Oracle 2007 Annual Report Download - page 43

Table of Contents
Supplemental Disclosure Related to Certain Charges and Gains
To supplement our consolidated financial information we believe the following information is helpful to an
overall understanding of our past financial performance and prospects for the future. You should review the
introduction under “Results of Operations” (above) for a discussion of the inherent limitations in comparing
pre- and post-acquisition information.
Our operating results include the following business combination accounting entries and expenses related to
acquisitions as well as certain other significant expense and income items:
Year Ended May 31,
(in millions) 2008 2007 2006
Support deferred revenues(1) $ 179 $ 212 $ 391
Amortization of intangible assets(2) 1,212 878 583
Acquisition related and other(3)(5) 124 140 137
Restructuring(4) 41 19 85
Stock-based compensation(5) 257 198 31
Income tax effect(6) (535) (414) (362)
$ 1,278 $ 1,033 $ 865
(1) In connection with purchase price allocations related to our acquisitions, we have estimated the fair values of the support obligations assumed. Due to
our application of business combination accounting rules, we did not recognize software license updates and product support revenues related to support
contracts that would have otherwise been recorded by the acquired businesses as independent entities, in the amounts of $179 million, $212 million and
$391 million in fiscal 2008, fiscal 2007 and fiscal 2006, respectively. Approximately $205 million of estimated software license updates and product
support revenues related to support contracts assumed will not be recognized in fiscal 2009 that would have otherwise been recognized by the acquired
businesses as independent entities, due to the application of business combination accounting rules. To the extent customers renew these support
contracts, we expect to recognize revenues for the full contract value over the support renewal period.
(2) Represents the amortization of intangible assets acquired in connection with acquisitions, primarily PeopleSoft, BEA, Siebel, Hyperion and i-flex. As of
May 31, 2008, estimated future amortization expenses related to intangible assets are as follows (in millions):
Fiscal 2009 $ 1,660
Fiscal 2010 1,550
Fiscal 2011 1,266
Fiscal 2012 1,126
Fiscal 2013 962
Thereafter 1,831
Total $ 8,395
(3) Acquisition related and other expenses primarily consist of in-process research and development expenses, stock-based compensation expenses,
integration related professional services, personnel related costs for transitional employees, certain business combination contingency adjustments after
the purchase price allocation period has ended, and certain other operating expenses (income), net. For fiscal 2008, acquisition related and other
expenses include a gain on property sale of $57 million and, for fiscal 2007, acquisition related and other expenses include a benefit of $52 million
related to the settlement of a pre-acquisition lawsuit against PeopleSoft (see Note 1 of Notes to Consolidated Financial Statements for further
information).
(4) Restructuring expenses during fiscal 2008 relate to Oracle employee severance in connection with restructuring plans initiated in the second quarter, and
amended in the fourth quarter, of fiscal 2008. Restructuring costs during fiscal 2007 relate to an Oracle-based restructuring plan initiated in the third
quarter of fiscal 2006 for which additional expenses were recorded during fiscal 2007.
(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,
2008 2007 2006
Sales and marketing $ 51 $ 38 $ 8
Software license updates and product support 10 11 3
Cost of services 13 15 7
Research and development 114 85 13
General and administrative 69 49 —
Subtotal 257 198 31
Acquisition related and other 112 9 18
Total $ 369 $ 207 $ 49
Stock-based compensation included in acquisition related and other expenses resulted from unvested options assumed from acquisitions whose vesting
was accelerated upon termination of the employees pursuant to the terms of those options.
At the beginning of fiscal 2007, we adopted Statement 123(R) under the modified prospective method. Statement 123(R) requires us to record non-cash
operating expenses associated with stock awards at their estimated fair values. Prior to our Statement 123(R) adoption, we were required to record
stock-based compensation expenses at intrinsic values and substantially all of our stock-based compensation expense related to options assumed from
acquisitions. In accordance with the modified prospective method, our financial statements for prior periods (i.e. fiscal 2006) have not been restated to
reflect, and do not include, the changes in methodology to expense options at fair values in accordance with Statement 123(R).
(6) The income tax effects on the above presented charges and gains were calculated based on our effective tax rates of 29.5%, 28.6% and 29.7% in fiscal
2008, 2007 and 2006, respectively.
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Source: ORACLE CORP, 10-K, July 02, 2008 Powered by Morningstar® Document Research℠