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Morningstar® Document Research℠
FORM 10-K
ORACLE CORP - ORCL
Filed: June 29, 2007 (period: May 31, 2007)
Annual report with a comprehensive overview of the company

Table of contents

  • Page 1
    Morningstar Document Research ® ℠FORM 10-K ORACLE CORP - ORCL Filed: June 29, 2007 (period: May 31, 2007) Annual report with a comprehensive overview of the company

  • Page 2
    ... including zip code) (Registrant's telephone number, including area code) 500 Oracle Parkway Redwood City, California 94065 (650) 506-7000 Securities registered pursuant to Section 12(b) of the Act: Common Stock, par value $0.01 per share Preferred Stock Purchase Rights Title of Each Class Name of...

  • Page 3
    Number of shares of common stock outstanding as of June 25, 2007: 5,113,035,975 Documents Incorporated by Reference: Part III-Portions of the registrant's definitive proxy statement to be issued in conjunction with registrant's annual stockholders' meeting to be held on November 2, 2007. Source: ...

  • Page 4
    ... In and Disagreements with Accountants on Accounting and Financial Disclosure Controls and Procedures Other Information Directors, Executive Officers and Corporate Governance Executive Compensation Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Certain...

  • Page 5
    ... the last three fiscal years, we have invested over $25 billion, in the aggregate, to acquire a number of companies, products, services and technologies, including the acquisition of PeopleSoft, Inc., Siebel Systems, Inc. and Hyperion Solutions Corporation. Typically, the significant majority of our...

  • Page 6
    ... enables users to access business data and applications through a universally adopted web browser interface, while providing enterprises the most efficient and cost effective method of managing business information and applications. In an internet model, database servers manage and protect...

  • Page 7
    ... Search indexes and searches public, private and shared content across internal and external web sites, databases, file servers, document repositories, enterprise content management systems, applications and portals. Oracle Secure Enterprise Search has built-in functionality that permits users...

  • Page 8
    ... testing enterprise-class J2EE applications and web services. In addition, the suite contains Oracle Designer, a tool that allows developers to model business processes and automatically generate enterprise database applications, and Oracle Forms Developer, a development tool for building database...

  • Page 9
    ... analytics, secure search, identity management, self-service, and workflow to deliver business intelligence and insights, adaptive industry processes, and a superior ownership experience. Our applications enable efficient management of all core business functions, including customer relationship...

  • Page 10
    ... their software license updates and product support contracts annually. Unbreakable Linux Support During fiscal 2007, we introduced a program to support the Linux open source operating system for our customers' IT platforms. Oracle Unbreakable Linux, a support program that provides enterprises with...

  • Page 11
    ... enterprise applications, middleware, database and operating system. Our software license updates and product support revenues represented 46% of total revenues in both fiscal 2007 and 2006 and 45% of total revenues in fiscal 2005. Services Business Consulting Oracle Consulting assists our customers...

  • Page 12
    ... identity management), collaboration, development tools, enterprise applications, consulting/systems integration and operating systems, among others. Total cost of ownership, performance, functionality, ease of use, standards-compliance, product reliability, security and quality of technical support...

  • Page 13
    ..., portal, J2EE application server, development tools and identity management software. Our ability to offer a full range of rich functionality in a standards-based, open architecture has been a key competitive differentiator. Our competitors include IBM, Microsoft, BEA Systems, Inc., SAP AG, Sun...

  • Page 14
    ... Data Systems Corporation, IBM Global Services, Bearing Point, Inc., CapGemini Group and many others. Research and Development We develop the majority of our products internally. In addition, we have acquired technology through business acquisitions. We also purchase or license intellectual property...

  • Page 15
    ...Oracle Support and Oracle On Demand Executive Vice President, Server Technologies Executive Vice President, Asia Pacific Sales and Consulting Senior Vice President, Applications Development Senior Vice President, General Counsel and Secretary Vice President, Corporate Controller and Chief Accounting...

  • Page 16
    ..., Corporate Controller and Chief Accounting Officer since April 2007. He served as Intuit Inc.'s Director of Accounting from August 2005 to March 2007, as The Gap, Inc.'s Assistant Controller from April 2005 to August 2005, and as Vice President, Finance, at Cadence Design Systems, Inc.'s product...

