Oracle 2013 Annual Report Download - page 73

Table of Contents
Free cash flow: To supplement our statements of cash flows presented on a GAAP basis, we use non-GAAP measures of cash flows on a
trailing 4-quarter basis to analyze cash flows generated from our operations. We believe free cash flow is also useful as one of the bases for
comparing our performance with our competitors. The presentation of non-GAAP free cash flow is not meant to be considered in isolation or as
an alternative to net income as an indicator of our performance, or as an alternative to cash flows from operating activities as a measure of
liquidity. We calculate free cash flows as follows:
Long
-Term Customer Financing: We offer certain of our customers the option to acquire our software products, hardware systems products
and services offerings through separate long-term payment contracts. We generally sell these contracts that we have financed for our customers
on a non-recourse basis to financial institutions within 90 days of the contracts’ dates of execution. We record the transfers of amounts due from
customers to financial institutions as sales of financial assets because we are considered to have surrendered control of these financial assets. We
financed $1.6 billion, $1.8 billion and $1.6 billion, respectively, or approximately 17%, 19% and 17%, respectively, of our new software licenses
revenues in fiscal 2014, 2013 and 2012, and $168 million, $161 million and $134 million, respectively, or approximately 6%, 5%, and 3%,
respectively, of our hardware systems products revenues in fiscal 2014, 2013 and 2012.
Recent Financing Activities:
Senior Notes : As of May 31, 2014, we had $24.2 billion of senior notes outstanding ($18.5 billion outstanding as of May 31, 2013). In July
2013, we issued €2.0 billion ($2.7 billion as of May 31, 2014) of fixed rate senior notes comprised of €1.25 billion of 2.25% notes due January
2021 (2021 Notes) and €750 million of 3.125% notes due July 2025 (2025 Notes, and together with the 2021 Notes, the Euro Notes). The Euro
Notes are registered and trade on the New York Stock Exchange. We are accounting for the 2025 Notes as a net investment hedge of our
investments in certain of our international subsidiaries that use the Euro as their functional currency in order to reduce the volatility in
stockholders’ equity caused by the changes in foreign currency exchange rates of the Euro with respect to the U.S. Dollar pursuant to ASC 815,
Derivatives and Hedging
(ASC 815).
In July 2013, we also issued $3.0 billion of senior notes comprised of $500 million of floating rate notes due January 2019 (2019 Floating Rate
Notes), $1.5 billion of 2.375% notes due January 2019 (2019 Notes) and $1.0 billion of 3.625% notes due July 2023 (2023 Notes, and together
with the Floating Rate Notes and 2019 Notes, the U.S. Dollar Notes).
We issued the Euro Notes and the U.S. Dollar Notes for general corporate purposes, which may include stock repurchases, payment of cash
dividends on our common stock and future acquisitions. Additional details regarding the Euro Notes, the U.S. Dollar Notes, and the related
hedge accounting are included in Note 8 and Note 11 of Notes to Consolidated Financial Statements, included elsewhere in this Annual Report.
Interest Rate Swap Agreements : In July 2013, we entered into certain interest rate swap agreements that have the economic effect of
modifying the fixed interest obligations associated with our 2019 Notes so that the interest payable on these notes effectively became variable
based on LIBOR. As of May 31, 2014, our 2019 Notes had an effective interest rate of 0.88% after considering the effects of the aforementioned
interest rate swap arrangements. We are accounting for these interest rate swap agreements as fair value hedges pursuant to ASC 815. Additional
details regarding our senior notes and related interest rate swap agreements are included in Note 8 and Note 11 of Notes to Consolidated
Financial Statements, included elsewhere in this Annual Report.
69
Year Ended May 31,
(Dollars in millions)
2014
Change
2013
Change
2012
Net cash provided by operating activities
$
14,921
5%
$
14,224
3%
$
13,743
Capital expenditures
(580
)
-
11%
(650
)
0%
(648
)
Free cash flow
$
14,341
6%
$
13,574
4%
$
13,095
Net income
$
10,955
$
10,925
$
9,981
Free cash flow as percent of net income
131%
124%
131%
Derived from capital expenditures as reported in cash flows from investing activities as per our consolidated statements of cash flows presented in accordance with U.S. GAAP.
(1)
(1)