|
|
|
$
|
1,153
|
|
|
$
|
3,141
|
|
|
|
6%
|
|
|
|
12%
|
|
|
$
|
2,949
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Applications
|
|
|
396
|
|
|
|
-12%
|
|
|
|
-4%
|
|
|
|
451
|
|
|
|
1,195
|
|
|
|
-13%
|
|
|
|
-9%
|
|
|
|
1,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues by product
|
|
|
1,502
|
|
|
|
-6%
|
|
|
|
3%
|
|
|
|
1,604
|
|
|
|
4,336
|
|
|
|
0%
|
|
|
|
6%
|
|
|
|
4,329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenues
|
|
|
14
|
|
|
|
17%
|
|
|
|
25%
|
|
|
|
12
|
|
|
|
43
|
|
|
|
1%
|
|
|
|
3%
|
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total new software license revenues
|
|
$
|
1,516
|
|
|
|
-6%
|
|
|
|
3%
|
|
|
$
|
1,616
|
|
|
$
|
4,379
|
|
|
|
0%
|
|
|
|
6%
|
|
|
$
|
4,371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Revenues by Product:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Database and middleware
|
|
|
74%
|
|
|
|
|
|
|
|
|
|
|
|
72%
|
|
|
|
72%
|
|
|
|
|
|
|
|
|
|
|
|
68%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Applications
|
|
|
26%
|
|
|
|
|
|
|
|
|
|
|
|
28%
|
|
|
|
28%
|
|
|
|
|
|
|
|
|
|
|
|
32%
|
|
|
|
|
(1) |
|
Excluding stock-based compensation
|
|
(2) |
|
Included as a component of
Amortization of Intangible Assets in our condensed
consolidated statements of operations
|
Fiscal Third Quarter 2009 Compared to Fiscal Third Quarter
2008: New software license revenues growth
was unfavorably affected by foreign currency rate fluctuations
of 9 percentage points in the third quarter of fiscal 2009.
Excluding the effect of currency rate fluctuations, total new
software license revenues increased by 3% in the third quarter
of fiscal 2009 as a result of a 5% increase in database and
middleware revenues, partially offset by a 4% decrease in
applications revenues. On a constant currency basis,
substantially all of the growth in new software licenses was
attributable to the EMEA region, with slight growth in the Asia
Pacific region. New software license revenues in the Americas
decreased by 4% on a constant currency basis.
Excluding the effect of currency rate fluctuations of
9 percentage points, database and middleware revenues grew
5% in the third quarter of fiscal 2009 due to our recently
acquired products, primarily those of BEA. In reported currency,
BEA products contributed $140 million, and other recently
acquired products contributed $5 million to the total
database and middleware revenues growth in the third quarter of
fiscal 2009. The revenue contributions from BEA products, which
already have been integrated with Oracles Fusion
Middleware and are sold together, are
32
based on our internal allocations consistent with previous
quarters. In constant currency, database and middleware revenues
grew 13% over the trailing
4-quarters
as a result of increased demand for our database and middleware
products primarily during the fourth quarter of fiscal 2008 and
first quarter of fiscal 2009, as well as incremental revenues
from acquired companies.
Excluding the effect of currency rate fluctuations of
8 percentage points, application new software license
revenues decreased in the third quarter of fiscal 2009. In
reported currency, our recently acquired products contributed
$20 million to our applications revenues in the third
quarter of fiscal 2009. On a constant currency basis,
applications revenues increased by 5% over the trailing
4-quarters
due to strong demand in our fourth quarter of fiscal 2008 and
incremental revenues from our recent acquisitions, partially
offset by lower revenues during the first nine months of fiscal
2009 that we believe were primarily caused by weaker global
economic conditions.
In reported currency, new software license revenues earned from
transactions over $0.5 million declined by 3% in the third
quarter of fiscal 2009, primarily due to unfavorable currency
variations, and increased to 46% of new software license
revenues in the third quarter of fiscal 2009 from 44% in the
third quarter of fiscal 2008.
Total sales and marketing expenses were favorably impacted by
7 percentage points of currency variations during the third
quarter of fiscal 2009. Excluding the effect of currency rate
fluctuations, sales and marketing expenses increased in the
third quarter of fiscal 2009 primarily due to higher salaries
from increased headcount and higher amortization of intangible
assets. In addition, sales and marketing expenses were
$24 million lower during the third quarter of fiscal 2008
due to a benefit that was recorded as a result of a settlement
and partial accrual reversal of certain litigation, which
decreased expenses in that period. These constant currency
increases were partially offset by constant currency decreases
to our travel expenses as a result of cost management efforts
and a reduction in certain other travel related accruals, and a
reduction in our commissions and bonus expenses.
Total new software license margin and margin as a percentage of
revenues decreased as our total new software license expenses
growth, in particular higher amortization of intangible assets,
exceeded our revenue growth.
First Nine Months Fiscal 2009 Compared to First Nine
Months Fiscal 2008: New software license
revenues growth was unfavorably affected by foreign currency
rate fluctuations of 6 percentage points. Excluding the
effect of currency rate fluctuations, total new software license
revenues increased by 6% in the first nine months of fiscal 2009
due to a 12% increase in database and middleware revenues as
well as incremental revenues from acquired companies. These
increases were partially offset by a 9% constant currency
decrease in applications revenues caused by the high
applications growth rate in fiscal 2008 with which our fiscal
2009 results are compared and weaker global economic conditions.
Excluding the effect of currency rate fluctuations, the Americas
contributed 12%, EMEA contributed 54% and Asia Pacific
contributed 34% to the increase in new software license revenues.