  • Page 17
    ... manner or to position and/or price our products and services to meet market demand, customers may not buy new software licenses or renew software license updates and product support. In addition, information technology standards from both consortia and formal standards-setting forums as well as de...

  • Page 18
    ... funding to complete the acquisition in a timely manner; • our use of cash to pay for acquisitions may limit other potential uses of our cash, including stock repurchases and retirement of outstanding indebtedness; 14 Source: ORACLE CORP, 10-K, June 29, 2007 Powered by Morningstar® Document...

  • Page 19
    ... property rights and/or breach of our agreements with them. We expect the number of such claims will increase as the number of products and competitors in our industry segments grows, the functionality of products overlap, the use and support of third-party code (including open source code...

  • Page 20
    ... purchase price to an acquired company's net tangible assets, intangible assets and in-process research and development based on their fair values as of the date of the acquisition and record the excess of the purchase price over those fair values as goodwill. Management's estimates of fair value...

  • Page 21
    ... Oracle On Demand outsourcing services for our applications and database technology, delivered either at our data center facilities or at a site of our customer's choosing. We also offer CRM On Demand, which is a service offering that provides our customers with our Siebel CRM software functionality...

  • Page 22
    ... skilled business, product development, technical and other personnel. In addition, acquisitions could cause us to lose key personnel of the acquired companies or at Oracle. We may experience increased compensation costs that are not offset by either improved productivity or higher prices. We may...

  • Page 23
    ...following the consummation of an acquisition. PeopleSoft used six different standard versions of the CAP over the 18-month period commencing June 2003. PeopleSoft ceased using the CAP on December 29, 2004, the date on which we acquired a controlling interest in PeopleSoft. We have concluded that, as...

  • Page 24
    ...stock price could also expose us to the risk of securities class actions lawsuits, which could result in substantial costs and divert management's attention and resources, which could adversely affect our business. Item 1B. Unresolved Staff Comments None. 20 Source: ORACLE CORP, 10-K, June 29, 2007...

  • Page 25
    ... feet in Redwood City, California. We also own or lease office facilities for current use consisting of approximately 13.5 million square feet in various other locations in the United States and abroad. Due to our restructuring and merger integration activities over the past three fiscal years, we...

  • Page 26
    ...For equity compensation plan information, please refer to Item 12 in Part III of this Annual Report on Form 10-K. Stock Repurchase Programs In 1992, our Board of Directors approved a program to repurchase shares of our common stock to reduce the dilutive effect of our stock option and stock purchase...

  • Page 27
    ... table summarizes the stock repurchase activity for the three months ending May 31, 2007 and the approximate dollar value of shares that may yet be purchased pursuant to our share repurchase programs: Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased...

  • Page 28
    ... aggregate, for our acquisitions, including PeopleSoft, Siebel and Hyperion. The results of our acquired companies have been included in our consolidated financial statements since their respective dates of acquisition. (in millions, except per share amounts) 2007 As of and for the Year Ended May 31...

  • Page 29
    ... purchase software license updates and product support are granted rights to unspecified product upgrades and maintenance releases issued during the support period, as well as technical support assistance. In fiscal 2007, we also introduced Oracle Unbreakable Linux Support, which provides enterprise...

  • Page 30
    ... aggregate, to acquire companies, products, services and technologies, including the acquisitions of PeopleSoft, Inc., a provider of enterprise applications software products; Siebel Systems, Inc., a provider of customer relationship management software; Hyperion Solutions Corporation, a provider of...

  • Page 31
    ...new software license and software license updates and product support revenues, and (2) services, which include consulting, On Demand and education revenues. New software license revenues represent fees earned from granting customers licenses to use our database, middleware and applications software...

  • Page 32
    ..., personalized support and annual on-site technical services. Revenue from On Demand services is recognized over the term of the service period, which is generally one year. Education revenues include instructor-led, media-based and internet-based training in the use of our products. Education...

  • Page 33
    ...required by law, to determine the probability of possible cancellation. We consider multiple factors, including the history with the customer in similar transactions, the "essential use" of the software licenses and the planning, budgeting and approval processes undertaken by the governmental entity...

  • Page 34
    ... accounting, we allocate the purchase price of acquired companies to the tangible and intangible assets acquired and liabilities assumed as well as to in-process research and development based on their estimated fair values. We engage third-party appraisal firms to assist management in determining...

