Oracle 2007 Annual Report Download

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Morningstar® Document Research℠
FORM 10-K
ORACLE CORP - ORCL
Filed: July 02, 2008 (period: May 31, 2008)
Annual report with a comprehensive overview of the company

Table of contents

  • Page 1
    Morningstar Document Research ® ℠FORM 10-K ORACLE CORP - ORCL Filed: July 02, 2008 (period: May 31, 2008) Annual report with a comprehensive overview of the company

  • Page 2
    ... executive offices, 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 Title of Each Class Name of Each...

  • Page 3
    ... stock as reported by the NASDAQ Global Select Market on November 30, 2007, which is the last business day of the registrant's most recently completed second fiscal quarter. This calculation does not reflect a determination that persons are affiliates for any other purposes. Number of shares of...

  • Page 4
    ... with Accountants on Accounting and Financial Disclosure Controls and Procedures Other Information 23 25 25 56 59 59 60 61 Directors, Executive Officers and Corporate Governance Executive Compensation Security Ownership of Certain Beneficial Owners and Management and Related Stockholder...

  • Page 5
    EXHIBIT 12.01 EXHIBIT 21.01 EXHIBIT 23.01 EXHIBIT 31.01 EXHIBIT 31.02 EXHIBIT 32.01 Signatures 112 Source: ORACLE CORP, 10-K, July 02, 2008 Powered by Morningstar® Document Researchâ„

  • Page 6
    ...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...

  • Page 7
    ... application and analytics data, and unstructured data in the form of XML files, office documents, images, video and spatial data. Designed for enterprise grid computing, the Oracle Database is available in four editions: Express Edition, Standard Edition One, Standard Edition and Enterprise Edition...

  • Page 8
    ...Suite or custom applications including Service-Oriented Architecture applications. In addition to managing Oracle software infrastructure products including the Oracle Database and Oracle Fusion Middleware, Oracle Enterprise Manager also supports our recently acquired BEA Web Logic Server middleware...

  • Page 9
    ... to build and deploy web services, web sites, portals and web-based applications. Oracle's Fusion Middleware is used to support Oracle applications, as well as other enterprise applications and independent software vendors that build their own custom applications. On April 29, 2008, we acquired BEA...

  • Page 10
    ... business process flows and manage information access rights to documents and other unstructured content file types. Oracle Enterprise Content Management Suite supports an extensive set of document and image formats. Our Web Content Management product's capabilities also enable customers to use...

  • Page 11
    ... by offering them the ability to purchase software license updates and product support contracts for their existing products. New technologies such as Oracle Fusion Middleware, Oracle Business Intelligence Suite, and Oracle WebCenter are designed to help customers extend the benefits of their IT...

  • Page 12
    ...from all Oracle applications in a complete suite. We believe this suite of applications will deliver a superior ownership experience through improved usability, adaptive business process automation, built-in business intelligence and industry-specific capabilities. New software license revenues from...

  • Page 13
    ... assistance, technical account management, expert services, configuration and performance analysis, personalized support and annual on-site technical services. On Demand revenues represented 3% of total revenues in fiscal 2008, 2007 and 2006. Education We provide training to customers, partners...

  • Page 14
    ..., portal server and identity management); • collaboration; • development tools; • enterprise applications; • software as a service; • hosted and On Demand solutions; • operating systems; • virtualization software; and • consulting/systems integration. Total cost of ownership...

  • Page 15
    ... to the development and deployment of Service-Oriented Architectures and web services, application integration middleware as well as software as a service offerings. As a result of our acquisitions of PeopleSoft and Siebel, we currently offer several product lines that are suited for different needs...

  • Page 16
    ..., middleware and applications software products. Employees As of May 31, 2008, we employed 84,233 full-time employees, including 19,465 in sales and marketing, 7,642 in software license updates and product support, 28,215 in services, 20,607 in research and development and 8,304 in general and...