In reported currency, BEA products contributed an estimated
$351 million, and other recently acquired products
contributed $12 million to the total database and
middleware revenue growth in the first nine months of fiscal
2009. The revenue contributions from BEA products, which already
have been integrated with Oracles Fusion Middleware and
are sold together, are based on our internal allocations
consistent with previous quarters. Applications products from
recently acquired companies contributed an incremental
$35 million in reported currency during the first nine
months of fiscal 2009.
New software license revenues earned from transactions over
$0.5 million increased by 3% in the first nine months of
fiscal 2009 and increased to 46% of new software license
revenues in the first nine months of fiscal 2009 from 44% in the
first nine months of fiscal 2008.
Total sales and marketing expenses were favorably affected by
4 percentage points of currency variations during the first
nine months of fiscal 2009. In constant currency, sales and
marketing expenses increased in the first nine months of fiscal
2009 for reasons similar to those noted above as well as
increased travel related expenses.
Total new software license margin and margin as a percentage of
revenues decreased for reasons similar to those 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
33
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
February 28,
|
|
|
Percent Change
|
|
|
February 29,
|
|
|
February 28,
|
|
|
Percent Change
|
|
|
February 29,
|
|
(Dollars in millions)
|
|
2009
|
|
|
Actual
|
|
|
Constant
|
|
|
2008
|
|
|
2009
|
|
|
Actual
|
|
|
Constant
|
|
|
2008
|
|
|
Software License Updates and Product Support
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
1,656
|
|
|
|
15%
|
|
|
|
19%
|
|
|
$
|
1,436
|
|
|
$
|
4,788
|
|
|
|
17%
|
|
|
|
19%
|
|
|
$
|
4,097
|
|
EMEA
|
|
|
904
|
|
|
|
3%
|
|
|
|
21%
|
|
|
|
879
|
|
|
|
2,846
|
|
|
|
13%
|
|
|
|
21%
|
|
|
|
2,509
|
|
Asia Pacific
|
|
|
357
|
|
|
|
15%
|
|
|
|
21%
|
|
|
|
309
|
|
|
|
1,068
|
|
|
|
20%
|
|
|
|
22%
|
|
|
|
891
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
2,917
|
|
|
|
11%
|
|
|
|
20%
|
|
|
|
2,624
|
|
|
|
8,702
|
|
|
|
16%
|
|
|
|
20%
|
|
|
|
7,497
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software license updates and
product
support(1)
|
|
|
253
|
|
|
|
0%
|
|
|
|
8%
|
|
|
|
253
|
|
|
|
785
|
|
|
|
9%
|
|
|
|
13%
|
|
|
|
721
|
|
Stock-based compensation
|
|
|
3
|
|
|
|
237%
|
|
|
|
237%
|
|
|
|
1
|
|
|
|
10
|
|
|
|
21%
|
|
|
|
21%
|
|
|
|
8
|
|
Amortization of intangible
assets(2)
|
|
|
213
|
|
|
|
48%
|
|
|
|
48%
|
|
|
|
144
|
|
|
|
628
|
|
|
|
46%
|
|
|
|
46%
|
|
|
|
431
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
469
|
|
|
|
18%
|
|
|
|
23%
|
|
|
|
398
|
|
|
|
1,423
|
|
|
|
23%
|
|
|
|
25%
|
|
|
|
1,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Margin
|
|
$
|
2,448
|
|
|
|
10%
|
|
|
|
20%
|
|
|
$
|
2,226
|
|
|
$
|
7,279
|
|
|
|
15%
|
|
|
|
19%
|
|
|
$
|
6,337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Margin %
|
|
|
84%
|
|
|
|
|
|
|
|
|
|
|
|
85%
|
|
|
|
84%
|
|
|
|
|
|
|
|
|
|
|
|
85%
|
|
% Revenues by Geography:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
|
57%
|
|
|
|
|
|
|
|
|
|
|
|
55%
|
|
|
|
55%
|
|
|
|
|
|
|
|
|
|
|
|
55%
|
|
EMEA
|
|
|
31%
|
|
|
|
|
|
|
|
|
|
|
|
33%
|
|
|
|
33%
|
|
|
|
|
|
|
|
|
|
|
|
33%
|
|
Asia Pacific
|
|
|
12%
|
|
|
|
|
|
|
|
|
|
|
|
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 Third Quarter 2009 Compared to Fiscal Third Quarter
2008: The growth in our software license
updates and product support revenues was unfavorably affected by
foreign currency rate fluctuations of 9 percentage points
in the third quarter of fiscal 2009. Excluding the effect of
currency rate fluctuations, software license updates and product
support revenues increased in the third 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 52%, EMEA contributed 36%
and Asia Pacific contributed 12% to the increase in software
license updates and product support revenues.
In reported currency, software license updates and product
support revenues in the third quarter of fiscal 2009 include
incremental revenues of $158 million from BEA and
$16 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 $51 million and $22 million that would have
been otherwise recorded by our acquired businesses as
independent entities, were not recognized in the third 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 5 percentage points of currency
variations during the third quarter of fiscal 2009. Excluding
the effect of currency rate fluctuations,
34
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 the third
quarter of fiscal 2008 (primarily our acquisition of BEA).
Total software license updates and product support margin
increased due to an increase in revenues, while margin as a
percentage of revenues decreased slightly as the growth in our
amortization of intangible assets exceeded our revenues growth.
