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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
È ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended May 31, 2011
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 000-51788
Oracle Corporation
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
54-2185193
(I.R.S. Employer
Identification No.)
500 Oracle Parkway
Redwood City, California
(Address of principal executive offices)
(650) 506-7000
94065
(Zip Code)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, par value $0.01 per share The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES È NO
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES NO È
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES È NO
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for
such shorter period that the registrant was required to submit and post such files). YES È NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer È Accelerated filer
Non-accelerated filer Smaller reporting company
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES NO È
The aggregate market value of the voting stock held by non-affiliates of the registrant was $107,183,061,000 based on the number of shares held
by non-affiliates of the registrant as of May 31, 2011, and based on the closing sale price of common stock as reported by the NASDAQ Global
Select Market on November 30, 2010, 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 common stock outstanding as of June 20, 2011: 5,065,515,000.
Documents Incorporated by Reference:
Portions of the registrant’s definitive proxy statement relating to its 2011 annual stockholders’ meeting are incorporated by reference into Part III
of this Annual Report on Form 10-K where indicated.

Table of contents

  • Page 1
    ...Redwood City, California (Address of principal executive offices) 94065 (Zip Code) (650) 506-7000 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common Stock, par value...

  • Page 2
    ... and Related Transactions, and Director Independence ...Principal Accounting Fees and Services ...80 80 80 80 80 Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ...Selected Financial Data ...Management's Discussion and Analysis of...

  • Page 3
    ...Factors" included elsewhere in this Annual Report and as may be updated in filings we make from time to time with the Securities and Exchange Commission (the SEC), including the Quarterly Reports on Form 10­Q to be filed by us in our fiscal year 2012, which runs from June 1, 2011 to May 31, 2012. 1

  • Page 4
    ... or risks, except to the extent required by applicable securities laws. If we do update one or more forward­looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward­looking statements. New information, future events or risks could...

  • Page 5
    ...' products, creating time savings and operational cost advantages for our customers. In fiscal 2011, 2010 and 2009 we invested $4.5 billion, $3.3 billion and $2.8 billion, respectively, in research and development to enhance our existing portfolio of products and services and to develop new products...

  • Page 6
    ... our database, storage and operating system software with our server, storage and networking hardware to provide customers with improved performance for database applications, including online transaction processing and data warehousing, among others. For example, our Oracle Exadata Database Machine...

  • Page 7
    ...derived from software license updates and product support. The standard end user software license agreement for our products generally provides for an initial fee to use the software product in perpetuity based on a maximum number of processors, named users or other metrics. We also have other types...

  • Page 8
    ... safeguard application data stored in Oracle Database from being accessed by system administrators and other privileged database users to meet regulatory mandates and improve data security; • Oracle Audit Vault software, which is designed to reduce the cost and complexity of compliance reporting...

  • Page 9
    ... functional areas: • Application Server and Application Grid; • Service­Oriented Architecture and Business Process Management; • Business Intelligence; • Identity and Access Management; • Data Integration; • Content Management; • Portals and User Interaction; and • Development Tools...

  • Page 10
    ... server; Oracle BI Publisher, a self­service production and operational reporting tool; and Oracle Real­Time Decisions, a real­time data classification and optimization solution. Users can access these tools from a variety of user interfaces including browser­based interactive dashboards; ad hoc...

  • Page 11
    ... for developing Java applications; web services, composite SOA applications and business processes; rich user interfaces using AJAX/DHTML and Flash technologies; and websites using popular scripting languages. Oracle JDeveloper software also provides comprehensive application lifecycle management...

  • Page 12
    ... experience and embedded analytical capabilities, Oracle Fusion Applications are designed to increase user productivity and allow customers to manage functions across different environments more effectively. Using a SOA approach, Oracle Fusion Applications are engineered to provide customers with...

  • Page 13
    ..., secure search, identity management, self­service and workflow to deliver adaptive industry processes, business intelligence and insights, and optimal end­user productivity. Oracle Applications enable efficient management of core business functions, including: • Enterprise Resource Planning...

  • Page 14
    ... solution that spans planning and budgeting, financial management, operational analytics, and reporting. Enterprise Project Portfolio Management (EPPM) Our EPPM software products target project­intensive industries such as engineering and construction, aerospace and defense, utilities, oil...

  • Page 15
    ... personnel located in our global support centers, as well as internet access to technical content through "My Oracle Support." Software license updates and product support contracts are generally priced as a percentage of the net new software license fees. Substantially all of our customers purchase...