  • Page 17
    ... Consulting Executive Vice President, Europe, Middle East and Africa Sales and Consulting Executive Vice President, Oracle Customer Services Executive Vice President, Product Development Executive Vice President, Japan Sales and Consulting Senior Vice President, General Counsel and Secretary Senior...

  • Page 18
    ... software licenses and related services and, to a lesser extent, also affect our renewal rates for software license updates and product support. We may fail to achieve our financial forecasts due to inaccurate sales forecasts or other factors. Our revenues, and particularly our new software license...

  • Page 19
    ... to develop new products and services, or to enhance and improve our products and support services in a timely 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...

  • Page 20
    ... and policies; • we may have multiple and overlapping product lines as a result of our acquisitions that are offered, priced and supported differently, which could cause customer confusion and delays; • we may have higher than anticipated costs in continuing support and development of acquired...

  • Page 21
    ... If we do not adapt our pricing models to reflect changes in customer use of our products or changes in customer demand, our new software license revenues could decrease. Additionally, increased distribution of applications through application service providers, including software-as-a-service (SaaS...

  • Page 22
    ...intangible assets, in-process research and development as well as other acquisition related charges, restructuring and stock-based compensation associated with assumed stock awards. Charges to our operating results in any given period could differ substantially from other periods based on the timing...

  • Page 23
    ... include software development, sales, customer support, consulting, On Demand and shared administrative service centers. We are subject to a variety of risks and challenges in managing an organization operating in various countries, including those related to general economic conditions in...

  • Page 24
    ... locations and could increase both the costs and risks associated with providing the services; • demand for these services may be affected by customer and media concerns about security risks, international transfers of data, government or other third-party access to data, and/or use of outsourced...

  • Page 25
    ... time of refinancing result in higher interest rates upon refinancing, then the interest expense relating to that refinanced indebtedness would increase. In addition, changes by any rating agency to our outlook or credit rating could negatively affect the value of both our debt and equity securities...

  • Page 26
    ... actions for a fixed period of time after this acquisition. The 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...

  • Page 27
    Table of Contents or 19% of total owned and leased space. This vacated space is sublet or is being actively marketed for sublease or disposition. Item 3. Legal Proceedings The material set forth in Note 15 of Notes to Consolidated Financial Statements in Item 15 of this Annual Report on Form 10-K ...

  • Page 28
    ... equity compensation plan information, please refer to Item 12 in Part III of this Annual Report. Stock Repurchase Programs Our Board of Directors has approved a program to repurchase shares of our common stock to reduce the dilutive effect of our stock option and stock purchase plans. In April 2007...

  • Page 29
    ... and are not indicative of, nor intended to forecast, future performance of our common stock. COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN* AMONG ORACLE CORPORATION, THE S&P 500 INDEX AND THE DOW JONES U.S. SOFTWARE INDEX * $100 INVESTED ON MAY 31, 2003 IN STOCK OR INDEX-INCLUDING REINVESTMENT OF...

  • Page 30
    ... due to cash paid to acquire PeopleSoft. (3) Total assets increased as of May 31, 2008, 2007, 2006 and 2005 primarily due to goodwill and intangible assets arising from the acquisitions of BEA in fiscal 2008, Hyperion in fiscal 2007, Siebel in fiscal 2006 and PeopleSoft in fiscal 2005, as well...

  • Page 31
    ... Oracle VM server virtualization software. Substantially all of our customers renew their software license updates and product support contracts annually. The growth of software license updates and product support revenues is primarily influenced by three factors: (1) the renewal rate of the support...

  • Page 32
    ...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...

  • Page 33
    ...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 34
    ... 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 revenues...

  • Page 35
    ..., 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. Provided all other revenue recognition criteria have been met, we recognize new software license revenues for these arrangements...

  • Page 36
    ...the estimated research and development costs in our fair value determinations, as these costs are not deemed to represent a legal obligation at the time of acquisition. As a result, we did not recognize software license updates and product support revenues related to support contracts in the amounts...