First Nine Months Fiscal 2009 Compared to First Nine
Months 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 51%, EMEA contributed 36% and Asia Pacific
contributed 13% to the increase in software license updates and
product support revenues. Software license updates and product
support revenues in the first nine months of fiscal 2009
included reported currency, incremental contributions of
$395 million from BEA and $47 million from other
recently acquired companies. Software license updates and
product support revenues related to support contracts in the
amounts of $222 million and $138 million that would
have been otherwise recorded by our acquired businesses as
independent entities, were not recognized in the first nine
months of fiscal 2009 and 2008, respectively, for the reasons
noted above.
On a constant currency basis, software license updates and
product support expenses, margin and margin as a percentage of
revenues fluctuated for reasons consistent with those described
above.
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
|
|
|
Nine Months Ended
|
|
|
|
February 28,
|
|
|
Percent Change
|
|
|
February 29,
|
|
|
February 28,
|
|
|
Percent Change
|
|
|
February 29,
|
|
(Dollars in millions)
|
|
2009
|
|
|
Actual
|
|
|
Constant
|
|
|
2008
|
|
|
2009
|
|
|
Actual
|
|
|
Constant
|
|
|
2008
|
|
|
Consulting Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
378
|
|
|
|
-6%
|
|
|
|
-1%
|
|
|
$
|
400
|
|
|
$
|
1,252
|
|
|
|
-1%
|
|
|
|
2%
|
|
|
$
|
1,265
|
|
EMEA
|
|
|
271
|
|
|
|
-13%
|
|
|
|
4%
|
|
|
|
311
|
|
|
|
872
|
|
|
|
-5%
|
|
|
|
3%
|
|
|
|
915
|
|
Asia Pacific
|
|
|
109
|
|
|
|
-17%
|
|
|
|
-8%
|
|
|
|
132
|
|
|
|
341
|
|
|
|
0%
|
|
|
|
6%
|
|
|
|
340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
758
|
|
|
|
-10%
|
|
|
|
0%
|
|
|
|
843
|
|
|
|
2,465
|
|
|
|
-2%
|
|
|
|
3%
|
|
|
|
2,520
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
services(1)
|
|
|
640
|
|
|
|
-15%
|
|
|
|
-6%
|
|
|
|
753
|
|
|
|
2,131
|
|
|
|
-3%
|
|
|
|
2%
|
|
|
|
2,197
|
|
Stock-based compensation
|
|
|
2
|
|
|
|
175%
|
|
|
|
175%
|
|
|
|
1
|
|
|
|
5
|
|
|
|
-4%
|
|
|
|
-4%
|
|
|
|
5
|
|
Amortization of intangible
assets(2)
|
|
|
10
|
|
|
|
-8%
|
|
|
|
-7%
|
|
|
|
11
|
|
|
|
30
|
|
|
|
-1%
|
|
|
|
0%
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
652
|
|
|
|
-15%
|
|
|
|
-6%
|
|
|
|
765
|
|
|
|
2,166
|
|
|
|
-3%
|
|
|
|
2%
|
|
|
|
2,233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Margin
|
|
$
|
106
|
|
|
|
36%
|
|
|
|
58%
|
|
|
$
|
78
|
|
|
$
|
299
|
|
|
|
4%
|
|
|
|
14%
|
|
|
$
|
287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Margin %
|
|
|
14%
|
|
|
|
|
|
|
|
|
|
|
|
9%
|
|
|
|
12%
|
|
|
|
|
|
|
|
|
|
|
|
11%
|
|
% Revenues by Geography:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
|
50%
|
|
|
|
|
|
|
|
|
|
|
|
47%
|
|
|
|
51%
|
|
|
|
|
|
|
|
|
|
|
|
50%
|
|
EMEA
|
|
|
36%
|
|
|
|
|
|
|
|
|
|
|
|
37%
|
|
|
|
35%
|
|
|
|
|
|
|
|
|
|
|
|
36%
|
|
Asia Pacific
|
|
|
14%
|
|
|
|
|
|
|
|
|
|
|
|
16%
|
|
|
|
14%
|
|
|
|
|
|
|
|
|
|
|
|
14%
|
|
|
|
|
(1) |
|
Excluding stock-based compensation
|
|
(2) |
|
Included as a component of
Amortization of Intangible Assets in our condensed
consolidated statements of operations
|
35
Fiscal Third Quarter 2009 Compared to Fiscal Third Quarter
2008: Consulting revenues were unfavorably
affected by foreign currency rate fluctuations of
10 percentage points in the third quarter of fiscal 2009.
Excluding the effect of currency rate fluctuations, consulting
revenues were flat, reflecting the impact of global economic
conditions.
Consulting expenses were favorably impacted by 9 percentage
points of currency variations during the third quarter of fiscal
2009. Excluding the effect of currency rate fluctuations,
consulting expenses decreased due to lower salary, commissions
and bonus expenses.
On a constant currency basis, total consulting margin and margin
as a percentage of revenues increased during the third quarter
of fiscal 2009 as a result of expense decreases.
First Nine Months Fiscal 2009 Compared to First Nine
Months Fiscal 2008: Excluding the effect of
currency rate fluctuations, the growth in consulting revenues
was generally due to an increase in software implementations
that we delivered during the first six months of fiscal 2009
associated with the sales of certain of our application software
products, and incremental contributions from our acquisitions.
In constant currency, the Americas contributed 32%, EMEA
contributed 42% and Asia Pacific contributed 26% to the growth
in consulting revenues.
