Oracle 2009 Annual Report Download - page 126

Table of Contents
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 2010
Stock-Based Compensation Expense and Valuation of Stock Options and Restricted Stock-Based Awards
Stock-based compensation is included in the following operating expense line items in our consolidated statements of operations:
Year Ended May 31,
(in millions) 2010 2009 2008
Sales and marketing $ 81 $ 67 $ 51
Software license updates and product support 17 13 10
Hardware systems products 3 — —
Hardware systems support 2 — —
Services 14 12 13
Research and development 172 155 114
General and administrative 132 93 69
Acquisition related and other 15 15 112
Total stock-based compensation 436 355 369
Estimated income tax benefit included in provision for income taxes (146) (122) (128)
Total stock-based compensation, net of estimated income tax benefit $ 290 $ 233 $ 241
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 options assumed in a business combination. The weighted average input assumptions used and resulting fair values were as follows for fiscal
2010, 2009 and 2008:
Year Ended May 31,
2010 2009 2008
Expected life (in years) 4.7 5.3 5.0
Risk-free interest rate 2.1% 3.3% 4.6%
Volatility 31% 37% 29%
Dividend yield 0.9% — —
Weighted-average fair value per share $ 5.21 $ 7.93 $ 7.53
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 yield 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.
Tax Benefits from Exercise of Stock Options and Vesting of Restricted Stock-Based Awards
Total cash received as a result of option exercises was approximately $812 million, $696 million and $1.2 billion for fiscal 2010, 2009 and 2008, respectively.
The aggregate intrinsic value of options exercised and vesting of restricted stock-based awards was $647 million, $807 million and $2.0 billion for fiscal 2010,
2009 and 2008, respectively. In connection with these exercises and vesting of restricted stock-based awards, the tax benefits
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Source: ORACLE CORP, 10-K, July 01, 2010 Powered by Morningstar® Document Research℠