Oracle 2005 Annual Report Download - page 37

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Table of Contents
Fiscal 2005 Compared to Fiscal 2004: Excluding the effect of currency rate fluctuations, the increase in total revenues reflects $685 million associated with
PeopleSoft products and services as well as an increase in sales of our products and services resulting from improved sales execution as a result of product
specialization, a strengthening in our competitive position and a stronger economy, particularly in the United States. Total revenues were favorably affected by
foreign currency rate fluctuations due to a weakening of the United States dollar against certain major international currencies, primarily the Euro, British Pound
and Japanese Yen. Excluding the effect of currency rate fluctuations, the Americas contributed 61% to the increase in total revenues, EMEA contributed 27%
and Asia Pacific contributed 12%.
Excluding the effect of currency rate fluctuations, total operating expenses increased 20%. Operating expenses were unfavorably affected as a result of the
weakening of the United States dollar relative to other major international currencies. Operating margins as a percentage of total revenues decreased from 38% to
34%. The decline in operating margins is primarily due to costs incurred as a result of the acquisition of PeopleSoft such as amortization of intangible assets,
acquisition related costs, restructuring costs and stock-based compensation resulting from the assumption of unvested PeopleSoft stock options.
Supplemental Disclosure Related to Acquisition Accounting
To supplement our consolidated financial information we believe the following information is helpful to an overall understanding of our past financial
performance and prospects for the future. Readers are directed to the introduction under “Results of Operations” for a discussion of the inherent limitations in
comparing pre- and post-acquisition information.
The results of operations include the following purchase accounting adjustments and significant expenses incurred in connection with acquisitions:
Year Ended May 31,
(in millions) 2006 2005 2004
Support deferred revenue(1)
$ 391 $ 320 $ —
Amortization of intangible assets(2)
583 219 36
Acquisition related charges(3) (5)
137 208 54
Restructuring(4)
85 147 —
Stock-based compensation(5)
31 25 —
Income tax effect(6)
(362) (264) (29)
$ 865 $ 655 $ 61
(1) In connection with our purchase price allocations, we estimated the fair value of support obligations assumed in connection with business acquisitions made
during fiscal 2005 and fiscal 2006. Due to our application of business combination accounting rules, software license updates and product support revenues
related to support contracts in the amount of $391 and $320 that would have been otherwise recorded by acquired businesses as independent entities, were not
recognized during fiscal 2006 and 2005, respectively. Estimated software license updates and product support revenues related to support contracts assumed
that will not be recognized due to the application of business combination accounting rules in future periods are as follows:
Year Ended
May 31,
2007 $ 137
2008 9
Total $ 146
To the extent customers renew these support contracts, we expect to recognize revenue for the full contract value over the support renewal period.
34
Source: ORACLE CORP, 10-K, July 21, 2006 Powered by Morningstar® Document Research℠