In constant currency, consulting expenses increased during the
first nine months of fiscal 2009 as a result of higher
infrastructure, external contractor and travel expenses (the
majority of travel expenses are rebillable to customers). These
increases were partially offset by constant currency decreases
in salary, commissions and bonus expenses.
On a constant currency basis, consulting margin and margin as a
percentage of revenues increased slightly as our revenues growth
rate exceeded our expenses growth rate.
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
February 28,
|
|
|
Percent Change
|
|
|
February 29,
|
|
|
February 28,
|
|
|
Percent Change
|
|
|
February 29,
|
|
(Dollars in millions)
|
|
2009
|
|
|
Actual
|
|
|
Constant
|
|
|
2008
|
|
|
2009
|
|
|
Actual
|
|
|
Constant
|
|
|
2008
|
|
|
On Demand Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
109
|
|
|
|
14%
|
|
|
|
19%
|
|
|
$
|
95
|
|
|
$
|
319
|
|
|
|
16%
|
|
|
|
18%
|
|
|
$
|
274
|
|
EMEA
|
|
|
53
|
|
|
|
-5%
|
|
|
|
13%
|
|
|
|
57
|
|
|
|
171
|
|
|
|
6%
|
|
|
|
14%
|
|
|
|
161
|
|
Asia Pacific
|
|
|
29
|
|
|
|
27%
|
|
|
|
39%
|
|
|
|
22
|
|
|
|
85
|
|
|
|
31%
|
|
|
|
37%
|
|
|
|
65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
191
|
|
|
|
10%
|
|
|
|
19%
|
|
|
|
174
|
|
|
|
575
|
|
|
|
15%
|
|
|
|
19%
|
|
|
|
500
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
services(1)
|
|
|
147
|
|
|
|
-6%
|
|
|
|
3%
|
|
|
|
157
|
|
|
|
457
|
|
|
|
-2%
|
|
|
|
2%
|
|
|
|
467
|
|
Stock-based compensation
|
|
|
1
|
|
|
|
-27%
|
|
|
|
-27%
|
|
|
|
1
|
|
|
|
3
|
|
|
|
-4%
|
|
|
|
-4%
|
|
|
|
3
|
|
Amortization of intangible
assets(2)
|
|
|
3
|
|
|
|
0%
|
|
|
|
0%
|
|
|
|
3
|
|
|
|
10
|
|
|
|
0%
|
|
|
|
0%
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
151
|
|
|
|
-6%
|
|
|
|
2%
|
|
|
|
161
|
|
|
|
470
|
|
|
|
-2%
|
|
|
|
2%
|
|
|
|
480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Margin
|
|
$
|
40
|
|
|
|
200%
|
|
|
|
223%
|
|
|
$
|
13
|
|
|
$
|
105
|
|
|
|
433%
|
|
|
|
399%
|
|
|
$
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Margin %
|
|
|
21%
|
|
|
|
|
|
|
|
|
|
|
|
8%
|
|
|
|
18%
|
|
|
|
|
|
|
|
|
|
|
|
4%
|
|
% Revenues by Geography:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
|
57%
|
|
|
|
|
|
|
|
|
|
|
|
54%
|
|
|
|
55%
|
|
|
|
|
|
|
|
|
|
|
|
55%
|
|
EMEA
|
|
|
28%
|
|
|
|
|
|
|
|
|
|
|
|
33%
|
|
|
|
30%
|
|
|
|
|
|
|
|
|
|
|
|
32%
|
|
Asia Pacific
|
|
|
15%
|
|
|
|
|
|
|
|
|
|
|
|
13%
|
|
|
|
15%
|
|
|
|
|
|
|
|
|
|
|
|
13%
|
|
|
|
|
(1) |
|
Excluding stock-based compensation
|
|
(2) |
|
Included as a component of
Amortization of Intangible Assets in our condensed
consolidated statements of operations
|
36
Fiscal Third Quarter 2009 Compared to Fiscal Third Quarter
2008: On Demand revenue growth was
unfavorably affected by foreign currency rate fluctuations of
9 percentage points in the third quarter of fiscal 2009. On
Demand revenues increased in the third 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
services and outsourcing solutions. On a constant currency
basis, Advanced Customer Services, Oracle On Demand and CRM On
Demand contributed 47%, 35% and 18% to our On Demand revenues
growth, respectively. Excluding the effect of currency rate
fluctuations, the Americas contributed 52%, EMEA contributed 22%
and Asia Pacific contributed 26% to the increase in On Demand
revenues.
Excluding the effect of favorable currency rate fluctuations of
8 percentage points, On Demand expenses increased slightly
in the third 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 and decreases in bonus 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 third quarter of fiscal 2008. Our
Advanced Customer Services and CRM On Demand margin percentages
also improved in comparison to the third quarter of fiscal 2008.
First Nine Months Fiscal 2009 Compared to First Nine
Months 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 44%, 33% and 23%, respectively, to the growth in On
Demand revenues. In constant currency, the Americas contributed
51% to the growth in On Demand revenues, EMEA contributed 24%
and Asia Pacific contributed 25%.