  • Page 35
    ... to determine the fair value of a pre-acquisition contingency, we will evaluate whether to include an amount in the purchase price allocation based on whether it is probable a liability had been incurred and whether an amount can be reasonably estimated. With the exception of unresolved tax matters...

  • Page 36
    ...generally requires share-based payments to employees to be recognized in our consolidated statements of operations based on their fair values. Prior to June 1, 2006, we accounted for our stock-based compensation plans under the intrinsic value method of accounting as defined by Accounting Principles...

  • Page 37
    ... method. We estimate the fair value of employee stock options using a Black-Scholes valuation model. The fair value of an award is affected by our stock price on the date of grant as well as other assumptions including the estimated volatility of our stock price over the term of the awards...

  • Page 38
    ... of our acquired products to growth in new software license revenues, the amount of revenues associated with software license updates and product support as well as On Demand services, and present supplemental disclosure related to acquisition accounting and stock-based compensation where applicable...

  • Page 39
    ... costs of intangible assets and stock-based compensation expenses related to our adoption of Statement 123R. Operating expenses were negatively affected by foreign currency rate fluctuations of 3 percentage 35 Source: ORACLE CORP, 10-K, June 29, 2007 Powered by Morningstar® Document Researchâ„

  • Page 40
    ... to Fiscal 2005: Total revenues increased in fiscal 2006 due to strong sales execution, incremental revenues from acquisitions and a strengthening in our competitive position. Excluding the effect of currency rate fluctuations, software license updates and product support revenues contributed 50% to...

  • Page 41
    ...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...

  • Page 42
    Table of Contents (5) Stock-based compensation is included in the following operating expense line items of our consolidated statements of operations (in millions): Year Ended May 31, 2007 2006 2005 Sales and marketing Software license updates and product support Cost of services Research and ...

  • Page 43
    Table of Contents 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 ...

  • Page 44
    ... to technical content as well as internet and telephone access to technical support personnel in our global support centers. Expenses associated with our software license updates and product support line of business 40 Source: ORACLE CORP, 10-K, June 29, 2007 Powered by Morningstar® Document...

  • Page 45
    ... salary and benefits associated with increased headcount to support the expansion of our customer base, higher amortization expenses resulting from additional intangible assets acquired during fiscal 2007 and fiscal 2006 and higher stock-based compensation expenses. Software license updates and...

  • Page 46
    ...our customer base and higher bonuses as a result of increased revenue levels. The software license updates and product support margin as a percentage of revenues decreased primarily due to incremental amortization of intangible assets. Services Services consist of consulting, On Demand and education...

  • Page 47
    ... our Siebel CRM software functionality delivered via a hosted solution that we manage. Advanced Customer Services consists of configuration and performance analysis, personalized support and on-site technical services. The cost of providing On Demand services consists primarily of personnel related...

  • Page 48
    ... infrastructure related expenditures in Oracle On Demand and CRM On Demand as well as amortization of intangible assets. Advanced Customer Services operating margins remained flat compared with the prior year while operating losses in both Oracle On Demand and CRM On Demand increased. Fiscal 2006...

  • Page 49
    ...% Asia Pacific 17% (1) Excluding stock-based compensation * Not meaningful Fiscal 2007 Compared to Fiscal 2006: Excluding the effect of currency rate fluctuations, education revenues grew primarily due to an increase in customer training on the use of our application products, as well as $5 million...

  • Page 50
    ... the United States, while the increase in applications headcount was primarily due to Siebel resources acquired. Research and development expenses increased due to incremental salary and benefits for the additional headcount, higher discretionary bonus expenditures and higher facility and technology...

  • Page 51
    ... 2006 related to PeopleSoft intangibles acquired compared with only five months of amortization in fiscal 2005. Acquisition Related Charges: Acquisition related charges primarily consist of in-process research and development expenses, integration-related professional services, stock-compensation...

  • Page 52
    ...this lawsuit during the purchase price allocation period and the actual settlement amount has been included in our consolidated statement of operations for fiscal 2007. Fiscal 2006 Compared to Fiscal 2005: Acquisition related charges decreased due to lower professional fees, stock-based compensation...

  • Page 53
    ...and the true-up of estimated tax accruals upon the filing of our prior year tax returns. We also incurred higher non-deductible in-process research and development charges in fiscal 2006. Liquidity and Capital Resources (Dollars in millions) 2007 Change May 31, 2006 Change 2005 Working capital Cash...

