EX-99.1 2 dex991.htm PRESS RELEASE Press Release

Exhibit 99.1

 

LOGO

 

For Immediate Release

 

Contacts:

   

Krista Bessinger

Oracle Investor Relations

+1.650.506.4073

investor_us@oracle.com

   

Bob Wynne

Oracle Corporate Communications

+1.650.506.5834

bob.wynne@oracle.com

 

ORACLE REPORTS Q2 GAAP EPS UP 20% TO 18 CENTS, NON-GAAP EPS UP 18% TO 22 CENTS

 

Applications New License Revenues Up 28%, Database and Middleware New License Revenues Up 9%

 

REDWOOD SHORES, Calif., December 18, 2006 — Oracle Corporation (NASDAQ-GS: ORCL) today announced fiscal 2007 Q2 GAAP earnings per share were up 20% to $0.18, compared to the same quarter last year. Second quarter total GAAP revenues were up 26% to $4.2 billion, while quarterly GAAP net income was up 21% to $967 million. Total GAAP software revenues were up 23% to $3.2 billion with database and middleware new license revenues up 9% and applications new license revenues up 28%. Services revenues were up 41% to $949 million, compared to the same quarter last year.

 

Second quarter non-GAAP earnings per share were up 18% to $0.22, and non-GAAP net income was up 20% to $1.17 billion, compared to the same quarter last year.

 

“We delivered strong top line revenue growth along with solid earnings for the second quarter,” said Oracle President and CFO, Safra Catz. “We are now halfway through our five year plan targeting EPS growth at 20% per year. For the first two-and-a-half years we are comfortably ahead of that target.”

 

“We continue to gain market share in applications from SAP, in middleware from BEA, and in database from IBM,” said Oracle President, Charles Phillips. “In Q2 our middleware new license growth was exceptionally strong. We expect to pass BEA in total middleware new license sales later this year.”

“Our applications acquisition strategy has strengthened our competitiveness in several industries including retail, banking, telecommunications and utilities,” said Oracle CEO, Larry Ellison. “Now, the very first industry vertical we entered via acquisition, our retail software business, is beginning to see the benefits of operational integration with Oracle. In Q2, our retail new software license sales more than tripled. During the second half of the year the retail business unit expects to do even better. Eight of the top ten retailers in North America use Oracle retail software, only one uses SAP.”

 

###

 

Oracle Corporation is the world’s largest enterprise software company. For more information about Oracle, including supplemental financial information, please visit Oracle on the web at www.oracle.com/investor or call Investor Relations at (650) 506-4073.

 

“Safe Harbor” Statement: Statements in this press release relating to Oracle’s future plans and prospects are “forward-looking statements” and are subject to material risks and uncertainties. Many factors could affect our current expectations and our actual results, and could cause actual results to differ materially. We presently consider the following to be among the important factors that could cause actual results to differ materially from expectations: (1) Economic, political and market conditions could adversely affect our revenue growth and profitability through reductions in IT budgets and expenditures. (2) We may fail to achieve our financial forecasts due to such factors as delays or size reductions in transactions, fewer large transactions in a particular quarter, unanticipated fluctuations in currency exchange rates, delays in delivery of new products or releases, or a decline in our renewal rates for software license updates and product support. (3) We cannot assure market acceptance of new products or new versions of existing products. (4) We have an active acquisition program, and our acquisitions may not be successful, may involve unanticipated costs or other integration issues, or may disrupt our existing operations. (5) Periodic changes to our pricing model and sales organization could temporarily disrupt operations and cause a decline or delay in sales. (6) Intense competitive forces demand rapid technological advances and frequent new product introductions, and could require us to reduce prices. A detailed discussion of these factors and other risks that affect our business is contained in our SEC filings, including our most recent reports on Form 10-K and Form 10-Q, particularly under the heading “Risk Factors.” Copies of these filings are available online from the SEC or by contacting Oracle Corporation’s Investor Relations Department at (650) 506-4073 or by clicking on SEC Filings on Oracle’s Investor Relations website at http://www.oracle.com/investor. All information set forth in this release is current as of December 18, 2006. Oracle undertakes no duty to update any statement in light of new information or future events.

ORACLE CORPORATION

 

Q2 FISCAL 2007 QUARTER TO DATE FINANCIAL RESULTS

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per share data)

 

     Three Months Ended November 30,      % Increase
(Decrease)
in US $		     

% Increase

(Decrease)
in Constant
Currency (1)

  
   2006      % of
Revenues		      2005      % of
Revenues		        
   

REVENUES

                  

New software licenses

    $   1,207      29%      $   1,058      32%         14%      10%  

Software license updates and product support

      2,007      48%        1,559      48%      29%      25%  
              

Software Revenues

      3,214      77%        2,617      80%      23%      19%  
              

Services

      949      23%        675      20%      41%      36%  
              

Total Revenues

      4,163      100%        3,292      100%      26%      23%  
              

OPERATING EXPENSES

                  

Sales and marketing

      915      22%        706      22%      30%      26%  

Software license updates and product support

      205      5%        175      5%      17%      14%  

Cost of services

      820      20%        582      18%      41%      37%  

Research and development

      519      12%        468      14%      11%      10%  

General and administrative

      170      4%        109      3%      56%      53%  

Amortization of intangible assets

      202      5%        126      4%      60%      60%  

Acquisition related (2)

