Oracle 2006 Annual Report Download - page 53

Table of Contents
Year Ended May 31,
Percent Change Percent Change
(Dollars in millions) 2007 Actual Constant 2006 Actual Constant 2005
Interest income $ 295 74% 72% $ 170 -8% -8% $ 185
Foreign currency gains
(losses) 45 15% 19% 39 -368% -374% (14)
Net investment gains
related to equity
securities 22 -11% -10% 25 1301% 1292% 2
Minority interest (71) 72% 70% (41) -2% -2% (42)
Other 64 28% 22% 50 52% 52% 33
Total non-operating
income, net $ 355 46% 45% $ 243 49% 50% $ 164
Fiscal 2007 Compared to Fiscal 2006: Non-operating income, net increased in fiscal 2007 primarily due to
higher interest income attributable to an increase in average interest rates (the weighted average interest rate
earned on cash, cash equivalents and marketable securities increased from 3.04% in fiscal 2006 to 3.97% in
fiscal 2007), partially offset by higher minority interests’ share in the net profits of i-flex and Oracle Japan.
Fiscal 2006 Compared to Fiscal 2005: Non-operating income, net increased in fiscal 2006 as a result of
higher foreign currency gains on our Japanese net investment hedge and the Chinese currency revaluation,
$14 million of equity in earnings associated with our interest in i-flex and higher gains on sales of equity
securities. Interest income decreased slightly due to lower average cash, cash equivalents and marketable
securities balances, partially offset by higher interest rates. The weighted average interest rate earned on cash,
cash equivalents and marketable securities increased from 1.93% in fiscal 2005 to 3.04% in fiscal 2006.
Provision for Income Taxes: The effective tax rate in all periods is the result of the mix of income earned in
various tax jurisdictions that apply a broad range of income tax rates. The provision for income taxes differs
from the tax computed at the 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.
Year Ended May 31,
(Dollars in millions) 2007 Change 2006 Change 2005
Provision for income taxes $ 1,712 20% $ 1,429 23% $ 1,165
Effective tax rate 28.6% 29.7% 28.8%
Fiscal 2007 Compared to Fiscal 2006: Provision for income taxes increased in fiscal 2007 primarily due to
higher earnings before tax, partially offset by a lower effective tax rate. Our effective tax rate for fiscal 2007
was slightly lower than in fiscal 2006 primarily due to additional research and development tax credits as well
as agreements reached with foreign tax authorities on certain tax positions.
Fiscal 2006 Compared to Fiscal 2005: Provision for income taxes increased in fiscal 2006 due to higher
earnings before tax and a higher effective tax rate. The increase in the effective tax rate in fiscal 2006 is
primarily attributable to a higher percentage of earnings in high tax jurisdictions as compared with other
lower tax rate jurisdictions. In addition, we did not benefit from certain non-recurring tax events in fiscal
2006 that occurred in fiscal 2005, including the settlement of audits and expiration of statutes of limitations
on certain tax assessments 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
May 31,
(Dollars in millions) 2007 Change 2006 Change 2005
Working capital $ 3,496 -31% $ 5,044 1,210% $ 385
Cash, cash equivalents and marketable
securities $ 7,020 -8% $ 7,605 59% $ 4,771
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Source: ORACLE CORP, 10-K, June 29, 2007 Powered by Morningstar® Document Research℠