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
|
|
|
Nine Months Ended
|
|
|
|
February 28,
|
|
|
Percent Change
|
|
February 29,
|
|
|
February 28,
|
|
|
Percent Change
|
|
February 29,
|
|
(Dollars in millions)
|
|
2009
|
|
|
Actual
|
|
Constant
|
|
2008
|
|
|
2009
|
|
|
Actual
|
|
Constant
|
|
2008
|
|
|
Education Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
30
|
|
|
|
-22%
|
|
|
-18%
|
|
$
|
39
|
|
|
$
|
118
|
|
|
|
-11%
|
|
|
-9%
|
|
$
|
133
|
|
EMEA
|
|
|
25
|
|
|
|
-31%
|
|
|
-20%
|
|
|
36
|
|
|
|
99
|
|
|
|
-14%
|
|
|
-9%
|
|
|
115
|
|
Asia Pacific
|
|
|
16
|
|
|
|
-8%
|
|
|
-2%
|
|
|
17
|
|
|
|
53
|
|
|
|
-3%
|
|
|
0%
|
|
|
55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
71
|
|
|
|
-23%
|
|
|
-16%
|
|
|
92
|
|
|
|
270
|
|
|
|
-11%
|
|
|
-8%
|
|
|
303
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
services(1)
|
|
|
65
|
|
|
|
-15%
|
|
|
-7%
|
|
|
77
|
|
|
|
223
|
|
|
|
-6%
|
|
|
-3%
|
|
|
238
|
|
Stock-based compensation
|
|
|
|
|
|
|
*
|
|
|
*
|
|
|
|
|
|
|
1
|
|
|
|
-4%
|
|
|
-4%
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
65
|
|
|
|
-15%
|
|
|
-7%
|
|
|
77
|
|
|
|
224
|
|
|
|
-6%
|
|
|
-3%
|
|
|
239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Margin
|
|
$
|
6
|
|
|
|
-61%
|
|
|
-59%
|
|
$
|
15
|
|
|
$
|
46
|
|
|
|
-28%
|
|
|
-26%
|
|
$
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Margin %
|
|
|
8%
|
|
|
|
|
|
|
|
|
|
16%
|
|
|
|
17%
|
|
|
|
|
|
|
|
|
|
21%
|
|
% Revenues by Geography:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
|
43%
|
|
|
|
|
|
|
|
|
|
42%
|
|
|
|
43%
|
|
|
|
|
|
|
|
|
|
44%
|
|
EMEA
|
|
|
34%
|
|
|
|
|
|
|
|
|
|
39%
|
|
|
|
37%
|
|
|
|
|
|
|
|
|
|
38%
|
|
Asia Pacific
|
|
|
23%
|
|
|
|
|
|
|
|
|
|
19%
|
|
|
|
20%
|
|
|
|
|
|
|
|
|
|
18%
|
|
|
|
|
(1) |
|
Excluding stock-based compensation
|
Excluding the effect of unfavorable currency rate fluctuations
of 7 percentage points, education revenues decreased in the
third quarter of fiscal 2009 as customers reduced spending on
discretionary services such as our educational program offerings
in all geographic regions.
37
Excluding the effect of favorable currency rate fluctuations of
8 percentage points, education expenses declined in
comparison to the third quarter of fiscal 2008, primarily as a
result of headcount reductions.
Education margin and margin as a percentage of revenues
decreased in the third quarter of fiscal 2009 due to a reduction
in revenues.
Excluding the effect of currency rate fluctuations, the
decreases for education revenues, expenses, margin and margin as
a percentage of revenues for the first nine months of fiscal
2009 were due generally to the same reasons as noted above.
Research and Development
Expenses: Research and development expenses
consist primarily of personnel related expenditures. We intend
to continue to invest significantly in our research and
development efforts because, in our judgment, they are essential
to maintaining our competitive position.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
February 28,
|
|
|
Percent Change
|
|
February 29,
|
|
|
February 28,
|
|
|
Percent Change
|
|
February 29,
|
|
(Dollars in millions)
|
|
2009
|
|
|
Actual
|
|
Constant
|
|
2008
|
|
|
2009
|
|
|
Actual
|
|
Constant
|
|
2008
|
|
|
Research and
development(1)
|
|
$
|
638
|
|
|
|
-2%
|
|
|
2%
|
|
$
|
651
|
|
|
$
|
1,916
|
|
|
|
0%
|
|
|
2%
|
|
$
|
1,923
|
|
Stock-based compensation
|
|
|
39
|
|
|
|
27%
|
|
|
27%
|
|
|
31
|
|
|
|
121
|
|
|
|
45%
|
|
|
45%
|
|
|
84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
$
|
677
|
|
|
|
-1%
|
|
|
3%
|
|
$
|
682
|
|
|
$
|
2,037
|
|
|
|
1%
|
|
|
4%
|
|
$
|
2,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Total Revenues
|
|
|
12%
|
|
|
|
|
|
|
|
|
|
13%
|
|
|
|
12%
|
|
|
|
|
|
|
|
|
|
13%
|
|
|
|
|
(1) |
|
Excluding stock-based compensation
|
Total research and development expenses were favorably affected
by 4 percentage points of currency variations during the
third quarter of fiscal 2009. On a constant currency basis,
total research and development expenses increased modestly as
salary expenses from higher headcount and increased stock-based
compensation expenses were partially offset by a decrease in
bonus expenses. 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 third quarter of fiscal 2009 increased by approximately
2,300 employees, or 12%, in comparison to the third quarter
of fiscal 2008. During the first nine months of fiscal 2009,
research and development expenses increased for similar reasons
as those noted for the third quarter of fiscal 2009.