  • Page 37
    ... the fair value of a reporting unit involves the use of significant estimates and assumptions. These estimates and assumptions include revenue growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount rates, future economic and market conditions and...

  • Page 38
    ... process. We have taken into account the allocation of these identified intangibles among different taxing jurisdictions, including those with nominal or zero percent tax rates, in establishing the related deferred tax liabilities. Income tax contingencies existing as of the acquisition dates...

  • Page 39
    ...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 and the estimated period of time that we expect employees to hold their stock options. The risk-free interest rate...

  • Page 40
    ...new software license revenues, the amount of revenues associated with software license updates and product support, as well as On Demand services (in the fiscal 2007 to fiscal 2006 comparison), and present supplemental disclosure related to certain charges and gains (including acquisition accounting...

  • Page 41
    ... similar features and functionality. • 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 revenue in our...

  • Page 42
    ... relative to other major international currencies. Excluding the effect of currency rate fluctuations, new software license revenues contributed 38% to the growth in total revenues, software license updates and product support revenues contributed 45% and services revenues contributed 17%. Excluding...

  • Page 43
    ... 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 acquisitions, primarily PeopleSoft, BEA, Siebel...

  • Page 44
    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 45
    .... Total new software license margin as a percentage of revenues declined as our expenses, including amortization costs of intangible assets, grew at a faster rate than our revenues. Software License Updates and Product Support: Software license updates grant customers rights to unspecified software...

  • Page 46
    ... intangible assets associated with software support contracts and customer relationships obtained from our acquisitions. (Dollars in millions) 2008 Year Ended May 31, Percent Change Percent Change Actual Constant 2007 Actual Constant 2006 Software License Updates and Product Support Revenues...

  • Page 47
    .... 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 applications software products. The cost...

  • Page 48
    ...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...

  • Page 49
    Table of Contents Percent Change Actual Constant Year Ended May 31, 2007 Percent Change Actual Constant (Dollars in millions) 2008 2006 On Demand Revenues: Americas EMEA Asia Pacific Total revenues Expenses: Cost of services(1) Stock-based compensation Amortization of intangible assets(2) Total ...

  • Page 50
    ... intangible assets, as well as higher IT related costs to support the expansion of our customer base. On Demand expense growth also reflects a full year of expenses from Siebel On Demand employees (in comparison to only four months in fiscal 2006). Total On Demand margin as a percentage of revenues...

  • Page 51
    Table of Contents Fiscal 2007 Compared to Fiscal 2006: Excluding the effect of currency rate fluctuations, education revenues grew in fiscal 2007 primarily due to an increase in customer training on the use of our application products, as well as $5 million of incremental revenues from Hyperion. ...

  • Page 52
    ...Hyperion in fiscal 2007. Amortization of Intangible Assets Expenses: Year Ended May 31, Percent Change Percent Change Actual Constant 2007 Actual Constant (Dollars in millions) 2008 2006 Software support agreements and related relationships Developed technology Core technology Customer contracts...

  • Page 53
    ... to Fiscal 2007: Acquisition related and other expenses decreased during fiscal 2008 due to lower in-process research and development acquired as a part of our fiscal 2008 acquisitions in comparison to our fiscal 2007 acquisitions and a $57 million gain on a property sale in December 2007 (see Note...

  • Page 54
    Table of Contents Fiscal 2007 Compared to Fiscal 2006: Restructuring expenses decreased in fiscal 2007 as we initiated the majority of the actions pursuant to the Fiscal 2006 Oracle Restructuring Plan during fiscal 2006. Our management did not initiate any new plans to restructure our Oracle-based ...

  • Page 55
    ... end accounts receivable by average daily sales for the quarter, was 63 days at May 31, 2008 compared with 62 days at May 31, 2007. The days sales outstanding calculation excludes the adjustment to reduce software license updates and product support revenues related to adjusting the carrying value...

  • Page 56
    ... of Contents Payments from customers for software license updates and product support agreements are generally received near the beginning of the contract term, which is generally one year in length. We also generate significant cash from new software license sales and, to a lesser extent, services...