  • Page 16
    ... including databases, middleware and applications. Oracle Linux supports x86 based systems. In addition to Oracle Solaris and Oracle Linux operating systems, we also develop a range of other hardware­ related software, including development tools, compilers, management tools for servers and...

  • Page 17
    ...the world to receive real­time, interactive training online. In addition, we also offer a certification program certifying database administrators, developers, implementers, consultants and architects. Education revenues represented 1% of total revenues in each of fiscal 2011 and 2010 and 2% of our...

  • Page 18
    ... vendors, system integrators and resellers who deliver innovative solutions and services based upon our products. By offering our partners access to our premier products, educational information, technical services, marketing and sales support, the Oracle Partner Network program extends our market...

  • Page 19
    ... Manufacturing To produce our hardware systems products, we rely on both our internal manufacturing operations as well as third party manufacturing partners. Our internal manufacturing operations consist primarily of final assembly, test and quality control of our enterprise and data center servers...

  • Page 20
    ...www.oracle.com/investor as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The information posted on our web site is not incorporated into this Annual Report. Executive Officers of the Registrant Our executive officers are listed below. Name...

  • Page 21
    ... 2008 and was Vice President, Corporate Controller and Chief Accounting Officer from April 2007 to February 2008. Prior to joining us, he served as Intuit Inc.'s Director of Accounting from August 2005 to March 2007. He also spent 14 years with Arthur Andersen LLP, most recently as a partner. 19

  • Page 22
    ... growth and profitability. These factors generally have the strongest effect on our sales of new software licenses, hardware systems products, hardware systems support and related services and, to a lesser extent, also may affect our renewal rates for software license updates and product support. We...

  • Page 23
    ... 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 hardware systems products or purchase or renew software license updates and product support or hardware systems support contracts...

  • Page 24
    ... pay or need to fulfill orders from customers. These types of component flaws could also prevent the production of our hardware products or cause our hardware products to be returned, recalled or rejected resulting in lost revenues, increases in warranty costs or costs related to remediation efforts...

  • Page 25
    ... software and hardware systems development, manufacturing, assembly, sales, customer support, consulting, Cloud Services and shared administrative service centers. Compliance with international and U.S. laws and regulations that apply to our international operations increases our cost of doing...

  • Page 26
    ...the associated risks. We may not achieve our estimated revenue, profit or other financial projections with respect to our acquisition of Sun in a timely manner or at all due to a number of factors, including: • our relative inexperience in managing a hardware systems business and related processes...

  • Page 27
    ... may continue to report, lower overall operating margins as a percentage of revenues, and we may not achieve our profit margin levels that we attained prior to our acquisition of Sun; • we face a greater risk of potential write­downs and impairments of inventory, higher warranty expenses than we...

  • Page 28
    ... that could prevent us from shipping customer orders on time, if at all, and may result in the loss of sales and customers. We outsource the manufacturing, assembly and delivery of certain of our hardware products to a variety of companies, many of which are located outside the United States. Our...

  • Page 29
    ...skilled business, product development, technical and other personnel. In addition, acquisitions could cause us to lose key personnel of the acquired companies or at Oracle. We may also experience increased compensation costs that are not offset by either improved productivity or higher sales. We may...

  • Page 30
    ... services or develop products that the marketplace considers more valuable, we may need to lower prices or offer other favorable terms in order to compete successfully. Any such changes may reduce margins and could adversely affect operating results. Our software license updates and product support...

  • Page 31
    ...revenues. In addition, we run our own business operations, Oracle Cloud Services and other outsourcing services, support and consulting services, on our products and networks and any security flaws, if exploited, could affect our ability to conduct our business operations. End users, who rely on our...

  • Page 32
    ...adjustment within the scope of these agreements. However, these agreements do not cover substantial elements of our transfer pricing. We are also subject to non­income based taxes, such as payroll, sales, use, value­added, net worth, property and goods and services taxes, in both the United States...

  • Page 33
    ... expenses incurred to effect the acquisition; and • charges to our operating results due to the expensing of certain stock awards assumed in an acquisition. Substantially all of these costs will be accounted for as expenses that will decrease our net income and earnings per share for the periods...

  • Page 34
    ... Our properties consist of owned and leased office facilities for sales, support, research and development, consulting, manufacturing and administrative personnel. Our headquarters facility consists of approximately 2.1 million square feet in Redwood City, California, substantially all of which we...