      (36 )    (1% )      10      0%      (471% )    (467% )

Restructuring

      11      0%        —        0%      100%      100%  
              

Total Operating Expenses

      2,806      67%        2,176      66%      29%      26%  
              

OPERATING INCOME

      1,357      33%        1,116      34%      22%      16%  

Interest expense

      (82 )    (2% )      (16 )    0%      409%      *  

Non-operating income, net

      79      2%        22      0%      262%      *  
              

INCOME BEFORE PROVISION FOR INCOME TAXES

      1,354      33%        1,122      34%      21%      *  
              

Provision for income taxes

      387      10%        324      10%      20%      *  
              

NET INCOME

    $ 967      23%      $ 798      24%      21%      *  
              

EARNINGS PER SHARE:

                  

Basic

    $ 0.19         $ 0.15         20%     

Diluted

    $ 0.18         $ 0.15         20%     

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:

                  

Basic

      5,184           5,152         1%     

Diluted

      5,287           5,238         1%     

* not meaningful

                  
   

 

(1) We compare the percent change in the results from one period to another period using constant currency disclosure. We present constant currency information to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency rate fluctuations. To present this information, current and comparative prior period results for entities reporting in currencies other than United States dollars are converted into United States dollars at the exchange rate in effect on May 31, 2006, which was the last day of our prior fiscal year, rather than the actual exchange rates in effect during the respective periods. The United States dollar weakened relative to major international currencies in the three months ended November 30, 2006 compared with the corresponding prior year period, contributing 3 percentage points of revenue, 3 percentage points of operating expense and 6 percentage points of operating income growth.

 

(2) Acquisition related costs include a benefit of $51.5 million related to the settlement of a pre-acquisition lawsuit against PeopleSoft, Inc. filed on behalf of the U.S. government. Please see Appendix A for further discussion.

ORACLE CORPORATION

 

Q2 FISCAL 2007 QUARTER TO DATE FINANCIAL RESULTS

NON-GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (1)

(in millions, except per share data)

 

     Three Months Ended November 30,    % Increase
(Decrease) in US $		  
     2006
    GAAP    		          Adj.          2006
Non-GAAP		    2005
    GAAP    		        Adj.          2005
Non-GAAP		    GAAP      Non-GAAP  
   

TOTAL REVENUES (2)

    $ 4,163      $ 53      $ 4,216    $ 3,292    $ 102      $ 3,394    26%      24%  

TOTAL SOFTWARE REVENUES (2)

    $ 3,214      $ 53      $ 3,267    $ 2,617    $ 102      $ 2,719    23%      20%  

New software licenses

      1,207        —          1,207      1,058      —          1,058    14%      14%  

Software license updates and product support (2)

      2,007        53        2,060      1,559      102        1,661    29%      24%  

TOTAL OPERATING EXPENSES

    $ 2,806      $ (224 )    $ 2,582    $ 2,176    $ (143 )    $ 2,033    29%      27%  

Stock-based compensation (3)

      47        (47 )      —        7      (7 )      —      554%      0%  

Amortization of intangible assets (4)

      202        (202 )      —        126      (126 )      —      60%      0%  

Acquisition related

      (36 )      36        —        10      (10 )      —      (471% )    0%  

Restructuring

      11        (11 )      —        —        —          —      100%      0%  

OPERATING INCOME

    $ 1,357      $ 277      $ 1,634    $ 1,116    $ 245      $ 1,361    22%      20%  

OPERATING MARGIN %

      33%           39%      34%         40%    (4% )    (3% )

INCOME TAX EFFECTS ON ABOVE
ADJUSTMENTS (5)

    $ 387      $ 79      $ 466    $ 324    $ 71      $ 395    19%      18%  

NET INCOME

    $ 967      $ 198      $ 1,165    $ 798    $ 174      $ 972    21%      20%  

DILUTED EARNINGS PER SHARE (6)

    $ 0.18         $ 0.22    $ 0.15       $ 0.19    20%      18%  

DILUTED WEIGHTED AVERAGE
COMMON SHARES OUTSTANDING (6)

      5,287        16        5,303      5,238      —          5,238    1%      1%  
   

 

(1) This presentation includes non-GAAP measures. Our non-GAAP measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures, and should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP. For a detailed explanation of the adjustments made to comparable GAAP measures, the reasons why management uses these measures, the usefulness of these measures and the material limitations on the usefulness of these measures, please see Appendix A.

 

(2) Estimated revenues related to assumed support contracts, as of November 30, 2006, that will not be recognized in future periods due to business combination accounting rules are as follows:

 

Remainder of Fiscal 2007

    $ 38

Fiscal 2008

                9
      

Total

    $ 47
      

 

(3) Stock-based compensation is included in the following GAAP operating expenses:

 

     Q2 Fiscal 2007    Q2 Fiscal 2006
         GAAP              Adj.            Non-GAAP        GAAP              Adj.            Non-GAAP
 

Sales and marketing

    $ 8    $ (8 )    $ —      $ 1    $ (1 )    $ —  

Software license updates and product support

      3      (3 )      —        —        —          —  

Cost of services

      3      (3 )      —        2      (2 )      —  

Research and development

      21      (21 )      —        4      (4 )      —  

General and administrative

      12      (12 )      —        —        —          —  
                                             

Subtotal

      47      (47 )      —        7      (7 )      —  
                                             

Acquisition related

      —        —          —        1      (1 )      —  
                                             

Total stock-based compensation

    $ 47    $ (47 )    $ —      $ 8    $ (8 )    $ —  
                                             

 

     Stock-based compensation expense in the second quarter of fiscal 2007 is recognized at fair value under FASB Statement 123R. Stock-based compensation expense in the second quarter of fiscal 2006 is recognized at intrinsic value under APB Opinion 25 and pertains only to unvested stock options assumed from acquisitions.