  • Page 54
    ... 62 days at May 31, 2007 compared with 55 days at May 31, 2006. The days sales outstanding calculation excludes the adjustment to reduce software license updates and product support revenues related to adjusting the carrying value for deferred support revenues acquired to fair value. Our increase in...

  • Page 55
    ...acquisition of PeopleSoft, whereas investing cash outflows in fiscal 2006 primarily relate to our acquisition of Siebel and our equity investment purchases in i-flex. Cash flows from financing activities: The changes in cash flows from financing activities primarily relate to borrowings and payments...

  • Page 56
    ... toward our venture fund investments which are payable upon demand. In May 2007, we entered into an agreement to acquire Agile Software Corporation, a leading provider of product lifecycle management software, for $8.10 per share in cash, or approximately $495 million. The merger is subject...

  • Page 57
    ...additional securities. Quarterly Results of Operations Quarterly revenues and expenses have historically been affected by a variety of seasonal factors, including sales compensation plans. These seasonal factors are common in the software industry. These factors have caused a 53 Source: ORACLE CORP...

  • Page 58
    ... option grants in excess of 100,000 shares. A separate Plan Committee, which is an executive officer committee, approves individual stock option grants of up to 100,000 shares to non-executive officers and employees. 54 Source: ORACLE CORP, 10-K, June 29, 2007 Powered by Morningstar® Document...

  • Page 59
    ... June 1, 2004 through May 31, 2007 Options outstanding as a percent of shares outstanding at May 31, 2007 In the money options outstanding (based on our May 31, 2007 stock price) as a percent of shares outstanding at May 31, 2007 Average annualized options granted and assumed, net of forfeitures and...

  • Page 60
    Table of Contents and the related weighted average interest rates for our investment portfolio at May 31, 2007. The cash, cash equivalent and marketable securities balances approximate fair value at May 31, 2007: (Dollars in millions) Amortized Principal Amount Weighted Average Interest Rate Cash ...

  • Page 61
    ... contracts as of May 31, 2007. Notional weighted average exchange rates listed in the tables below are quoted using market conventions. All of our forward contracts mature within one year with the substantial majority maturing within 90 days or less as of May 31, 2007. Tables of Forward Contracts...

  • Page 62
    ...The remaining change in fair value of the forward contract (the ineffective portion) is recognized in non-operating income, net. Net gains (losses) on investment hedges reported in stockholders' equity prior to tax effects were $45 million, $23 million and $(23) million in fiscal 2007, 2006 and 2005...

  • Page 63
    ... the effect of the controls on the information generated for use in this Annual Report on Form 10-K. In the course of the controls evaluation, we reviewed data errors or control problems identified and sought to confirm that appropriate corrective actions, including process improvements, were being...

  • Page 64
    ...Shares to be Issued Upon (2) This number includes 84,212,131 shares available for future issuance under the Oracle Corporation Exercise of Outstanding Options, Warrants and Rights." Employee Stock Purchase Plan (1992). 60 Source: ORACLE CORP, 10-K, June 29, 2007 Powered by Morningstar® Document...

  • Page 65
    ...Oracle Corporation), Siebel Systems, Inc., Oracle Corporation (formerly named Ozark Holding Inc.), Ozark Merger Sub Inc. and Sierra Merger Sub Inc. (2.1) Agreement and Plan of Merger, dated February 28, 2007, among Oracle Corporation, Hyperion Solutions Corporation and Hotrod Acquisition Corporation...

  • Page 66
    ... Share Rights Agreement between Oracle Corporation and Computershare Trust Company, N.A., as rights agent, dated as of January 31, 2006 (10.1) Indenture dated January 13, 2006, among Oracle Systems Corporation, Oracle Corporation and Citibank, N.A. (10.34) Forms of Old 2011 Note and Old 2016...

  • Page 67
    ... to Oracle Systems Corporation's Current Report on Form 8-K filed on (6) Incorporated by reference to Oracle Corporation's Form S-4/A filed on April 14, 2006 (7) Incorporated by reference to Oracle Corporation's Form S-3ASR filed on May 10, 2007 * Indicates management contract or compensatory plan...

  • Page 68
    ... Current Report on Form 8-K filed on (25) Incorporated by reference to Oracle Corporation's Quarterly Report on Form 10-Q filed December 21, January 11, 2006 2006 2005 September 9, 2005 November 9, 2005 2006 64 Source: ORACLE CORP, 10-K, June 29, 2007 Powered by Morningstar® Document Research...