  • Page 35
    ... any time. The following table summarizes the stock repurchase activity for the three months ended May 31, 2011 and the approximate dollar value of shares that may yet be purchased pursuant to our stock repurchase program: Total Number of Shares Purchased Average Price Paid per Share Total Number of...

  • Page 36
    ... period and the reinvestment of any dividends. The comparisons in the graphs below are based upon historical data 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...

  • Page 37
    ... respective dates of acquisition and have contributed to our growth in revenues, income and earnings per share. (in millions, except per share amounts) 2011 As of and for the Year Ended May 31, 2010 2009 2008 2007 Consolidated Statements of Operations Data: Total revenues ...Operating income ...Net...

  • Page 38
    ...' products, creating time savings and operational cost advantages for our customers. In fiscal 2011, 2010 and 2009 we invested $4.5 billion, $3.3 billion and $2.8 billion, respectively, in research and development to enhance our existing portfolio of products and services and to develop new products...

  • Page 39
    ...in fiscal 2011 and 2010 was affected by our entry into the hardware systems business as a result of our acquisition of Sun. Support margins during fiscal 2011 were 86% and accounted for 70% of our total margins. Our software license update and product support margins have been affected by fair value...

  • Page 40
    ...new hardware products and services. To produce our hardware products, we rely on both our internal manufacturing operations as well as third party manufacturing partners. Our internal manufacturing operations consist primarily of final assembly, test and quality control of enterprise and data center...

  • Page 41
    ...of intangible assets resulting from, our acquisition of Sun. As required by business combination accounting rules, we recorded adjustments to reduce our hardware systems support revenues for contracts assumed from our acquisition of Sun to their estimated fair values as of the acquisition date by an...

  • Page 42
    ... and greater use of outsourcing solutions. Acquisitions An active acquisition program is another important element of our corporate strategy. In recent years, we have invested billions of dollars to acquire a number of complementary companies, products, services and technologies including Art...

  • Page 43
    ... Services (Software Elements) New software license revenues represent fees earned from granting customers licenses to use our database, middleware and applications software, and exclude revenues derived from software license updates, which are included in software license updates and product support...

  • Page 44
    ...and services from us at the same time, or within close proximity of one another (referred to as software related multiple­element arrangements). Such software related multiple­element arrangements include the sale of our software products, software license updates and product support contracts and...

  • Page 45
    ... to, pricing practices including discounting, margin objectives, competition, the geographies in which we offer our products and services, the type of customer (i.e. distributor, value added reseller, government agency and direct end user, among others) and the stage of the product lifecycle. The...

  • Page 46
    ... to provide comprehensive software and hardware management and maintenance services for customers hosted at our Oracle data center facilities, select partner data centers or physically on­site at customer facilities. Advanced Customer Services provides support services, both onsite and remote, to...

  • Page 47
    ... acquisition date is measured as the excess of consideration transferred and the net of the acquisition date fair values of the assets acquired and the liabilities assumed. While we use our best estimates and assumptions as a part of the purchase price allocation process to accurately value assets...

  • Page 48
    ... from software license sales, hardware systems product sales, support agreements, consulting contracts, other customer contracts and acquired developed technologies and patents; • expected costs to develop the in­process research and development into commercially viable products and estimated...

  • Page 49
    ... an impairment loss equal to the difference. Determining 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, risk­adjusted...

  • Page 50
    ... we have made are reasonable and appropriate, different assumptions and estimates could materially impact our reported financial results. We did not recognize any intangible asset impairment charges in fiscal 2011, 2010 or 2009. Accounting for Income Taxes Significant judgment is required in...

  • Page 51
    ... of operations and financial position. Stock-Based Compensation We account for share­based payments to employees, including grants of employee stock awards and purchases under employee stock purchase plans in accordance with ASC 718, Compensation-Stock Compensation, which requires that share­based...

  • Page 52
    employee groups by seniority of job classification. Our expected dividend rate is based upon an annualized dividend yield based on the per share dividend declared by our Board of Directors. The aforementioned inputs entered into the option valuation model we use to fair value our stock awards are ...

  • Page 53
    ... the actual exchange rates in effect during the respective periods. For example, if an entity reporting in Euros had revenues of 1.0 million Euros from products sold on May 31, 2011 and May 31, 2010, our financial statements would reflect reported revenues of $1.41 million in fiscal 2011 (using 1.41...

  • Page 54
    ... to our Sun Restructuring Plan and certain other Oracle­based restructuring plans, and were also favorably affected by a $120 million benefit related to the recovery of legal costs, and certain other insurance recoveries in fiscal 2011. On a constant currency basis, our operating margin increased...