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
|
|
|
Nine Months Ended
|
|
|
|
February 28,
|
|
|
Percent Change
|
|
February 29,
|
|
|
February 28,
|
|
|
Percent Change
|
|
February 29,
|
|
(Dollars in millions)
|
|
2009
|
|
|
Actual
|
|
Constant
|
|
2008
|
|
|
2009
|
|
|
Actual
|
|
Constant
|
|
2008
|
|
|
General and
administrative(1)
|
|
$
|
168
|
|
|
|
-11%
|
|
|
-4%
|
|
$
|
190
|
|
|
$
|
502
|
|
|
|
-9%
|
|
|
-6%
|
|
$
|
553
|
|
Stock-based compensation
|
|
|
24
|
|
|
|
50%
|
|
|
50%
|
|
|
16
|
|
|
|
69
|
|
|
|
24%
|
|
|
24%
|
|
|
55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
$
|
192
|
|
|
|
-7%
|
|
|
-1%
|
|
$
|
206
|
|
|
$
|
571
|
|
|
|
-6%
|
|
|
-3%
|
|
$
|
608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Total Revenues
|
|
|
4%
|
|
|
|
|
|
|
|
|
|
4%
|
|
|
|
4%
|
|
|
|
|
|
|
|
|
|
4%
|
|
|
|
|
(1) |
|
Excluding stock-based compensation
|
Total general and administrative expenses were affected by
6 percentage points of favorable currency variations during
the third quarter of fiscal 2009. Excluding the effect of
currency rate fluctuations, general and administrative expenses
decreased slightly during the third quarter of fiscal 2009 as a
result of a decrease in salary, bonus and certain of our
benefits expenses. These decreases were partially offset by
increased professional services fees and increased stock-based
compensation expenses. During the first nine months of fiscal
2009, general and administrative expenses decreased for similar
reasons as those noted for the third quarter of fiscal 2009.
38
Amortization of Intangible Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
February 28,
|
|
|
Percent Change
|
|
February 29,
|
|
|
February 28,
|
|
|
Percent Change
|
|
February 29,
|
|
(Dollars in millions)
|
|
2009
|
|
|
Actual
|
|
Constant
|
|
2008
|
|
|
2009
|
|
|
Actual
|
|
Constant
|
|
2008
|
|
|
Software support agreements and related relationships
|
|
$
|
139
|
|
|
|
42%
|
|
|
42%
|
|
$
|
98
|
|
|
$
|
410
|
|
|
|
40%
|
|
|
40%
|
|
$
|
292
|
|
Developed technology
|
|
|
184
|
|
|
|
47%
|
|
|
47%
|
|
|
126
|
|
|
|
538
|
|
|
|
45%
|
|
|
45%
|
|
|
370
|
|
Core technology
|
|
|
65
|
|
|
|
49%
|
|
|
51%
|
|
|
43
|
|
|
|
190
|
|
|
|
47%
|
|
|
47%
|
|
|
129
|
|
Customer relationships
|
|
|
39
|
|
|
|
117%
|
|
|
117%
|
|
|
17
|
|
|
|
111
|
|
|
|
113%
|
|
|
113%
|
|
|
52
|
|
Trademarks
|
|
|
10
|
|
|
|
25%
|
|
|
25%
|
|
|
8
|
|
|
|
27
|
|
|
|
13%
|
|
|
13%
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortization of intangible assets
|
|
$
|
437
|
|
|
|
49%
|
|
|
50%
|
|
$
|
292
|
|
|
$
|
1,276
|
|
|
|
47%
|
|
|
47%
|
|
$
|
867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 third 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 and other employees, certain business combination
adjustments after the purchase price allocation period has
ended, and certain other expenses (income), net. Stock-based
compensation expenses included in acquisition related and other
expenses relate to unvested options assumed from acquisitions
whereby vesting was accelerated upon termination of the
employees pursuant to the original terms of those options.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
February 28,
|
|
|
Percent Change
|
|
February 29,
|
|
|
February 28,
|
|
|
Percent Change
|
|
February 29,
|
|
(Dollars in millions)
|
|
2009
|
|
|
Actual
|
|
Constant
|
|
2008
|
|
|
2009
|
|
|
Actual
|
|
Constant
|
|
2008
|
|
|
In-process research and development
|
|
$
|
4
|
|
|
|
*
|
|
|
*
|
|
$
|
|
|
|
$
|
10
|
|
|
|
38%
|
|
|
38%
|
|
$
|
7
|
|
Transitional and other employee related costs
|
|
|
8
|
|
|
|
40%
|
|
|
51%
|
|
|
6
|
|
|
|
39
|
|
|
|
44%
|
|
|
47%
|
|
|
27
|
|
Stock-based compensation
|
|
|
3
|
|
|
|
-5%
|
|
|
-5%
|
|
|
3
|
|
|
|
14
|
|
|
|
-64%
|
|
|
-64%
|
|
|
39
|
|
Professional fees and other, net
|
|
|
12
|
|
|
|
289%
|
|
|
333%
|
|
|
3
|
|
|
|
24
|
|
|
|
254%
|
|
|
215%
|
|
|
7
|
|
Business combination adjustments
|
|
|
|
|
|
|
-100%
|
|
|
-100%
|
|
|
5
|
|
|
|
11
|
|
|
|
129%
|
|
|
140%
|
|
|
5
|
|
Gain on sale of property
|
|
|
|
|
|
|
-100%
|
|
|
-100%
|
|
|
(57
|
)
|
|
|
|
|
|
|
-100%
|
|
|
-100%
|
|
|
(57
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total acquisition related charges
|
|
$
|
27
|
|
|
|
166%
|
|
|
169%
|
|
$
|
(40
|
)
|
|
$
|
98
|
|
|
|
252%
|
|
|
250%
|
|
$
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Third Quarter 2009 Compared to Fiscal Third Quarter
2008: Acquisition related charges and other
expenses increased during the third quarter of fiscal 2009
primarily due to a $57 million gain that was recognized on
a property sale in the corresponding period of the prior year
(see Note 1 to our condensed consolidated financial
statements for additional information).