 

(4) Estimated future amortization expense related to intangible assets as of November 30, 2006 is as follows:

 

Remainder of Fiscal 2007

    $ 415

Fiscal 2008

      819

Fiscal 2009

      811

Fiscal 2010

      687

Fiscal 2011

      475

Fiscal 2012

      375

Thereafter

            977
      

Total

    $ 4,559
      

 

(5) The income tax provision was calculated reflecting a tax rate of 28.6% and 28.9% in the second quarter of fiscal 2007 and 2006, respectively.

 

(6) Non-GAAP diluted earnings per share and non-GAAP diluted weighted shares outstanding were calculated excluding the effects of expensing stock options under Statement 123R.

ORACLE CORPORATION

 

Q2 FISCAL 2007 YEAR TO DATE FINANCIAL RESULTS

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per share data)

 

     Six Months Ended November 30,      % Increase
(Decrease)
in US $		     

% Increase

(Decrease)
in Constant
Currency (1)

  
   2006      % of
Revenues		      2005      % of
Revenues		        
   

REVENUES

                  

New software licenses

    $   2,011      26%      $   1,687      28%         19%      16%  

Software license updates and product support

      3,948      51%        3,061      50%      29%      26%  
              

Software Revenues

      5,959      77%        4,748      78%      25%      23%  
              

Services

      1,795      23%        1,312      22%      37%      34%  
              

Total Revenues

      7,754      100%        6,060      100%      28%      25%  
              

OPERATING EXPENSES

                  

Sales and marketing

      1,665      21%        1,321      22%      26%      23%  

Software license updates and product support

      404      5%        335      6%      21%      18%  

Cost of services

      1,599      21%        1,145      19%      40%      37%  

Research and development

      1,026      14%        868      14%      18%      18%  

General and administrative

      328      4%        265      4%      24%      22%  

Amortization of intangible assets

      401      5%        249      4%      60%      60%  

Acquisition related (2)

      12      0%        38      1%      (68% )    (69% )

Restructuring

      20      0%        11      0%      85%      77%  
              

Total Operating Expenses

      5,455      70%        4,232      70%      29%      27%  
              

OPERATING INCOME

      2,299      30%        1,828      30%      26%      21%  

Interest expense

      (166 )    (2% )      (37 )    0%      347%      *  

Non-operating income, net

      183      2%        63      1%      187%      *  
              

INCOME BEFORE PROVISION FOR INCOME TAXES

      2,316      30%        1,854      31%      25%      *  
              

Provision for income taxes

      679      9%        538      9%      26%      *  
              

NET INCOME

    $ 1,637      21%      $ 1,316      22%      24%      *  
              

EARNINGS PER SHARE:

                  

Basic

    $ 0.31         $ 0.26         23%     

Diluted

    $ 0.31         $ 0.25         23%     

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:

                  

Basic

      5,200           5,150         1%     

Diluted

      5,297           5,241         1%     

* not meaningful

                  
   

 

(1) We compare the percent change in the results from one period to another period using constant currency disclosure. We present constant currency information to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency rate fluctuations. To present this information, current and comparative prior period results for entities reporting in currencies other than United States dollars are converted into United States dollars at the exchange rate in effect on May 31, 2006, which was the last day of our prior fiscal year, rather than the actual exchange rates in effect during the respective periods. The United States dollar weakened relative to major international currencies in the six months ended November 30, 2006 compared with the corresponding prior year period, contributing 3 percentage points of revenue, 2 percentage points of operating expense and 5 percentage points of operating income growth.

 

(2) Acquisition related costs include a benefit of $51.5 million related to the settlement of a pre-acquisition lawsuit against PeopleSoft, Inc. filed on behalf of the U.S. government. Please see Appendix A for further discussion.

ORACLE CORPORATION

 

Q2 FISCAL 2007 YEAR TO DATE FINANCIAL RESULTS

NON-GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (1)

(in millions, except per share data)

 

     Six Months Ended November 30,    % Increase
(Decrease) in US $		  
     2006
    GAAP    		        Adj.          2006
Non-GAAP		    2005
    GAAP    		        Adj.          2005
Non-GAAP		    GAAP      Non-GAAP  
   

TOTAL REVENUES (2)

    $ 7,754    $ 122      $ 7,876    $ 6,060    $ 240      $ 6,300    28%      25%  

TOTAL SOFTWARE REVENUES (2)

    $ 5,959    $ 122      $ 6,081    $ 4,748    $ 240      $ 4,988    25%      22%  

New software licenses

      2,011      —          2,011      1,687      —          1,687    19%      19%  

Software license updates and product support (2)