  • Page 57
    Table of Contents Long-Term Customer Financing We offer 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 ...

  • Page 58
    ... of BEA and for general corporate purposes. Some or all of the 2013 Notes, 2018 Notes and 2038 Notes may be redeemed at any time, subject to payment of a make-whole premium. The 2013 Notes, 2018 Notes and 2038 Notes pay interest semi-annually. In May 2007, we issued $2.0 billion of floating rate...

  • Page 59
    ...re-borrow amounts under the facilities at any time during the terms of the Credit Agreements. Interest for the Credit Agreements is based on either (a) a LIBOR-based formula or (b) a formula based on Wachovia's prime rate or on the federal funds effective rate. Any amounts drawn pursuant to the 2008...

  • Page 60
    ... and have sought to control the number of options granted while providing competitive compensation packages. Consistent with these dual goals, our cumulative potential dilution since June 1, 2005 has been a weighted average annualized rate of 1.5% per year. The potential dilution percentage...

  • Page 61
    ... Our Compensation Committee approves the annual organization-wide option grants to certain key employees. These annual option grants are made during the ten business day period following the second trading day after the announcement of our fiscal fourth quarter earnings report. Recent Accounting...

  • Page 62
    ... swap agreements pertain to match, including the notional amounts, interest rate reset dates, maturity dates and underlying market indices. The fair values of the aforementioned interest rate swaps totaled an unrealized loss of $24 million, net of tax effects, at May 31, 2008. We are accounting for...

  • Page 63
    Table of Contents investment hedge contract described further below. 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 as of May 31, 2008....

  • Page 64
    ... statements and better manages interest rate differentials between different countries. Under this method, the change in fair value of the forward contract attributable to the changes in spot exchange rates (the effective portion) is reported in stockholders' equity to offset the translation...

  • Page 65
    ... and 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...

  • Page 66
    .... Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Equity Compensation Plan Information May 31, 2008 Number of Shares to be Issued Upon Exercise of Outstanding Options, Warrants and Rights Weighted Average Exercise Price of Outstanding Options...

  • Page 67
    ...02(3) 4.03(6) Agreement and Plan of Merger, dated February 28, 2007, among Oracle Corporation, Hyperion Solutions Corporation and Hotrod Acquisition Corporation (2.1) Agreement and Plan of Merger, dated January 16, 2008, among Oracle Corporation, BEA Systems, Inc. and Bronco Acquisition Corporation...

  • Page 68
    ... Oracle Corporation and the lenders and agents named therein (10.4) Offer letter dated January 31, 1997 to Sergio Giacoletto and Employment Agreement dated February 20, 1997 (10.27) Description of the Fiscal Year 2008 Executive Bonus Plan (10.28) $2,000,000,000 364-Day Revolving Credit Agreement...

  • Page 69
    ...-Oxley Act Indicates management contract or compensatory plan or arrangement (1) Incorporated by reference to Oracle Corporation's Current Report on Form 8-K filed on March 6, 2007 (2) Incorporated by reference to BEA Systems, Inc.'s Current Report on Form 8-K (File No. 000-22369) filed on January...

  • Page 70
    ... for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109, effective June 1, 2007. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Oracle Corporation's internal control over financial reporting as of May 31...

  • Page 71
    ... consolidated balance sheets of Oracle Corporation as of May 31, 2008 and 2007, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended May 31, 2008 and our report dated July 1, 2008 expressed an unqualified opinion...

  • Page 72
    ...Property, net Intangible assets: software support agreements and related relationships, net Intangible assets: other, net Goodwill Other assets Total non-current assets Total assets LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable, current and other current borrowings Accounts...

  • Page 73
    ...share data) 2008 Year Ended May 31, 2007 2006 Revenues: New software licenses Software license updates and product support Software revenues Services Total revenues Operating expenses: Sales and marketing Software license updates and product support Cost of services Research and development General...