  • Page 69
    ... sheets of Oracle Corporation as of May 31, 2007 and 2006, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended May 31, 2007. Our audits also included the financial statement schedule listed in the Index at Item...

  • Page 70
    ... or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, management's assessment that Oracle Corporation maintained effective internal control over financial reporting as of May 31, 2007, is fairly stated, in all material respects, based on the COSO criteria...

  • Page 71
    ... of May 31, 2007 and 2006 Other receivables Deferred tax assets Prepaid expenses and other current assets Total current assets Non-current assets: Property, net Intangible assets: software support agreements and related relationships, net Intangible assets: other, net Goodwill Other assets Total non...

  • Page 72
    Source: ORACLE CORP, 10-K, June 29, 2007 Powered by Morningstar® Document Researchâ„

  • Page 73
    Table of Contents ORACLE CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS For the Years Ended May 31, 2007, 2006 and 2005 (in millions, except per share data) 2007 Year Ended May 31, 2006 2005 Revenues: New software licenses Software license updates and product support Software revenues Services ...

  • Page 74
    ..., 2006 Common stock issued under stock award plans $ Common stock issued under stock purchase plan Assumption of stock awards in connection with acquisitions Reclassification of deferred compensation upon adoption of Statement 123R Stock-based compensation Repurchase of common stock Tax benefit from...

  • Page 75
    Comprehensive income Balances as of May 31, 2007 $ 4,390 5,107 $ 10,293 $ 6,223 $ - $ 403 $ 16,919 See notes to consolidated financial statements. 69 Source: ORACLE CORP, 10-K, June 29, 2007 Powered by Morningstar® Document Researchâ„

  • Page 76
    ...-based compensation Tax benefits on the exercise of stock awards Excess tax benefits from stock-based compensation In-process research and development Net investment gains related to equity securities Changes in assets and liabilities, net of effects from acquisitions: Increase in trade receivables...

  • Page 77
    ... Applications software can be used to automate business processes and to provide business intelligence. We also offer software license updates and product support (including support for the Linux Operating System), and other services including consulting, On Demand, and education. Oracle Corporation...

  • Page 78
    ... the software license payment is tied to the performance of consulting services. On Demand is comprised of Oracle On Demand, CRM On Demand and Advanced Customer Services. Oracle On Demand provides multi-featured software and hardware management and maintenance services for our database, middleware...

  • Page 79
    ... CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) May 31, 2007 Siebel CRM Software functionality delivered via a hosted solution that we manage. Advanced Customer Services provide customers configuration and performance analysis, personalized support and annual on-site technical...

  • Page 80
    Table of Contents ORACLE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) May 31, 2007 division was formed, we have established a history of collection, without concessions, on these receivables with payment terms that generally extend up to five years from the contract date. ...

  • Page 81
    ... related to marketable equity securities and other investments in fiscal 2007, 2006 and 2005. Property Property is stated at the lower of cost or realizable value, net of accumulated depreciation. Depreciation is computed using the straight-line method based on estimated useful lives of the assets...

  • Page 82
    ... Payment, under the modified prospective method. Statement 123R generally requires share-based payments to employees, including grants of employee stock options and purchases under employee stock purchase plans, to be recognized in our consolidated statements of operations based on their fair values...

  • Page 83
    Table of Contents ORACLE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) May 31, 2007 (in millions) 2007 Year Ended May 31, 2006 2005 Interest income Foreign currency gains (losses) Net investment gains related to marketable equity securities and other investments Minority ...

  • Page 84
    ...was calculated as the average Oracle stock price for 10 days prior to the closing date of April 19, 2007 divided by the consideration price of $52.00 paid by Oracle for each Hyperion common share outstanding. The fair value of options assumed and awards exchanged was determined using a Black-Scholes...

  • Page 85
    ... and equity and the weighted average return on invested capital. The following table sets forth the components of intangible assets associated with the Hyperion acquisition: (Dollars in millions) Fair Value Useful Life Software support agreements and related relationships Developed technology...

  • Page 86
    ... included in the fair value determination, as these costs were not deemed to represent a legal obligation at the time of acquisition. As a result, in allocating the purchase price, we recorded an adjustment to reduce the carrying value of Hyperion's April 13, 2007 deferred support revenue by $137...