First Nine Months Fiscal 2009 Compared to First Nine
Months Fiscal 2008: On a constant currency
basis, acquisition related charges and other expenses increased
due to higher transitional and other employee related expenses
resulting primarily from our acquisition of BEA and an increase
in professional fees. The increase was also attributable to the
aforementioned property sale that was recognized as a gain in
the corresponding period of the prior year. These increases were
partially offset by lower stock-based compensation expenses
caused primarily by the timing of stock option accelerations for
certain former Hyperion employees that were incurred in the
first quarter of fiscal 2008.
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.
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
February 28,
|
|
|
Percent Change
|
|
February 29,
|
|
|
February 28,
|
|
|
Percent Change
|
|
February 29,
|
|
(Dollars in millions)
|
|
2009
|
|
|
Actual
|
|
Constant
|
|
2008
|
|
|
2009
|
|
|
Actual
|
|
Constant
|
|
2008
|
|
|
Restructuring expenses
|
|
$
|
15
|
|
|
|
83%
|
|
|
110%
|
|
$
|
8
|
|
|
$
|
46
|
|
|
|
227%
|
|
|
272%
|
|
$
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the third quarter of fiscal 2009, our management
approved, committed to and initiated a plan to restructure and
further improve efficiencies in our Oracle-based operations
(2009 Plan). The total estimated restructuring costs associated
with the 2009 Plan are $213 million and will be recorded to
the restructuring expense line item within our consolidated
statements of operations as they are recognized. In the third
quarter and first nine months of fiscal 2009, we recorded
$18 million of restructuring expenses in connection with
the 2009 Plan. We expect to incur the majority of the remaining
$195 million during the remainder of calendar 2009. Our
estimated costs are preliminary and may be subject to change in
future periods.
During the second quarter of fiscal 2008, our management
approved, committed to and initiated a plan 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). The 2008 Plan was amended in the
fourth quarter of fiscal 2008 to include the Oracle-based
effects resulting from our acquisition of BEA and was further
refined in the third quarter of fiscal 2009. The total estimated
costs associated with the 2008 Plan are approximately
$69 million, of which a benefit of $3 million
(resulting from an adjustment to the accrual balance) and
expense of $8 million were incurred during the third
quarter of fiscal 2009 and 2008, respectively, and expenses of
$28 million and $14 million were incurred during the
first nine months of fiscal 2009 and 2008, respectively.
Interest
Expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
February 28,
|
|
|
Percent Change
|
|
February 29,
|
|
|
February 28,
|
|
|
Percent Change
|
|
February 29,
|
|
(Dollars in millions)
|
|
2009
|
|
|
Actual
|
|
Constant
|
|
2008
|
|
|
2009
|
|
|
Actual
|
|
Constant
|
|
2008
|
|
|
Interest expense
|
|
$
|
154
|
|
|
|
87%
|
|
|
87%
|
|
$
|
82
|
|
|
$
|
471
|
|
|
|
78%
|
|
|
78%
|
|
$
|
265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 (losses), 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
February 28,
|
|
|
Percent Change
|
|
February 29,
|
|
|
February 28,
|
|
|
Percent Change
|
|
February 29,
|
|
(Dollars in millions)
|
|
2009
|
|
|
Actual
|
|
Constant
|
|
2008
|
|
|
2009
|
|
|
Actual
|
|
Constant
|
|
2008
|
|
|
Interest income
|
|
$
|
58
|
|
|
|
-35%
|
|
|
-26%
|
|
$
|
89
|
|
|
$
|
243
|
|
|
|
-4%
|
|
|
2%
|
|
$
|
253
|
|
Foreign currency (losses) gains, net
|
|
|
(9
|
)
|
|
|
-146%
|
|
|
-107%
|
|
|
20
|
|
|
|
(22
|
)
|
|
|
-146%
|
|
|
-107%
|
|
|
47
|
|
Minority interests in income
|
|
|
(23
|
)
|
|
|
-38%
|
|
|
-50%
|
|
|
(17
|
)
|
|
|
(58
|
)
|
|
|
-29%
|
|
|
-36%
|
|
|
(45
|
)
|
Other (losses) income, net
|
|
|
(2
|
)
|
|
|
82%
|
|
|
84%
|
|
|
(8
|
)
|
|
|
(49
|
)
|
|
|
-266%
|
|
|
-257%
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-operating income, net
|
|
$
|
24
|
|
|
|
-72%
|
|
|
-54%
|
|
$
|
84
|
|
|
$
|
114
|
|
|
|
-60%
|
|
|
-48%
|
|
$
|
284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Third Quarter 2009 Compared to Fiscal Third Quarter
2008: Non-operating income, net decreased
during the third quarter of fiscal 2009 as a result of a
reduction in our interest income, primarily due to lower market
rates that affected the yields earned on our investment
portfolio and foreign currency transaction losses of
$9 million in comparison to net foreign currency
transaction gains of $20 million in the corresponding prior
year period.
First Nine Months Fiscal 2009 Compared to First Nine
Months Fiscal 2008: Non-operating income, net
decreased during the first nine months of fiscal 2009 due to
similar reasons noted above and was also affected by changes in
our investments that we classify as trading that support our
deferred compensation plan obligations. The majority of these
changes occurred in the second quarter of fiscal 2009 and these
amounts are included in Other
40
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 first nine months of fiscal 2009 or any other periods
presented.