  • Page 55
    ... with purchase price allocations related to our acquisitions, we have estimated the fair values of the software support and hardware systems support obligations assumed. Due to our application of business combination accounting rules, we did not recognize software license updates and product support...

  • Page 56
    ...Annual Report. Stock­based compensation is included in the following operating expense line items of our consolidated statements of operations (in millions): 2011 Sales and marketing ...Software license updates and product support ...Hardware systems products ...Hardware systems support ...Services...

  • Page 57
    ... stock­based compensation Included as a component of 'Amortization of Intangible Assets' in our consolidated statements of operations Fiscal 2011 Compared to Fiscal 2010: Excluding the effect of favorable foreign currency rate fluctuations of 4 percentage points, total new software license...

  • Page 58
    ... resulting from a full year of expense contributions from Sun to our fiscal 2011 operating results and higher variable compensation expenses resulting from higher revenues. Excluding the effect of favorable foreign currency rate fluctuations, new software license margin and margin as a percentage of...

  • Page 59
    ...% Excluding stock­based compensation Included as a component of 'Amortization of Intangible Assets' in our consolidated statements of operations Fiscal 2011 Compared to Fiscal 2010: Excluding the effect of currency rate fluctuations, software license updates and product support revenues increased...

  • Page 60
    ... during fiscal 2010 and were partially offset by an increase in salary and benefits expenses from increased headcount, including headcount assumed from Sun. Excluding the effect of currency rate fluctuations, total software license updates and product support margin and margin as a percentage...

  • Page 61
    ... value added resellers. Operating expenses associated with our hardware systems products include the cost of hardware systems products, which consist of expenses for materials and labor used to produce these products by our internal manufacturing operations or by third party manufacturers, warranty...

  • Page 62
    ... of materials used to repair customer products, the cost of providing support services, largely personnel related expenses, and the amortization of our intangible assets associated with hardware systems support contracts and customer relationships obtained from the Sun acquisition. Year Ended May...

  • Page 63
    ..., variable compensation and travel and entertainment and a reduction in external contractor related expenses. On a constant currency basis, consulting margin and margin as a percentage of revenues decreased in fiscal 2010 as our revenues declined at a greater rate than our expenses. Cloud Services...

  • Page 64
    ... Assets' in our consolidated statements of operations Fiscal 2011 Compared to Fiscal 2010: Excluding the effect of currency rate fluctuations, the increase in our Cloud Services revenues in fiscal 2011 was primarily due to the full fiscal year impact of revenue contributions from our acquisition...

  • Page 65
    ...stock­based compensation Fiscal 2011 Compared to Fiscal 2010: On a constant currency basis, the increases in education revenues, expenses and total margin in fiscal 2011 were primarily attributable to the full fiscal year impact of Sun's contributions to our operating results. Excluding the effect...

  • Page 66
    ... employee related and professional services expenses resulting from our acquisition of Sun, and higher stock­based compensation expenses primarily resulting from higher fair values of our legacy stock options that were recognized as expense in fiscal 2010. Amortization of Intangible Assets: Year...

  • Page 67
    ... in fiscal 2011 primarily related to our Sun Restructuring Plan, which our management approved, committed to and initiated in order to better align our cost structure as a result of our acquisition of Sun. To a lesser extent, we also incurred expenses associated with other Oracle­based plans, which...

  • Page 68
    ... with the Sun Restructuring Plan in fiscal 2011. The total estimated remaining restructuring costs associated with the Sun Restructuring Plan are approximately $250 million, and will be recorded to the restructuring expense line item within our consolidated statements of operations as the costs are...

  • Page 69
    ... impact to our net current assets resulting from our net income during fiscal 2011 and our issuance of $3.25 billion of long­term senior notes in July 2010. These increases were partially offset by cash used for our acquisitions, repurchases of our common stock and cash used to pay dividends to our...

  • Page 70
    ... and manufacturing costs related to the production of our hardware systems products, taxes and leased facilities. Net cash provided by operating activities increased in fiscal 2011 and 2010 primarily due to higher net income adjusted for amortization of intangible assets, stock­based compensation...

  • Page 71
    ... to acquisitions and the timing of purchases, maturities and sales of our investments in marketable debt securities. We also use cash to invest in capital and other assets to support our growth. Fiscal 2011 Compared to Fiscal 2010: Net cash used for investing activities decreased in fiscal 2011 due...