      3,948      122        4,070      3,061      240        3,301    29%      23%  

TOTAL OPERATING EXPENSES

    $ 5,455    $ (530 )    $ 4,925    $ 4,232    $ (314 )    $ 3,918    29%      26%  

Stock-based compensation (3)

      97      (97 )      —        16      (16 )      —      499%      0%  

Amortization of intangible assets (4)

      401      (401 )      —        249      (249 )      —      60%      0%  

Acquisition related

      12      (12 )      —        38      (38 )      —      (68% )    0%  

Restructuring

      20      (20 )      —        11      (11 )      —      85%      0%  

OPERATING INCOME

    $ 2,299    $ 652      $ 2,951    $ 1,828    $ 554      $ 2,382    26%      24%  

OPERATING MARGIN %

      30%         37%      30%         38%    (2% )    (1% )

INCOME TAX EFFECTS ON ABOVE ADJUSTMENTS (5)

    $ 679    $ 193      $ 872    $ 538    $ 160      $ 698    26%      25%  

NET INCOME

    $ 1,637    $ 459      $ 2,096    $ 1,316    $ 394      $ 1,710    24%      23%  

DILUTED EARNINGS PER SHARE (6)

    $ 0.31       $ 0.39    $ 0.25       $ 0.33    23%      21%  

DILUTED WEIGHTED AVERAGE
COMMON SHARES OUTSTANDING (6)

      5,297      12        5,309      5,241      —          5,241    1%      1%  
   

 

(1) This presentation includes non-GAAP measures. Our non-GAAP measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures, and should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP. For a detailed explanation of the adjustments made to comparable GAAP measures, the reasons why management uses these measures, the usefulness of these measures and the material limitations on the usefulness of these measures, please see Appendix A.

 

(2) Estimated revenues related to assumed support contracts, as of November 30, 2006, that will not be recognized in future periods due to business combination accounting rules are as follows:

 

Remainder of Fiscal 2007

    $ 38

Fiscal 2008

                9
      

Total

    $ 47
      

 

(3) Stock-based compensation is included in the following GAAP operating expenses:

 

     First Half Fiscal 2007    First Half Fiscal 2006
         GAAP              Adj.            Non-GAAP        GAAP              Adj.            Non-GAAP
 

Sales and marketing

    $ 18    $ (18 )    $ —      $ 3    $ (3 )    $ —  

Software license updates and product support

      6      (6 )      —        1      (1 )      —  

Cost of services

      6      (6 )      —        4      (4 )      —  

Research and development

      43      (43 )      —        8      (8 )      —  

General and administrative

      24      (24 )      —        —        —          —  
                                             

Subtotal

      97      (97 )      —        16      (16 )      —  
                                             

Acquisition related

      1      (1 )      —        4      (4 )      —  
                                             

Total stock-based compensation

    $ 98    $ (98 )    $ —      $ 20    $ (20 )    $ —  
                                             

 

     Stock-based compensation expense in the first half of fiscal 2007 is recognized at fair value under FASB Statement 123R. Stock-based compensation expense in the first half of fiscal 2006 is recognized at intrinsic value under APB Opinion 25 and pertains only to unvested stock options assumed from acquisitions.

 

(4) Estimated future amortization expense related to intangible assets as of November 30, 2006 is as follows:

 

Remainder of Fiscal 2007

    $ 415

Fiscal 2008

      819

Fiscal 2009

      811

Fiscal 2010

      687

Fiscal 2011

      475

Fiscal 2012

      375

Thereafter

            977
      

Total

    $ 4,559
      

 

(5) The income tax provision was calculated reflecting a tax rate of 29.3% and 29.0% in the first half of fiscal 2007 and 2006, respectively.

 

(6) Non-GAAP diluted earnings per share and non-GAAP diluted weighted shares outstanding were calculated excluding the effects of expensing stock options under Statement 123R.

ORACLE CORPORATION

 

Q2 FISCAL 2007 FINANCIAL RESULTS

CONDENSED CONSOLIDATED BALANCE SHEETS (1)

($ in millions)

 

     November 30,
2006		    May 31,
    2006    		  
   

ASSETS

      

Current Assets:

      

Cash and cash equivalents

    $ 4,684    $ 6,659  

Marketable securities

      3,141      946  

Trade receivables, net

      2,543      3,022  

Deferred tax assets

      706      714  

Other current assets

      588      633  
        

Total Current Assets

      11,662      11,974  

Non-Current Assets:

      

Property, net

      1,446      1,391  

Intangible assets, net

      4,559      4,528  

Goodwill

      10,682      9,809  

Other assets

      578      1,327  
        

Total Non-Current Assets

      17,265      17,055  
        

TOTAL ASSETS

    $ 28,927    $ 29,029  
        

LIABILITIES AND STOCKHOLDERS' EQUITY

      

Current Liabilities:

      

Short-term borrowings and current portion of long-term debt

    $ 168    $ 159  

Accounts payable

      284      268  

Income taxes payable

      647      810  

Accrued compensation and related benefits

      909      1,172  

Accrued restructuring

      173      412  

Deferred revenues

      2,770      2,830  

Other current liabilities

      1,145      1,279  
        

Total Current Liabilities

      6,096      6,930  

Non-Current Liabilities:

      

Long-term debt

      5,735      5,735  

Deferred tax liabilities

      561      564  

Accrued restructuring

      252      273  

Deferred revenues

      115      114  

Minority interests

      415      202  

Other long-term liabilities

      239      199  
        

Total Non-Current Liabilities

      7,317      7,087  

Stockholders' Equity

      15,514      15,012  
        

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

    $ 28,927    $ 29,029  
        
   

 

(1) Certain prior period balances have been reclassified to conform to the current period presentation.