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
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
|
|
|
Nine Months Ended
|
|
|
|
February 28,
|
|
|
Percent Change
|
|
February 29,
|
|
|
February 28,
|
|
|
Percent Change
|
|
February 29,
|
|
(Dollars in millions)
|
|
2009
|
|
|
Actual
|
|
Constant
|
|
2008
|
|
|
2009
|
|
|
Actual
|
|
Constant
|
|
2008
|
|
|
Provision for income taxes
|
|
$
|
481
|
|
|
|
-10%
|
|
|
3%
|
|
$
|
537
|
|
|
$
|
1,377
|
|
|
|
-2%
|
|
|
5%
|
|
$
|
1,409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
26.6%
|
|
|
|
|
|
|
|
|
|
28.6%
|
|
|
|
27.1%
|
|
|
|
|
|
|
|
|
|
28.8%
|
|
The provision for income taxes decreased during the fiscal 2009
periods presented above in comparison to the corresponding
periods of fiscal 2008. The decreases were the result of a
higher proportion of our worldwide taxable income being earned
in lower tax rate jurisdictions, driven by transfer pricing
adjustments. The decreases were also attributable to changes in
tax laws. These decreases were offset, in part, by an increase
in income taxes attributable to unfavorable changes in foreign
currency exchange rates which disproportionately affected our
profits in relatively low tax jurisdictions.
Liquidity
and Capital Resources
|
|
|
|
|
|
|
|
|
|
|
|
|
February 28,
|
|
|
|
|
May 31,
|
|
(Dollars in millions)
|
|
2009
|
|
|
Change
|
|
2008
|
|
|
Working capital
|
|
$
|
7,639
|
|
|
-5%
|
|
$
|
8,074
|
|
Cash, cash equivalents and marketable securities
|
|
$
|
11,294
|
|
|
2%
|
|
$
|
11,043
|
|
Working capital: The decrease in
working capital as of February 28, 2009 in comparison to
May 31, 2008 was primarily due to an increase in our stock
repurchases during the first nine months of fiscal 2009 in
comparison to recent periods (we used $3.7 billion of cash
for stock repurchases during the first nine months of fiscal
2009 in comparison to $1.5 billion used for stock
repurchases during the first nine months 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 a result of the strengthening of the U.S. Dollar during
the first nine months of fiscal 2009 (the offset to which is
recorded to accumulated other comprehensive (loss) income 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 mostly offset by the favorable impact to our net current
assets of our net income generated during the first nine months
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 February 28, 2009. The amount of cash, cash equivalents
and marketable securities that we report in U.S. Dollars
for a significant portion 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 (loss) income on our consolidated balance
sheet). As the U.S. Dollar
41
strengthened against most major international currencies during
the first nine months 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 February 28, 2009 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 49 days at February 28, 2009 compared with
63 days at May 31, 2008. The days sales outstanding
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 nine months of fiscal 2009, of
large license and support balances outstanding as of
May 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
February 28,
|
|
|
|
|
February 29,
|
|
(Dollars in millions)
|
|
2009
|
|
|
Change
|
|
2008
|
|
|
Cash provided by operating activities
|
|
$
|
6,247
|
|
|
22%
|
|
$
|
5,107
|
|
Cash used for investing activities
|
|
$
|
(2,165
|
)
|
|
18%
|
|
$
|
(1,839
|
)
|
Cash used for financing activities
|
|
$
|
(3,221
|
)
|
|
118%
|
|
$
|
(1,481
|
)
|
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
nine months of fiscal 2009 primarily due to higher net income
and the collection of fourth quarter fiscal 2008 and 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
nine months of fiscal 2009 due to 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. These increases were partially offset by
decreases in cash used to purchase marketable securities, net of
proceeds received from sales and maturities.
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 for financing activities in the first nine months
of fiscal 2009 increased compared to the first nine months 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 during
fiscal 2009.
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
42
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
|
|
|
|
February 28,
|
|
|
|
|
February 29,
|
|
(Dollars in millions)
|
|
2009
|
|
|
Change
|
|
2008
|
|
|
Cash provided by operating activities
|
|
$
|
8,542
|
|
|
17%
|
|
$
|
7,322
|
|
Capital
expenditures(1)
|
|
|
(539
|
)
|
|
63%
|
|
|
(331
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Free cash flow
|
|
$
|
8,003
|
|
|
14%
|
|
$
|
6,991
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
5,739
|
|
|
|
|
$
|
5,088
|
|
|
|
|
|
|
|
|
|
|
|
|
Free cash flow as a percent of net income
|
|
|
139%
|
|
|
|
|
|
137%
|
|
|
|
|
(1) |
|
Represents capital expenditures as
reported in cash flows from investing activities in our
condensed consolidated statements of cash flows presented in
accordance with U.S. generally accepted accounting principles.
|
Long-Term
Customer Financing
We offer 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 nine months of fiscal 2009 and 2008,
$644 million and $468 million, respectively, or
approximately 15% and 11%, respectively, of our new software
license revenues were financed through our financing division.
43
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 February 28, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest payments on
borrowings(1)
|
|
|
5,073
|
|
|
|
166
|
|
|
|
552
|
|
|
|
506
|
|
|
|
392
|
|
|
|
392
|
|
|
|
330
|
|
|
|
2,735
|
|
Operating
leases(3)
|
|
|
1,303
|
|
|
|
109
|
|
|
|
348
|
|
|
|
268
|
|
|
|
192
|
|
|
|
127
|
|
|
|
73
|
|
&nb |