  • Page 72
    ... Annual Report. On March 14, 2011, our $3.0 billion, five­year Revolving Credit Agreement dated March 15, 2006, among Oracle; the lenders named therein, Wells Fargo Bank, National Association, as administrative agent, Bank of America N.A. as syndication agent; the documentation agents named therein...

  • Page 73
    ... using an interest rate of 1.38%, which represented our effective interest rate as of May 31, 2011 after consideration of these fixed to variable interest rate swap agreements, and are subject to change in future periods. The changes in fair value of our debt associated with the interest rate...

  • Page 74
    ... within a particular fiscal year. Similarly, the operating income of our business is affected by seasonal factors in a consistent manner as our revenues (in particular, our new software license and hardware systems products) as certain expenses within our cost structure are relatively fixed in...

  • Page 75
    ... sought to control the number of options and restricted stock­based awards granted while providing competitive compensation packages. Consistent with these dual goals, our cumulative potential dilution since June 1, 2008 has been a weighted average annualized rate of 1.3% per year. The potential...

  • Page 76
    ... Committee of the Board of Directors reviews and approves the organization­wide stock option grants to selected employees, all stock option grants to executive officers and any individual stock option grants in excess of 100,000 shares. A separate Plan Committee, which is an executive officer...

  • Page 77
    ... statements of operations. We have entered into certain fixed to variable interest rate swap agreements to manage the interest rate and related fair value of our 2014 Notes so that the interest payable on the 2014 Notes effectively became variable based on LIBOR. We do not use these interest rate...

  • Page 78
    ... and other current assets for unrealized gains and other current liabilities for unrealized losses. The statement of operations classification of gains or losses upon changes in fair values or cash settlement of these forward contracts is non­operating income (expense), net. Although we have...

  • Page 79
    ... securities that we reported in U.S. Dollars for these subsidiaries as of May 31, 2011 increased relative to what we would have reported using a constant currency rate as of May 31, 2010. As reported in our consolidated statements of cash flows, the estimated effect of exchange rate changes...

  • Page 80
    ... as of May 31, 2011. We reviewed the results of management's assessment with our Finance and Audit Committee. The effectiveness of our internal control over financial reporting as of May 31, 2011 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in...

  • Page 81
    ... may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost effective control system, misstatements due to error or fraud may occur and not be detected. Item 9B. Other Information...

  • Page 82
    ...to be filed with the U.S. Securities and Exchange Commission in connection with the solicitation of proxies for our 2011 Annual Meeting of Stockholders (the "2011 Proxy Statement") under the sections entitled "Board of Directors-Nominees for Directors," "Board of Directors-Committees, Membership and...

  • Page 83
    ... statements are filed as a part of this report: Page Reports of Ernst & Young LLP, Independent Registered Public Accounting Firm ...Consolidated Financial Statements: Balance Sheets as of May 31, 2011 and 2010 ...Statements of Operations for the years ended May 31, 2011, 2010 and 2009 ...Statements...

  • Page 84
    ...of the Notes 4.08 9/20/10 Oracle Corporation 10.01* Oracle Corporation 1993 10­Q 000­51788 10.01 3/23/09 Deferred Compensation Plan, as amended and restated as of January 1, 2008 10.02* Oracle Corporation 10­K 000­51788 10.02 7/1/10 Employee Stock Purchase Plan (1992), as amended and restated...

  • Page 85
    ... 000­51788 10.3 Agreement between Oracle Corporation and JP Morgan Chase Bank, National Association dated as of February 3, 2006 2/9/06 Oracle Corporation 10.09 2/9/06 Oracle Corporation 10.10* Description of the Fiscal Year 10­Q 000­51788 10.25 12/22/09 2010 Executive Bonus Plan 10.11* Offer...

  • Page 86
    ... the years ended May 31, 2011, 2010 and 2009, (iv) Consolidated Statements of Cash Flows for the years ended May 31, 2011, 2010 and 2009, (v) Notes to Consolidated Financial Statements and (vi) Financial Statement Schedule II Indicates management contract or compensatory plan or arrangement Oracle...

  • Page 87
    ...INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Stockholders of Oracle Corporation We have audited the accompanying consolidated balance sheets of Oracle Corporation as of May 31, 2011 and 2010, and the related consolidated statements of operations, statements of equity, and...

  • Page 88
    ...2011 and 2010, and the related consolidated statements of operations, equity, and cash flows for each of the three years in the period ended May 31, 2011 of Oracle Corporation and our report dated June 27, 2011 expressed an unqualified opinion thereon. /s/ ERNST & YOUNG LLP San Francisco, California...