  • Page 74
    ...ORACLE CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY For the Years Ended May 31, 2008, 2007 and 2006 Common Stock and Additional Paid in Capital Number of Shares Amount Accumulated Other Comprehensive Income (in millions) Comprehensive Income Retained Earnings Deferred Compensation...

  • Page 75
    ... in income 60 Stock-based compensation 369 Tax benefits on the exercise of stock awards 588 Excess tax benefits from stock-based compensation (454) In-process research and development 24 Other gains, net (66) Changes in assets and liabilities, net of effects from acquisitions: Increase in trade...

  • Page 76
    ... is 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 is a holding corporation...

  • Page 77
    ... When total cost estimates exceed revenues, we accrue for the estimated losses immediately using cost estimates that are based upon an average fully burdened daily rate applicable to the consulting organization delivering the services. The complexity of the estimation process and factors relating to...

  • Page 78
    ... support and annual on-site technical services. Revenues from On Demand services are recognized over the term of the service period, which is generally one year or less. Education revenues include instructor-led, media based and internet based training in the use of our products. Education revenues...

  • Page 79
    ..., 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. Provided all other revenue recognition criteria have been met, we recognize new software license revenues for these arrangements...

  • Page 80
    ... of our payment terms for the significant majority of our customer contracts and by the diversification of our customer base. No single customer accounted for 10% or more of revenues in fiscal 2008, 2007 or 2006. Other Receivables Other receivables represent value-added tax and sales tax receivables...

  • Page 81
    ...carrying value and the fair value of the impaired asset. We did not recognize any goodwill or intangible asset impairment charges in fiscal 2008, 2007 or 2006. Derivative Financial Instruments We hold derivative financial instruments to manage foreign currency and interest rate risks. We account for...

  • Page 82
    Table of Contents ORACLE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) May 31, 2008 Stock-Based Compensation We account for share-based payments, including grants of employee stock awards and purchases under employee stock purchase plans, in accordance with FASB Statement No. ...

  • Page 83
    ...) May 31, 2008 Year Ended May 31, 2007 2006 (in millions) 2008 In-process research and development Transitional employee related costs Stock-based compensation Professional fees Business combination contingency adjustments Gain on sale of property Total acquisition related and other expenses...

  • Page 84
    ... 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 acquirer's income tax valuation allowance. Statement 141(R) is effective for fiscal years beginning...

  • Page 85
    ... value of vested BEA stock awards assumed Acquisition related transaction costs Total purchase price $ $ 8,340 225 8 8,573 Fair Value of Stock Awards Assumed As of April 29, 2008, BEA had approximately 39 million stock awards outstanding. In accordance with the Agreement and Plan of Merger dated...

  • Page 86
    ... related to the acquisition. Preliminary Purchase Price Allocation Pursuant to our business combinations accounting policy, the total purchase price for BEA was allocated to the net tangible assets, intangible assets, and in-process research and development based upon their estimated fair values...

  • Page 87
    ... BEA acquisition: (Dollars in millions) Fair Value Useful Life Software support agreements and related relationships Developed technology Core technology Customer relationships Trademarks and other Total intangible assets $ $ 1,115 1,118 518 530 62 3,343 8 years 6 years 7 years 8 years 5 years...

  • Page 88
    ... purchase agreements, an open offer to acquire shares and open market purchases. We acquired a majority ownership in i-flex to expand our offerings of software solutions and services to the financial services industry. 83 Source: ORACLE CORP, 10-K, July 02, 2008 Powered by Morningstar® Document...

  • Page 89
    ...Fiscal 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 customer relationship management (CRM) applications offerings. The total purchase price for Siebel was...

  • Page 90
    ...upon their respective previous reporting periods and the dates that these companies were acquired by us, and the pro forma adjustments' effects listed above. (in millions, except per share data) Year Ended May 31, 2008 2007 Total revenues Net income Basic net income per share Diluted net income per...