ORACLE CORPORATION

 

Q2 FISCAL 2007 YEAR TO DATE FINANCIAL RESULTS

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (1)

($ in millions)

 

     Six Months Ended
November 30,		  
     2006      2005  
   

Cash Flows From Operating Activities:

      

Net income

    $ 1,637      $ 1,316  

Adjustments to reconcile net income to net cash provided by operating activities:

      

Depreciation

      124        110  

Amortization of intangible assets

      401        249  

Deferred income taxes

      5        (65 )

Minority interests in income

      32        17  

Stock-based compensation

      97        20  

Tax benefit on the exercise of stock options

      205        59  

Excess tax benefits from stock-based compensation (2)

      (159 )      —    

In-process research and development

      50        12  

Net investment gains related to equity securities

      (18 )      (4 )

Changes in operating assets and liabilities, net of effects from acquisitions:

      

Decrease in trade receivables

      681        558  

Decrease in prepaid expenses and other assets

      23        162  

Decrease in accounts payable and other liabilities

      (855 )      (308 )

Decrease in income taxes payable

      (195 )      (278 )

Decrease in deferred revenues

      (162 )      (92 )
        

Net cash provided by operating activities

      1,866        1,756  
        

Cash Flows From Investing Activities:

      

Purchases of marketable securities

      (4,246 )      (926 )

Proceeds from maturities and sale of investments

      2,204        1,203  

Acquisitions, net of cash acquired

      (488 )      (498 )

Purchases of equity and other investments

      (5 )      (608 )

Capital expenditures

      (106 )      (86 )

Proceeds from sales of property

      —          89  
        

Net cash used for investing activities

      (2,641 )      (826 )
        

Cash Flows From Financing Activities:

      

Payments for repurchase of common stock (3)

      (1,936 )      (324 )

Proceeds from issuance of common stock

      566        245  

Proceeds from borrowings, net of financing costs

      —          6,518  

Payments of debt

      (8 )      (8,321 )

Excess tax benefits from stock-based compensation (2)

      159        —    

Distributions to minority interests

      (29 )      (23 )
        

Net cash used for financing activities

      (1,248 )      (1,905 )
        

Effect of exchange rate changes on cash and cash equivalents

      48        (82 )
        

Net decrease in cash and cash equivalents

      (1,975 )      (1,057 )
        

Cash and cash equivalents at beginning of period

      6,659        3,894  
        

Cash and cash equivalents at end of period

    $ 4,684      $ 2,837  
        
   

 

(1) Certain prior period balances have been reclassified to conform to the current period presentation.

 

(2) Excess tax benefits received from stock-based compensation arrangements are presented as financing cash inflows rather than operating cash inflows prospectively from June 1, 2006, which is our adoption date of Statement 123R. Prior period reclassifications are not allowed.

 

(3) We repurchased 121 million shares for approximately $2 billion during the six months ended November 30, 2006 (including 3 million shares for $48 million that were repurchased but not settled at November 30, 2006).

ORACLE CORPORATION

 

Q2 FISCAL 2007 FINANCIAL RESULTS

FREE CASH FLOW—TRAILING 4-QUARTERS (1)

($ in millions)

 

     Fiscal 2006      Fiscal 2007 (2)  
         Q1              Q2              Q3              Q4              Q1            Q2 (3)            Q3            Q4      
   

GAAP Operating Cash Flow

    $ 3,596      $ 3,509      $ 3,857      $ 4,541      $ 4,706      $ 4,651        

Capital Expenditures (4)

      (206 )      (182 )      (199 )      (236 )      (233 )      (256 )      
        

Free Cash Flow

    $ 3,390      $ 3,327      $ 3,658      $ 4,305      $ 4,473      $ 4,395        
        

% Growth

      6%        4%        8%        28%        32%        32%        
   

GAAP Net Income

    $ 2,896      $ 2,878      $ 3,103      $ 3,381      $ 3,532      $ 3,702        

Free Cash Flow as a % of Net Income

      117%        116%        118%        127%        127%        119%        
   

 

(1) 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 flow generated from 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.

 

(2) We adopted FASB Statement 123R on June 1, 2006 under the modified prospective method. Under the modified prospective method, prior period reclassifications are not allowed. Excess tax benefits received from stock-based compensation arrangements are presented as financing cash inflows rather than operating cash inflows prospectively from June 1, 2006. Excess tax benefits reclassified from GAAP Operating Cash Flow were $159 million for the trailing 4-quarters ended November 30, 2006.

 

(3) Free cash flow and free cash flow as a percent of GAAP net income for the first half of fiscal 2006 and first half of fiscal 2007:

 

     First Half of
Fiscal 2006		      First Half of
Fiscal 2007		  
   

GAAP Operating Cash Flow

    $ 1,756      $ 1,866  

Capital Expenditures

      (86 )      (106 )
        

Free Cash Flow

    $ 1,670      $ 1,760  
        

% Growth

      (2% )      5%  
        

GAAP Net Income

    $ 1,316      $ 1,637  

Free Cash Flow as a % of Net Income

      127%        108%  

 

(4) Represents capital expenditures as reported in cash flows from investing activities on our cash flow statements presented in accordance with GAAP.