  • Page 87
    ...the equity method of accounting. We acquired i-flex to expand our reach into the marketplace for financial services applications. On August 14, 2006, the i-flex board of directors approved, and on September 14, 2006, i-flex issued approximately 4.45 million shares of common stock at a purchase price...

  • Page 88
    ...2006 Acquisitions Siebel Systems, Inc. On January 31, 2006, we completed our acquisition of Siebel pursuant to our Merger Agreement dated September 12, 2005. We acquired Siebel to expand our presence in the customer relationship management (CRM) applications software market. The total purchase price...

  • Page 89
    ..., amortization charges from acquired intangible assets, stock-based compensation charges for unvested options assumed (pursuant to Statement 123R and APB 25 for fiscal 2007 and fiscal 2006, respectively), Oracle restructuring costs, adjustments to interest expense and related tax effects. The...

  • Page 90
    ... during the purchase accounting allocation period, and as an adjustment to operating expenses thereafter. Fiscal 2006 Restructuring Plans During the third quarter of our fiscal year 2006, management approved and initiated plans to restructure certain operations of Oracle and pre-merger Siebel to...

  • Page 91
    ...(3) Year Ended May 31, 2007 Initial Adj. to Cash Costs(4) Cost(5) Payments Accrued May 31, 2007(3) Total Costs Accrued to Date Total Expected Program Costs (in millions) Other(6) Fiscal 2006 Oracle Restructuring Plan New software licenses $ Software license updates and product support Services...

  • Page 92
    ...initial restructuring plan. (5) Primarily relates to the renegotiation of facility leases acquired in the Siebel acquisition. (6) Represents foreign currency translation adjustments. and 2006, respectively. 85 Source: ORACLE CORP, 10-K, June 29, 2007 Powered by Morningstar® Document Researchâ„

  • Page 93
    ...the terms of these options. (in millions) 2007 Year Ended May 31, 2006 2005 In-process research and development Transitional employee related costs Stock-based compensation Professional fees PeopleSoft pre-acquisition legal contingency accrual Total acquisition related charges $ $ 151 24 9 8 (52...

  • Page 94
    ...242 1,989 150 6 7 5,894 159 5,735 $ $ $ $ $ $ In February 2006, we entered into dealer agreements with various financial institutions and an Issuing and Paying Agency Agreement with JPMorgan Chase Bank, National Association, relating to a $3.0 billion commercial paper program (CP Program). Under...

  • Page 95
    ...were due in February 2007 and also had an interest-rate swap agreement that had the economic effect of modifying the interest obligations associated with these senior notes so that the interest payable on the senior notes effectively became variable based on the three-month LIBOR set quarterly until...

  • Page 96
    ... of deferred software license updates and product support revenues to be delivered beyond the next 12 months. In connection with purchase price allocations related to our acquisitions in fiscal 2007, fiscal 2006 and fiscal 2005, we have estimated the fair values of the support obligations assumed...

  • Page 97
    ... was nominal for fiscal 2007. The fair value of the unvested portion of awards granted prior to June 1, 2006 will continue to be recognized over the remaining service period using the accelerated expense attribution method, net of estimated forfeitures. Stock-based compensation recognized in our...

  • Page 98
    ...) May 31, 2007 The following table presents the effect on reported net income and earnings per share if we had accounted for our stock options under the fair value method of accounting for fiscal 2006 and 2005: (in millions, except for per share data) Year Ended May 31, 2006 2005 Net income...

  • Page 99
    ... for future option awards under this plan; however, no more than 2 million shares may be used for grants other than options. In connection with certain of our acquisitions, principally PeopleSoft, Siebel and Hyperion, we assumed all of the outstanding stock options and restricted stock of the...

  • Page 100
    ... value estimates. The fair value of employee and director stock options granted, including options assumed from acquisitions, were estimated at the date of grant (or date of acquisition for acquired options assumed). The weighted average assumptions used were as follows: 2007 Year Ended May 31, 2006...

  • Page 101
    ... of common stock at a price per share that is 95% of the fair value of Oracle stock as of the end of the semi-annual option period. Through May 31, 2007, 325 million shares had been issued and 84 million shares were reserved for future issuances under the Purchase Plan. During fiscal 2007, 2006 and...