  • Page 91
    ... Accumulated Amortization May 31, May 31, 2007 Expense 2008 Intangible Assets, net May 31, May 31, 2007 2008 Weighted Average Useful Life Software support agreements and related relationships Developed technology Core technology Customer relationships Trademarks Total $ 3,652 $ 2,342 883 599 209...

  • Page 92
    ..., which is generally not deductible for tax purposes, by operating segment for fiscal 2008 and 2007, were as follows: New Software Licenses Software License Updates and Product Support (in millions) Services Other(1) Total Balances as of May 31, 2006 Hyperion acquisition goodwill(1) i-flex...

  • Page 93
    ... of BEA and for general corporate purposes. Some or all of the 2013 Notes, 2018 Notes and 2038 Notes may be redeemed at any time, subject to payment of a make-whole premium. The 2013 Notes, 2018 Notes and 2038 Notes pay interest semi-annually. In May 2007, we issued $2.0 billion of floating rate...

  • Page 94
    ...Acquisition Related Restructuring Plans During the fourth quarter of fiscal 2008, fourth quarter of fiscal 2007 and third quarter of fiscal 2006, our management approved, committed to and initiated plans to restructure certain operations of pre-merger BEA (BEA Restructuring Plan), Hyperion (Hyperion...

  • Page 95
    ...2007(2) Initial Costs(3) Year Ended May 31, 2008 Adj. Cash to Cost(4) Payments Accrued May 31, 2008(2) Total Costs Accrued to Date Total Expected Program Costs (in millions) Others(5) Fiscal 2008 Oracle Restructuring Plan New software licenses Software license updates and product support Services...

  • Page 96
    Table of Contents ORACLE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) May 31, 2008 Fiscal 2007 Activity (in millions) Accrued May 31, 2006(2) Initial Costs(3) Year Ended May 31, 2007 Adj. to Cash Cost(4) Payments Others(5) Accrued May 31, 2007(2) Hyperion Restructuring Plan ...

  • Page 97
    ... 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 revenue is recognized ratably over the support period. Deferred service revenues include...

  • Page 98
    ... property rights. To date, we have not incurred any material costs as a result of such indemnifications and have not accrued any liabilities related to such obligations in our consolidated financial statements. Certain of our software license agreements also include provisions indemnifying customers...

  • Page 99
    ... obligations related to the swap agreements, which occur at the same interval as the New 2009 Notes and 2010 Notes, are recorded as interest expense. The fair values of the interest rate swaps totaled an unrealized loss of $24 million, net of tax effects, at May 31, 2008. We are accounting for...

  • Page 100
    ... 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...

  • Page 101
    ...any claims seeking payment from us under the CAP terms. 10. STOCKHOLDERS' EQUITY Stock Repurchases Our Board of Directors has approved a program for Oracle to repurchase shares of our common stock to reduce the dilutive effect of our stock option and stock purchase plans. In April 2007, our Board of...

  • Page 102
    ...were vested. Approximately 2 million shares are available for future option awards under this plan of which a lesser portion than the total may be used for grants other than options. In connection with certain of our acquisitions, including PeopleSoft, BEA, Siebel and Hyperion, we assumed all of the...

  • Page 103
    ... Weighted Shares Under Average Option Exercise Price (in millions, except exercise price) Balance, May 31, 2005 Granted Assumed in connection with acquisitions Exercised Canceled Balance, May 31, 2006 Granted Assumed in connection with acquisitions Exercised Canceled Balance, May 31, 2007 Granted...

  • Page 104
    ... Year Ended May 31, 2007 2006 Sales and marketing Software license updates and product support Cost of services Research and development General and administrative Acquisition related and other Total stock-based compensation Estimated income tax benefit included in provision for income taxes Total...

  • Page 105
    ... we had accounted for our stock options under the fair value method of accounting for fiscal 2006: (in millions, except for per share data) Year Ended May 31, 2006 Net income, as reported Add: Stock-based employee compensation expense included in net income, net of related tax effects Deduct: Stock...

  • Page 106
    ...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 United States Internal Revenue Service...