ORACLE CORPORATION

 

Q2 FISCAL 2007 FINANCIAL RESULTS

SUPPLEMENTAL ANALYSIS OF GAAP REVENUES AND HEADCOUNT (1)

(in millions, except headcount data)

 

     Fiscal 2006    Fiscal 2007  
         Q1            Q2            Q3            Q4          TOTAL        Q1            Q2            Q3            Q4          TOTAL  
   

REVENUES

                              

New software licenses

    $ 629    $ 1,058    $ 1,096    $ 2,121      $ 4,905    $ 804    $ 1,207          $ 2,011  

Software license updates and product support

      1,502      1,559      1,703      1,873        6,636      1,941      2,007            3,948  
        

Software Revenues

      2,131      2,617      2,799      3,994        11,541      2,745      3,214            5,959  

Consulting

      481      506      501      632        2,120      640      716            1,356  

On Demand

      84      87      96      130        397      125      140            265  

Education

      72      82      74      95        322      81      93            174  
        

Services Revenues

      637      675      671      857        2,839      846      949            1,795  
        

Total Revenues

    $ 2,768    $ 3,292    $ 3,470    $ 4,851      $ 14,380    $ 3,591    $ 4,163          $ 7,754  
        

AS REPORTED REVENUE GROWTH RATES

                              

New software licenses

      12%      9%      16%      32%        20%      28%      14%            19%  

Software license updates and product support

      28%      25%      23%      24%        25%      29%      29%            29%  

Software Revenues

      23%      18%      20%      28%        23%      29%      23%            25%  

Consulting

      36%      28%      7%      7%        17%      33%      42%            37%  

On Demand

      18%      20%      26%      62%        32%      49%      61%            55%  

Education

      42%      25%      9%      11%        20%      13%      14%            14%  

Services Revenues

      34%      26%      9%      13%        19%      33%      41%            37%  

Total Revenues

      25%      19%      18%      25%        22%      30%      26%            28%  

CONSTANT CURRENCY GROWTH RATES

                              

New software licenses

      10%      12%      20%      32%        21%      26%      10%            16%  

Software license updates and product support

      26%      27%      27%      25%        26%      27%      25%            26%  

Software Revenues

      21%      20%      24%      28%        24%      27%      19%            23%  

Consulting

      34%      31%      10%      8%        19%      31%      37%            34%  

On Demand

      17%      22%      29%      63%        33%      47%      56%            52%  

Education

      40%      27%      13%      12%        21%      11%      11%            11%  

Services Revenues

      32%      29%      13%      14%        21%      31%      36%            34%  

Total Revenues

      23%      22%      22%      26%        23%      28%      23%            25%  
   

GEOGRAPHIC REVENUES

                              

REVENUES

                              

Americas

    $ 1,475    $ 1,733    $ 1,848    $ 2,595      $ 7,652    $ 1,956    $ 2,170          $ 4,126  

Europe, Middle East & Africa

      883      1,090      1,164      1,572        4,708      1,140      1,422            2,562  

Asia Pacific

      410      469      458      684        2,020      495      571            1,066  
        

Total Revenues

    $ 2,768    $ 3,292    $ 3,470    $ 4,851      $ 14,380    $ 3,591    $ 4,163          $ 7,754  
        
   

HEADCOUNT (2)

                              

GEOGRAPHIC AREA

                              

Domestic

      21,198      21,133      23,256      23,209           23,503      24,054         

International

      28,318      30,021      32,326      32,924           41,623      44,380         
                       

Total Company

      49,516      51,154      55,582      56,133           65,126      68,434         
                       
   

 

(1) The sum of the quarterly financial information may vary from year-to-date financial information due to rounding.

 

(2) Headcount has increased primarily due to acquisitions and the consolidation of i-flex beginning in the first quarter of fiscal 2007.

ORACLE CORPORATION

 

Q2 FISCAL 2007 FINANCIAL RESULTS

SUPPLEMENTAL TOTAL SOFTWARE PRODUCT REVENUE ANALYSIS (1)

($ in millions)

 

     Fiscal 2006    Fiscal 2007  
         Q1            Q2            Q3            Q4        TOTAL        Q1            Q2            Q3            Q4        TOTAL  
   

APPLICATIONS REVENUES

                              

New software licenses

    $ 127    $ 266    $ 269    $ 641    $ 1,303    $ 228    $ 340          $ 568   

Software license updates and product support

      466      502      608      676      2,252      703      728            1,431  
        

Software Revenues

    $ 593    $ 768    $ 877    $ 1,317    $ 3,555    $ 931    $ 1,068          $ 1,999  
        

AS REPORTED GROWTH RATES

                              

New software licenses

      84%      24%      77%      83%      66%      80%      28%            45%  

Software license updates and product support

      96%      98%      73%      52%      75%      51%      45%            48%  

Software Revenues

      93%      64%      74%      66%      71%      57%      39%            47%  

CONSTANT CURRENCY GROWTH RATES

                              