  • Page 102
    ... date, holders of rights (other than the 15% or greater holder) will be entitled to receive upon exercise of the right and payment of exercise price, shares of our common stock (or, in certain types of transactions, common stock of the acquirer) having a market value of two times the exercise price...

  • Page 103
    ...our income before provision for income taxes as follows: (in millions) 2007 Year Ended May 31, 2006 2005 Tax provision at statutory rate Foreign earnings at other than United States rates State tax expense, net of federal benefit Dividend pursuant to American Jobs Creation Act of 2004 Settlement of...

  • Page 104
    ... following: (in millions) 2007 May 31, 2006 Deferred tax liabilities: Unrealized gain on stock Unremitted earnings of foreign subsidiaries Acquired intangibles Other Total deferred tax liabilities Deferred tax assets: Accruals and allowances Employee compensation and benefits Differences in timing...

  • Page 105
    ... 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: (in millions, except per share data) 2007 Year Ended May 31, 2006 2005 Net income...

  • Page 106
    ... and cash equivalents at May 31, 2007 and 2006 was $6.2 billion and $6.7 billion, respectively, which approximated fair value, and the weighted-average interest rates were 4.08% for both fiscal 2007 and 2006. We use the specific identification method to determine any realized gains or losses from...

  • Page 107
    ...The remaining change in fair value of the forward contract (the ineffective portion) is recognized in non-operating income, net. Net gains (losses) on investment hedges reported in stockholders' equity prior to tax effects were $45 million, $23 million and $(23) million in fiscal 2007, 2006 and 2005...

  • Page 108
    ...31, 2006 Intangible Assets, Gross Additions May 31, 2007 Accumulated Amortization May 31, May 31, 2006 Expense 2007 Net Book Value May 31, May 31, 2006 2007 Weighted Average Useful Life Software support agreements and related relationships Developed technology Core technology Customer relationships...

  • Page 109
    ... 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...

  • Page 110
    ... 31, 2007 The following table presents a summary of our businesses and operating segments: (in millions) 2007 Year Ended May 31, 2006 2005 New software licenses: Revenues(1) Sales and distribution expenses Margin(2) Software license updates and product support: Revenues(1) Cost of services Margin...

  • Page 111
    ... 31, 2007 The following table reconciles operating segment revenues to total revenues as well as operating segment margin to income before provision for income taxes: (in millions) 2007 Year Ended May 31, 2006 2005 Total revenues for reportable segments Software license updates and product support...

  • Page 112
    ... in the applicable license transaction. PeopleSoft customers retain rights to the licensed products whether or not the CAP payments are triggered. The maximum potential penalty under the CAP, by version, as of May 31, 2007 was as follows: CAP Version Dates Offered to Customers(1) Start Date End Date...

  • Page 113
    ...applicable program documentation for a period of one year after delivery. We also warrant that services we perform will be provided in a manner consistent with industry standards for a period of 90 days from performance of the service. Warranty expense was not significant in fiscal 2007, fiscal 2006...

  • Page 114
    ... in the Oracle Corporation 401(k) Savings and Investment Plan (Oracle 401(k) Plan). Participants can generally contribute up to 40% of their eligible compensation on a per-pay-period basis as defined by the plan document or by the section 402(g) limit as defined by the Internal Revenue Service. We...

  • Page 115
    ... District of California against Siebel and certain of its officers relating to predicted adoption rates of Siebel v7.0 and certain customer satisfaction surveys. This complaint was consolidated and amended on August 27, 2004, with the Policemen's Annuity and Benefit Fund of Chicago being appointed...

  • Page 116
    ...on the schedule outlined above. 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...

  • Page 117
    Table of Contents SCHEDULE II ORACLE CORPORATION VALUATION AND QUALIFYING ACCOUNTS Beginning Balance Additions Charged to Operations or Other Accounts Translation Adjustments Ending Balance (in millions) Write-offs Trade Receivable Allowances Year Ended: May 31, 2005 May 31, 2006 May 31, 2007 $...

  • Page 118
    ..., 2007. ORACLE CORPORATION By: /s/ LAWRENCE J. ELLISON Lawrence J. Ellison, Chief Executive Officer and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the date...