  • Page 107
    ... the following: (Dollars in millions) 2008 Year Ended May 31, 2007 2006 Current provision: Federal State Foreign Total current provision Deferred provision (benefit): Federal State Foreign Total deferred benefit Total provision for income taxes Effective income tax rate $ 1,325 231 892 2,448 (96...

  • Page 108
    ... Acquired intangible assets Other Total deferred tax liabilities Deferred tax assets: Accruals and allowances Employee compensation and benefits Differences in timing of revenue recognition Depreciation and amortization Tax credit and net operating loss carryforwards Other Total deferred tax assets...

  • Page 109
    ... are currently examining income tax returns of Oracle and various acquired entities for years through fiscal 2006. Many issues are at an advanced stage in the examination process, the most significant of which include the deductibility of certain royalty payments, issues related to certain capital...

  • Page 110
    ... 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...

  • Page 111
    ... 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 112
    ... Total revenues Total margin for reportable segments Software license updates and product support revenues(1) Product development and information technology expenses Marketing and partner program expenses Corporate and general and administrative expenses Amortization of intangible assets Acquisition...

  • Page 113
    ...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) 2008 Year Ended May 31, 2007 2006 Net income Weighted average common shares...

  • Page 114
    Source: ORACLE CORP, 10-K, July 02, 2008 Powered by Morningstar® Document Researchâ„

  • Page 115
    .... Mangosoft filed its opening appeal brief in the Federal Circuit on August 6, 2007. Oracle filed its responsive brief on November 16, 2007, and Mangosoft filed its reply brief on January 8, 2008. The 109 Source: ORACLE CORP, 10-K, July 02, 2008 Powered by Morningstar® Document Researchâ„

  • Page 116
    ... with prospective economic advantage. Oracle alleged that SAP unlawfully accessed Oracle's Customer Connection support website and improperly took and used Oracle's intellectual property, including software code and knowledge management solutions. The complaint seeks unspecified damages and...

  • 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, 2006 May 31, 2007 May 31, 2008 $...

  • Page 118
    Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on July 2, 2008. ORACLE CORPORATION By: /s/ LAWRENCE J. ...

  • Page 119
    Charles E. Phillips, Jr. /s/ NAOMI O. SELIGMAN Naomi O. Seligman Director July 2, 2008 112 Source: ORACLE CORP, 10-K, July 02, 2008 Powered by Morningstar® Document Researchâ„

  • Page 120
    Table of Contents ORACLE CORPORATION INDEX OF EXHIBITS Exhibit Number Exhibit Title 12.01 21.01 23.01 31.01 31.02 32.01 Consolidated Ratio of Earnings to Fixed Charges Subsidiaries of the Registrant Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm Certification Pursuant...

  • Page 121
    Exhibit 12.01 ORACLE CORPORATION Consolidated Ratio of Earnings to Fixed Charges Year Ended May 31, (Unaudited) 2006 (Dollars in millions) Earnings(1) Income before provision for income taxes Add: Minority interests Add: Fixed charges Less: Equity in earnings Total earnings Fixed Charges(2) ...

  • Page 122
    ... Oracle USA, Inc. MOHR Development, Inc. Alyson Acquisition Corporation Agile Software Corporation Appeal Virtual Machines, Inc. Appleone Acquisition Corporation BEA Crossgain, Inc. BEA Government Systems, Inc. BEA Systems Holding B, Inc. BEA Systems, Inc. BEA WebXpress, LLC Business OnLine...

  • Page 123
    ... Oracle Global Holdings, Inc. Oracle Holdings, Inc. Oracle Japan Holding, Inc. Oracle Mauritius Holding Company Oracle OTC Holdings General Partnership Oracle OTC Holdings LLC Oracle Systems Corporation Oracle Taiwan, Inc. Orchestream, Inc. Plumtree Software, Inc. RSIB, Inc. SealedMedia, Inc. Siebel...

