Oracle 2008 Annual Report Download - page 115

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Table of Contents
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 2009
Stock-Based Compensation Expense and Valuation of Awards Granted
Stock-based compensation is included in the following operating expense line items in our consolidated
statements of operations:
Year Ended May 31,
(in millions) 2009 2008 2007
Sales and marketing $ 67 $ 51 $ 38
Software license updates and product support 13 10 11
Cost of services 12 13 15
Research and development 155 114 85
General and administrative 93 69 49
Acquisition related and other 15 112 9
Total stock-based compensation 355 369 207
Estimated income tax benefit included in provision for income taxes (122) (128) (70)
Total stock-based compensation, net of estimated income tax benefit $ 233 $ 241 $ 137
Quarterly, we assess whether there have been any significant changes in facts and circumstances that would
affect our estimated forfeiture rate. The net effect of forfeiture adjustments based upon actual results was a
decrease to our stock-based compensation expense of approximately $3 million for fiscal 2009, an increase of
$6 million for fiscal 2008 and nominal for fiscal 2007.
We estimate the fair value of our share-based payments using the Black-Scholes-Merton option-pricing
model, which was developed for use in estimating the fair value of traded options that have no vesting
restrictions and are fully transferable. Option valuation models, including the Black-Scholes-Merton
option-pricing model, require the input of assumptions, including stock price volatility. Changes in the input
assumptions can materially affect the fair value estimates and ultimately how much we recognize as
stock-based compensation expense. The fair values of our stock options were estimated at the date of grant or
date of acquisition for acquired options assumed. The weighted average input assumptions used and resulting
fair values were as follows for fiscal 2009, 2008, and 2007:
Year Ended May 31,
2009 2008 2007
Expected life (in years) 5.3 5.0 4.9
Risk-free interest rate 3.3% 4.6% 5.0%
Volatility 37% 29% 26%
Dividend yield — — —
Weighted-average fair value of grants $ 7.93 $ 7.53 $ 6.17
The expected life input is based on historical exercise patterns and post-vesting termination behavior, the
risk-free interest rate input is based on United States Treasury instruments and the volatility input is
calculated based on the implied volatility of our longest-term, traded options. Our expected dividend rate was
zero prior to our first dividend declaration on March 18, 2009 as we did not historically pay cash dividends on
our common stock and did not anticipate doing so for the foreseeable future for grants issued prior to
March 18, 2009. For grants issued subsequent to March 18, 2009, we used an annualized dividend yield based
on the per share dividend declared by our Board of Directors.
107
Source: ORACLE CORP, 10-K, June 29, 2009 Powered by Morningstar® Document Research℠