  • Page 119
    /s/ CHARLES E. PHILLIPS, JR. Charles E. Phillips, Jr. /s/ NAOMI O. SELIGMAN Naomi O. Seligman Director June 29, 2007 June 29, 2007 Director 111 Source: ORACLE CORP, 10-K, June 29, 2007 Powered by Morningstar® Document Researchâ„

  • Page 120
    Table of Contents ORACLE CORPORATION INDEX OF EXHIBITS Exhibit No. Exhibit Titles 21.01 23.01 31.01 31.02 32.01 Subsidiaries of the Registrant Consent of Ernst & Young LLP, Independent Registered Public Accounting...: ORACLE CORP, 10-K, June 29, 2007 Powered by Morningstar® Document Researchâ„

  • Page 121
    .... PeopleSoft Columbia Holdings, Ltd. SPL WorldGroup International Ltd. Sistemas Oracle de Chile, S.A. Centro de Capacitacion Oracles Ltda. Beijing Oracle Software Systems Company Limited Hyperion Solutions China Ltd. Oracle Research and Development Center, Beijing, Ltd. Oracle Research & Development...

  • Page 122
    ... Kft. Siebel Systems Hungary Computer Technology Limited Liability Company Hyperion Solutions India Private Limited Oracle India Private Ltd. Oracle Solution Services (India) Private Ltd. i-Flex Solutions Ltd ProfitLogic Software Private Limited J.D. Edwards India Software Pvt. Ltd. PeopleSoft India...

  • Page 123
    Source: ORACLE CORP, 10-K, June 29, 2007 Powered by Morningstar® Document Researchâ„

  • Page 124
    ... de C.V. Stellent S.A. de C.V. Oracle Nederland B.V. Oracle Distribution B.V. Oracle Licensing B.V. Tinoway Nederland B.V. Oracle Scheduler BV Oracle East Central Europe Services BV Oracle UK Finance BV Hyperion Solutions Nederland B.V. PeopleSoft International BV edocs Europe Netherlands BV Eontec...

  • Page 125
    Siebel Systems Polska Sp. z o.o. Oracle Portugal-Sistemas de Informacao Lda. Poland Portugal Source: ORACLE CORP, 10-K, June 29, 2007 Powered by Morningstar® Document Researchâ„

  • Page 126
    ... Oracle Resources Ltd. Oracle EMEA Management Oracle Corporation UK Trustee Company Limited Orchestream Holdings plc Retek Information Systems Ltd. Eon Financial Solutions Limited Siebel Systems UK Limited Stellent Limited Stellent SealedMedia Limited Stellent Software Limited ProfitLogic Europe...

  • Page 127
    Tango Sol (UK) Limited Siebel Systems Middle East FZ-LLC UK United Arab Emirates Source: ORACLE CORP, 10-K, June 29, 2007 Powered by Morningstar® Document Researchâ„

  • Page 128
    ...Oracle Systems Corporation Oracle UK Holdings LLC Oracle USA, Inc. Reliaty, Inc. RogersGrant Acquisition Corp. RSIB, Inc. SealedMedia Inc. Siebel Helpline.com, Inc. Siebel Scholars Foundation Siebel Systems Holdings, LLC Siebel Systems International LLC Siebel Systems International LP Siebel Systems...

  • Page 129
    Source: ORACLE CORP, 10-K, June 29, 2007 Powered by Morningstar® Document Researchâ„

  • Page 130
    ... of internal control over financial reporting of Oracle Corporation, included in this Annual Report (Form 10-K) for the year ended May 31, 2007. /s/ ERNST & YOUNG LLP San Francisco, California June 28, 2007 Source: ORACLE CORP, 10-K, June 29, 2007 Powered by Morningstar® Document Research...

  • Page 131
    ...employees who have a significant role in the registrant's internal controls over financial reporting. By: /s/ LAWRENCE J. ELLISON Lawrence J. Ellison Chief Executive Officer and Director b) Date: June 29, 2007 Source: ORACLE CORP, 10-K, June 29, 2007 Powered by Morningstar® Document Researchâ„

  • Page 132
    ... employees who have a significant role in the registrant's internal controls over financial reporting. By: /s/ SAFRA A. CATZ Safra A. Catz President, Chief Financial Officer and Director b) Date: June 29, 2007 Source: ORACLE CORP, 10-K, June 29, 2007 Powered by Morningstar® Document Researchâ„

  • Page 133
    ...(d) of the Securities Exchange Act of 1934; and the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Oracle Corporation. /s/ LAWRENCE J. ELLISON Name: Lawrence J. Ellison Chief Executive Officer and Director /s/ SAFRA...