  • Page 89
    ... 31, 2011 and 2010 May 31, (in millions, except per share data) 2011 2010 ASSETS Current assets: Cash and cash equivalents ...$ Marketable securities ...Trade receivables, net of allowances for doubtful accounts of $372 and $305 as of May 31, 2011 and 2010, respectively ...Inventories ...Deferred...

  • Page 90
    ... ...Operating expenses: Sales and marketing(1) ...Software license updates and product support(1) ...Hardware systems products(1) ...Hardware systems support(1) ...Services(1) ...Research and development ...General and administrative ...Amortization of intangible assets ...Acquisition related...

  • Page 91
    ... plans ...$ Common stock issued under stock purchase plans . . Assumption of stock­based compensation plan awards in connection with acquisitions ...Stock­based compensation ...Repurchase of common stock ...Cash dividends declared ($0.05 per share) ...Tax benefit from stock plans ...Other, net...

  • Page 92
    ... of restricted stock­based awards ...Other, net ...Changes in operating assets and liabilities, net of effects from acquisitions: (Increase) decrease in trade receivables ...(Increase) decrease in inventories ...Decrease in prepaid expenses and other assets ...Decrease in accounts payable and other...

  • Page 93
    ...­based data, and for developing and deploying applications on the internet and on corporate intranets. Applications software is generally used to automate business processes and to provide business intelligence. We also offer software license updates and product support contracts that provide...

  • Page 94
    ... Services (Software Elements) New software license revenues represent fees earned from granting customers licenses to use our database, middleware and applications software, and exclude revenues derived from software license updates, which are included in software license updates and product support...

  • Page 95
    ... CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) May 31, 2011 software license updates and product support contracts and other software related services whereby software license delivery is followed by the subsequent or contemporaneous delivery of the other elements. For those...

  • Page 96
    ... to, pricing practices including discounting, margin objectives, competition, the geographies in which we offer our products and services, the type of customer (i.e. distributor, value added reseller, government agency and direct end user, among others) and the stage of the product lifecycle. The...

  • Page 97
    ... to provide comprehensive software and hardware management and maintenance services for customers hosted at our Oracle data center facilities, select partner data centers or physically on­site at customer facilities. Advanced Customer Services provides support services, both onsite and remote, to...

  • Page 98
    ...same companies (Concurrent Transactions). Software license agreements or sales of hardware systems that occur within a three­ month time period from the date we have purchased goods or services from that same customer are reviewed for appropriate accounting treatment and disclosure. When we acquire...

  • Page 99
    ... policies differ when accounting for acquisitions in fiscal 2010 and prospective periods in comparison to the accounting for acquisitions in fiscal 2009 and prior periods, including: • the fair value of in­process research and development is recorded as an indefinite­lived intangible asset until...

  • Page 100
    ... of our customer base. No single customer accounted for 10% or more of our total revenues in fiscal 2011, 2010 or 2009. Inventories Inventories are stated at the lower of cost or market value. Cost is computed using standard cost, which approximates actual cost, on a first­in, first­out basis. We...

  • Page 101
    ... value­added tax and sales tax receivables associated with the sale of our products and services to third parties. Other receivables are included in prepaid expenses and other current assets in our consolidated balance sheets and totaled $876 million and $733 million at May 31, 2011 and 2010...

  • Page 102
    ... in non­operating income (expense), net in the accompanying consolidated statements of operations were $11 million, $(149) million and $(65) million in fiscal 2011, 2010 and 2009, respectively. Stock-Based Compensation We account for share­based payments, including grants of employee stock options...

  • Page 103
    ... our acquisitions pursuant to previous accounting rules, primarily direct transaction costs such as professional services fees. (in millions) 2011 Year Ended May 31, 2010 2009 Transitional and other employee related costs ...Stock­based compensation ...Professional fees and other, net ...Business...

  • Page 104
    ...likely to be realized upon ultimate settlement. We recognize interest and penalties related to uncertain tax positions in our provision for income taxes line of our consolidated statements of operations. A description of our accounting policies associated with tax related contingencies and valuation...

  • Page 105
    ... and Disclosures (ASU 2010­06), to add additional disclosures about the different classes of assets and liabilities measured at fair value, the valuation techniques and inputs used, and the activity in Level 3 fair value measurements. Certain provisions of this update will be effective for us in...

  • Page 106
    ORACLE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) May 31, 2011 During fiscal 2011, we acquired certain other companies and purchased certain technology and development assets to expand our products and services offerings. These acquisitions were not significant individually ...