  • Page 124
    Domestic Subsidiaries Place of Incorporation Prodika, Inc. Xeno Development, Inc. Trillium Research, Inc. Texas Texas Wisconsin Source: ORACLE CORP, 10-K, July 02, 2008 Powered by Morningstar® Document Researchâ„

  • Page 125
    ... Australia Holdings Pty Ltd Oracle Consolidation Australia Pty Ltd Oracle Corporation Australia Pty Limited Oracle Superannuation Pty Limited PeopleSoft Australia Pty Ltd Portal Software International Pty Ltd Retek Information Systems Pty Ltd Sidewinder Asia Pacific Pty Ltd Siebel Systems Australia...

  • Page 126
    ...Inc. BEA CrossGain International BEA International Oracle International Holding Company PeopleSoft C.I. Holdings Ltd. SPL WorldGroup International Ltd. Sistemas Oracle de Chile, S.A. Agile Software (Suzhou) Co., Ltd. BEA Systems (China) Co., Ltd. BEA Technology (Beijing) Co., Ltd. Hyperion Solutions...

  • Page 127
    ...Oracle Systems Hong Kong Limited PeopleSoft Hong Kong Ltd. Portal Software (Asia Pacific) Limited Siebel Systems Asia Limited Siebel Systems Hong Kong Limited SPL WorldGroup Hong Kong Limited Oracle Hungary Kft. Siebel Systems Hungary Computer Technology Agile Software Enterprise Private Limited BEA...

  • Page 128
    ...BEA Systems Middle East Ltd. Oracle Demantra R&D Center Israel Ltd. Oracle Software Systems Israel Limited Siebel Systems Israel Software Limited SPL WorldGroup 2000 Ltd. BEA Systems Italia S.p.A. Oracle Italia S.R.L. Agile Software K.K. BEA Systems Japan Ltd. Hyperion K.K. Miracle Linux Corporation...

  • Page 129
    ... BEA Systems Netherlands B.V. edocs Europe Netherlands B.V. Eontec B.V. G-Log B.V. Oracle Corporation UK Finance B.V. Oracle Distribution B.V. Oracle East Central Europe Services B.V. Oracle Licensing B.V. Oracle Nederland B.V. Oracle Scheduler B.V. PeopleSoft International B.V. Plumtree Software...

  • Page 130
    ... Ltd. Hyperion Solutions Asia Pty. Ltd. i-flex solutions Pty. Ltd. J.D. Edwards (Asia Pacific) Pte. Ltd. Oracle Corporation (Singapore) Holdings Pte. Ltd. Oracle Corporation Singapore Pte. Ltd. Oracle Singapore Holdings Pte. Ltd. PeopleSoft Asia Pte. Ltd. Plumtree Software Singapore Pte. Ltd. Siebel...

  • Page 131
    ... Services (Pty) Limited Hyperion Solutions SA Pty. Ltd. Oracle Corporation (South Africa)(Pty) Limited Oracle Empowerment (South Africa) (Pty) Ltd. PeopleSoft Africa (Pty.) Limited PeopleSoft South Africa (Pty.) Limited Siebel Systems South Africa (Proprietary) Limited BEA Systems Spain S.A. Oracle...

  • Page 132
    ... Oracle Corporation UK Limited Oracle Corporation UK Trustee Company Limited Oracle EMEA Management Peoplesoft UK Limited Plumtree Portal Software Limited Portal Software (Europe) Limited ProfitLogic Europe Limited Retek Information Systems Limited Sapling Corporation Europe Limited Siebel Systems...

  • Page 133
    ... statements and schedule of Oracle Corporation, and the effectiveness of internal control over financial reporting of Oracle Corporation, included in this Annual Report (Form 10-K) for the year ended May 31, 2008. /s/ ERNST & YOUNG LLP San Francisco, California July 1, 2008 Source: ORACLE CORP, 10...

  • Page 134
    ... respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in...

  • Page 135
    ... respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in...

  • Page 136
    ...13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Oracle Corporation. Date: July 2, 2008 By: /s/ LAWRENCE J. ELLISON Lawrence J. Ellison Chief Executive...