New software licenses

      82%      27%      82%      83%      67%      78%      25%            42%  

Software license updates and product support

      93%      101%      79%      53%      77%      49%      41%            45%  

Software Revenues

      91%      67%      80%      66%      72%      55%      35%            44%  
   

DATABASE & MIDDLEWARE REVENUES

                              

New software licenses

    $ 502    $ 792    $ 827    $ 1,480    $ 3,602    $ 576    $ 867          $ 1,443  

Software license updates and product support

      1,036      1,057      1,095      1,197      4,384      1,238      1,279            2,517  
        

Software Revenues

    $ 1,538    $ 1,849    $ 1,922    $ 2,677    $ 7,986    $ 1,814    $ 2,146          $ 3,960  
        

AS REPORTED GROWTH RATES

                              

New software licenses

      2%      5%      4%      18%      9%      15%      9%            11%  

Software license updates and product support

      10%      6%      6%      12%      8%      19%      21%            20%  

Software Revenues

      7%      5%      5%      15%      9%      18%      16%            17%  

CONSTANT CURRENCY GROWTH RATES

                              

New software licenses

      0%      8%      8%      18%      10%      13%      5%            9%  

Software license updates and product support

      9%      8%      9%      13%      9%      18%      18%            18%  

Software Revenues

      6%      8%      9%      15%      10%      16%      13%            14%  
   

 

(1) The sum of the quarterly financial information may vary from year-to-date financial information due to rounding.

 

 

ORACLE CORPORATION

 

Q2 FISCAL 2007 FINANCIAL RESULTS

SUPPLEMENTAL GEOGRAPHIC NEW SOFTWARE LICENSE REVENUE ANALYSIS (1) (2)

($ in millions)

 

     Fiscal 2006    Fiscal 2007  
     Q1      Q2      Q3      Q4    TOTAL    Q1    Q2    Q3    Q4    TOTAL  
   

AMERICAS

                              

Database & Middleware

    $ 194      $ 327      $ 334      $ 662    $ 1,518    $ 232    $ 333          $ 565  

Applications

      75        163        148        395      782      126      195            321  
        

New Software License Revenues

    $ 269      $ 490      $ 482      $ 1,057    $ 2,300    $ 358    $ 528          $ 886  
        

AS REPORTED GROWTH RATES

                              

Database & Middleware

      (2% )      15%        16%        22%      16%      19%      2%            8%  

Applications

      150%        41%        61%        73%      67%      69%      19%            35%  

New Software License Revenues

      19%        22%        27%        37%      29%      33%      8%            17%  

CONSTANT CURRENCY GROWTH RATES

                              

Database & Middleware

      (4% )      13%        14%        21%      14%      18%      2%            8%  

Applications

      148%        40%        60%        72%      66%      69%      19%            35%  

New Software License Revenues

      17%        21%        25%        36%      28%      32%      7%            16%  
   

EUROPE / MIDDLE EAST / AFRICA

                              

Database & Middleware

    $ 164      $ 282      $ 316      $ 515    $ 1,278    $ 184    $ 341          $ 525  

Applications

      38        75        96        158      366      69      101            170  
        

New Software License Revenues

    $ 202      $ 357      $ 412      $ 673    $ 1,644    $ 253    $ 442          $ 695  
        

AS REPORTED GROWTH RATES

                              

Database & Middleware

      4%        (7% )      (3% )      7%      1%      12%      21%            17%  

Applications

      38%        (6% )      119%        108%      61%      83%      35%            51%  

New Software License Revenues

      9%        (7% )      12%        20%      10%      25%      24%            24%  

CONSTANT CURRENCY GROWTH RATES

                              

Database & Middleware

      3%        0%        6%        7%      5%      8%      11%            10%  

Applications

      36%        1%        138%        108%      67%      78%      25%            43%  

New Software License Revenues

      8%        0%        22%        21%      14%      21%      14%            17%  
   

ASIA PACIFIC

                              

Database & Middleware

    $ 134      $ 176      $ 170      $ 292    $ 771    $ 149    $ 185          $ 334  

Applications

      14        28        25        88      155      33      44            77  
        

New Software License Revenues

    $ 148      $ 203      $ 195      $ 380    $ 926    $ 182    $ 229          $ 411  
        

AS REPORTED GROWTH RATES

                              

Database & Middleware

      2%        9%        1%        31%      13%      12%      5%            8%  

Applications

      28%        48%        52%        94%      69%      126%      58%            81%  

New Software License Revenues

      4%        13%        5%        42%      20%      23%      12%            17%  

CONSTANT CURRENCY GROWTH RATES

                              

Database & Middleware

      0%        14%        6%        34%      16%      13%      2%            7%  

Applications

      23%        50%        60%        96%      71%      124%      53%            77%  

New Software License Revenues

      2%        18%        11%        45%      23%      24%      9%            15%  
   

TOTAL COMPANY

                              

Database & Middleware

    $ 492      $ 785      $ 820      $ 1,469    $ 3,567    $ 565    $ 859          $ 1,424  

Applications

      127        266        269        641      1,303      228      340            568  
        

New Software License Revenues

    $ 619      $ 1,051      $ 1,089      $ 2,110    $ 4,870    $ 793    $ 1,199          $ 1,992  
        

AS REPORTED GROWTH RATES

                              

Database & Middleware

      1%        5%        5%        18%      9%      15%      9%            11%  

Applications

      84%        24%        77%        83%      66%      80%      28%            45%  

New Software License Revenues

      12%        9%        17%        32%      20%      28%      14%            19%  

CONSTANT CURRENCY GROWTH RATES

                              

Database & Middleware

      0%        8%        9%        18%      10%      13%      5%            8%  

Applications

      82%        27%        82%        83%      67%      78%      25%            42%  

New Software License Revenues

      10%        12%        21%        32%      21%      27%      10%            16%  
   

 

(1) The sum of the quarterly financial information may vary from year-to-date financial information due to rounding.