  • Page 107
    ... of stock options and restricted stock­based awards assumed and $13 million for transaction costs. In allocating the total purchase price for these acquisitions based on estimated fair values, we recorded $708 million of goodwill, $587 million of identifiable intangible assets, $96 million of net...

  • Page 108
    ... values at May 31, 2011 and 2010. We use the specific identification method to determine any realized gains or losses from the sale of our marketable securities classified as available­for­sale. Such realized gains and losses were insignificant for fiscal 2011, 2010 and 2009. The following table...

  • Page 109
    ... our date of purchase and active markets for these instruments exist. Our valuation techniques used to measure the fair values of all other instruments listed in the table above, generally all of which mature within one year and the counterparties to which have high credit ratings, were derived from...

  • Page 110
    ... Amortization May 31, 2010 Expense May 31, 2011 Intangible Assets, Net Weighted Average May 31, May 31, Useful 2010 2011 Life Software support agreements and related relationships ...$ 5,078 $ Hardware systems support agreements and related relationships ...759 Developed technology ...5,338 Core...

  • Page 111
    ... our business combinations accounting policy, we record goodwill adjustments for the effect on goodwill of changes to net assets acquired during the measurement period (up to one year from the date of an acquisition). Goodwill adjustments for our services business in fiscal 2010 include $82 million...

  • Page 112
    ...­annually for the Senior Notes. In September 2009, we entered into interest rate swap agreements that have the economic effect of modifying the fixed interest obligations associated with the 2014 Notes so that the interest payable on these notes effectively became variable (1.38% at May 31, 2011...

  • Page 113
    ... payable and the 2011 Credit Agreements may be terminated. We were in compliance with the 2011 Credit Agreements' covenants as of May 31, 2011. On March 14, 2011, our $3.0 billion, five­year Revolving Credit Agreement dated March 15, 2006, among Oracle and the lenders named therein (the 2006 Credit...

  • Page 114
    ...) May 31, 2011 9. RESTRUCTURING ACTIVITIES Sun Restructuring Plan During the third quarter of fiscal 2010, our management approved, committed to and initiated a plan to restructure our operations due to our acquisition of Sun (the Sun Restructuring Plan) in order to improve the cost efficiencies in...

  • Page 115
    ...Accrued Program 2010(2) Costs(3) Cost(4) Payments Others(5) 2011(2) to Date Costs (in millions) Sun Restructuring Plan(1) New software licenses ...Software license updates and product support ...Hardware systems business ...Services ...General and administrative and other ...Total Sun Restructuring...

  • Page 116
    ... be segmented from undelivered consulting or other services. In connection with the purchase price allocations related to our acquisitions, we have estimated the fair values of the software license updates and product support obligations and hardware systems support obligations assumed from our...

  • Page 117
    ...May 31, 2011 and 2010, the fair values of these interest rate swap agreements recorded as other assets in our consolidated balance sheets were $69 million and $33 million, respectively. We do not use any interest rate swap agreements for trading purposes. Cash Flow Hedges In relation to the variable...

  • Page 118
    ... to these forward contracts for the years ended May 31, 2011, 2010 and 2009, respectively. 12. COMMITMENTS AND CONTINGENCIES Lease Commitments We lease certain facilities, furniture and equipment under operating leases. As of May 31, 2011, future minimum annual operating lease payments and future...

  • Page 119
    ... particular agreement. Our software license and hardware systems products agreements also generally include a warranty that our products will substantially operate as described in the applicable program documentation for a period of one year after delivery. We also warrant that services we perform...

  • Page 120
    ... 2011, our Board of Directors declared a quarterly cash dividend of $0.06 per share of outstanding common stock payable on August 3, 2011 to stockholders of record as of the close of business on July 13, 2011. Future declarations of dividends and the establishment of future record and payment dates...

  • Page 121
    ...'s Plan has from time to time been amended and restated, most recently in fiscal 2010. Under the terms of the Directors' Plan, options to purchase 8 million shares of common stock were reserved for issuance, options are granted at not less than fair market value, become exercisable over four years...

  • Page 122
    ...on the gross difference between our closing stock price on the last trading day of fiscal 2011 of $34.22 and the exercise prices for all in­the­money options outstanding, excluding tax effects. The unrecognized compensation expense calculated under the fair value method for shares expected to vest...

  • Page 123
    ... consolidated statements of operations: (in millions) 2011 Year Ended May 31, 2010 2009 Sales and marketing ...$ Software license updates and product support ...Hardware systems products ...Hardware systems support ...Services ...Research and development ...General and administrative ...Acquisition...