 

(2) New Software License Revenues presented exclude documentation and miscellaneous revenues.

APPENDIX A

 

ORACLE CORPORATION

 

Q2 FISCAL 2007 FINANCIAL RESULTS

EXPLANATION OF NON-GAAP MEASURES

 

To supplement our financial results presented on a GAAP basis, we use the non-GAAP measures indicated in the table, which exclude certain business combination accounting entries and expenses related to acquisitions as well as other significant expenses including stock-based compensation, that we believe are helpful in understanding our past financial performance and our future results. Our non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures, and should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP. Our management regularly uses our supplemental non-GAAP financial measures internally to understand, manage and evaluate our business and make operating decisions. These non-GAAP measures are among the primary factors management uses in planning for and forecasting future periods. Compensation of our executives is based in part on the performance of our business based on these non-GAAP measures. Our non-GAAP financial measures reflect adjustments based on the following items, as well as the related income tax effect:

 

  •   Support deferred revenue: Business combination accounting rules require us to account for the fair value of support contracts assumed in connection with acquisitions. Because these are typically one-year contracts, our GAAP revenues for the one-year period subsequent to acquisitions do not reflect the full amount of revenue on assumed contracts that would have otherwise been recorded by the acquired entities. The non-GAAP adjustment is intended to reflect the full amount of such revenue. We believe this adjustment is useful to investors as a measure of the ongoing performance of our business because we have historically experienced high renewal rates on support contracts, although we cannot be sure that customers will renew these contracts.

 

  •   Stock-based compensation: We adopted FASB Statement No. 123R, Share-Based Payments, on June 1, 2006 under the modified prospective method. Statement 123R requires us to record non-cash operating expenses associated with stock option awards at their estimated fair values. Prior to our Statement 123R adoption, we were required to record stock-based compensation expenses at intrinsic values, which were substantially related to options assumed from acquisitions. In accordance with the modified prospective method, our financial statements for prior periods have not been restated to reflect, and do not include, the changes in methodology to expense options at fair values in accordance with Statement 123R. Although stock-based compensation is a key incentive offered to our employees, and we believe it contributed to the revenue earned during the period and will contribute to our future revenue generation, we continue to evaluate our business performance excluding stock-based compensation expenses. Stock-based compensation expenses will recur in future periods.

 

  •   Amortization of intangible assets: We have excluded the effect of amortization of intangibles from our non-GAAP net income. Amortization of intangible assets is inconsistent in amount and frequency and is significantly affected by the timing and size of our acquisitions. We believe the exclusion of these amounts enables investors to better evaluate our current operating performance compared with prior periods. Investors should note that the use of intangible assets contributed to revenue earned during the period and will contribute to future revenues as well. Amortization expenses are recurring.

 

  •   Acquisition related charges and restructuring costs: We incurred significant expenses in connection with acquisitions, which we would not have otherwise incurred. Acquisition related charges primarily consist of in-process research and development expenses, integration-related professional services, stock-based compensation expenses (in addition to the stock-based compensation expenses described above) and personnel related costs for transitional employees. Stock-based compensation included in acquisition related charges resulted from unvested options assumed in acquisitions whose vesting was fully accelerated upon termination of the employees pursuant to the terms of the options. Restructuring costs consist of Oracle employee severance and Oracle duplicate facility closures in connection with acquisitions. We believe it is useful for investors to understand the effect of these expenses on our cost structure. Although acquisition related charges and restructuring costs are not recurring with respect to past acquisitions, we will incur these charges in connection with future acquisitions.

 

     For the three months ended November 30, 2006, acquisition related charges also included a benefit related to the settlement of a lawsuit filed against PeopleSoft on behalf of the U.S. government. This lawsuit was filed in October 2003, prior to our acquisition of PeopleSoft. The lawsuit alleged PeopleSoft made defective pricing disclosures to the General Services Administration. This lawsuit represented a pre-acquisition contingency that we identified and assumed in connection with the PeopleSoft acquisition. On October 10, 2006, we agreed to pay the U.S. government $98.5 million to settle this lawsuit. Business combination accounting standards require that after the end of the purchase price allocation period, any adjustment that results from a pre-acquisition contingency should be included as an element of net income in the period of settlement, versus an adjustment to the original purchase price allocation. Since the purchase price allocation period for PeopleSoft ended in the third quarter of fiscal 2006, the favorable difference of $51.5 million between the estimated exposure recorded for this lawsuit during the purchase price allocation period and the actual settlement amount has been included in our consolidated statement of operations for the three and six month periods ended November 30, 2006 as a component of acquisition related charges.