  • Page 124
    ...operating activities for fiscal 2011, 2010 and 2009, respectively. Employee Stock Purchase Plan We have an Employee Stock Purchase Plan (Purchase Plan) and have amended the Purchase Plan such that employees can purchase shares of common stock at a price per share that is 95% of the fair market value...

  • Page 125
    ... as follows: (in millions) 2011 Year Ended May 31, 2010 2009 Tax provision at statutory rate ...$ 3,994 $ 2,885 $ 2,742 Foreign earnings at other than United States rates ...(1,125) (672) (673) State tax expense, net of federal benefit ...188 161 201 Settlements and releases from judicial decisions...

  • Page 126
    ... gain on stock ...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...

  • Page 127
    ..., extraterritorial income exemptions, domestic production activity deductions, stewardship deductions, stock­based compensation and foreign tax credits taken. Other issues are related to years with expiring statutes of limitation. With all of these domestic audit issues considered in the aggregate...

  • Page 128
    ..., application server software, Service­Oriented Architecture and business process management software, data integration software, business intelligence software, identity and access management software, content management software, portals and user interaction software, and development tools...

  • Page 129
    ... servers to cost efficient, entry­level servers, and run with Oracle Solaris, Oracle Linux and certain other operating systems environments. Our storage products are designed to securely manage, protect, archive and restore customers' data assets and consist of tape, disk and networking solutions...

  • Page 130
    ... STATEMENTS-(Continued) May 31, 2011 The following table presents a summary of our businesses' and operating segments' results: (in millions) 2011 Year Ended May 31, 2010 2009 New software licenses: Revenues(1) ...Sales and distribution expenses ...Margin(2) ...Software license updates and product...

  • Page 131
    ... partner programs, and corporate and general and administrative expenses. Additionally, the margins do not reflect inventory fair value adjustments, amortization of intangible assets, acquisition related and other expenses, restructuring costs, or stock­based compensation. (2) The following table...

  • Page 132
    ...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) Year Ended May 31, 2011 2010 2009 Net income ...Weighted average common shares outstanding ...Dilutive effect of employee...

  • Page 133
    ... 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. On June 1, 2007, Oracle filed its First Amended Complaint, adding claims for...

  • Page 134
    ...19, 2010, a similar stockholder derivative lawsuit was filed in the Superior Court of the State of California, County of San Mateo. The derivative suits were brought by alleged stockholders of Oracle, purportedly on our behalf, against some of our current officers and directors. Citing the claims in...

  • Page 135
    ... 31, 2011 other relief. On September 20, 2010, Oracle removed the San Mateo action to the United States District Court for the Northern District of California. On September 30, 2010, plaintiff in the former San Mateo action brought a motion to remand that case to San Mateo Superior Court. On October...

  • Page 136
    ... II ORACLE CORPORATION VALUATION AND QUALIFYING ACCOUNTS Beginning Balance Additions Charged to Operations or Other Accounts Translation Adjustments and Other Ending Balance (in millions) Write-offs Allowances for Doubtful Trade Receivables Year Ended: May 31, 2009 ...May 31, 2010 ...May 31, 2011...

  • Page 137
    ... by the undersigned, thereunto duly authorized. ORACLE CORPORATION Date: June 27, 2011 By: /s/ LAWRENCE J. ELLISON Lawrence J. Ellison Chief Executive Officer and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons...

  • Page 138
    ... CORPORATION INDEX OF EXHIBITS Incorporated by Reference Exhibit No. Exhibit Description Form File No. Exhibit Filing Date Filed By Filed Herewith 3.01 Amended and Restated Certificate of 8­K 000­51788 Incorporation of Oracle Corporation 12G3 and Certificate of Amendment of Amended and Restated...

  • Page 139
    ... relating to the $5,000,000,000 Commercial Paper Program Issuing and Paying Agency Agreement between Oracle Corporation and JP Morgan Chase Bank, National Association dated as of February 3, 2006 Description of the Fiscal Year 2010 Executive Bonus Plan 10­Q 000­14376 10.10 9/17/04 8­K 000...

  • Page 140
    ...iv) Consolidated Statements of Cash Flows for the years ended May 31, 2011, 2010 and 2009, (v) Notes to Consolidated Financial Statements and (vi) Financial Statement Schedule II X 12.01 21.01 23.01 X X X 31.01 X 31.02 X 32.01 101 X X * Indicates management contract or compensatory plan or...