EX-99.1 2 d695293dex991.htm EX-99.1 EX-99.1

Exhibit 99.1

 

LOGO

 

For Immediate Release

 

Contact:            Ken Bond    Deborah Hellinger
   Oracle Investor Relations                        Oracle Corporate Communications
   1.650.607.0349    1.212.508.7935
   ken.bond@oracle.com    deborah.hellinger@oracle.com

ORACLE REPORTS GAAP EPS UP 8% to 56 CENTS, NON-GAAP EPS UP 5% to 68 CENTS

Cloud Software Subscriptions Revenues up 24%, Hardware Systems Products Revenues up 8%

REDWOOD SHORES, Calif., March 18, 2014 — Oracle Corporation (NYSE: ORCL) today announced that fiscal 2014 Q3 total revenues were up 4% to $9.3 billion. New software licenses and cloud software subscriptions revenues were up 4% to $2.4 billion. Software license updates and product support revenues were up 5% to $4.6 billion. Hardware systems products revenues were up 8% to $725 million. GAAP operating income was up 7% to $3.6 billion and the GAAP operating margin was 38%. Non-GAAP operating income was up 5% to $4.4 billion, and the non-GAAP operating margin was 47%. GAAP net income was up 2% to $2.6 billion, while non-GAAP net income was unchanged at $3.1 billion. GAAP earnings per share were up 8% to $0.56, while non-GAAP earnings per share were up 5% to $0.68. GAAP operating cash flow on a trailing twelve-month basis was up 10% to $15 billion.

Without the impact of the US dollar strengthening compared to foreign currencies, Oracle’s reported Q3 GAAP earnings per share would have been up 10% and non-GAAP earnings per share would have been up 7%. In addition, GAAP and non-GAAP earnings per share both include a non-operating $0.02 per share loss this quarter as a result of exchange rate changes in Venezuela as compared to $0.01 last year. Excluding the impact of the US dollar strengthening compared to foreign currencies and excluding Venezuela’s exchange loss impact on both reporting periods, Oracle’s reported Q3 GAAP earnings per share would have been $0.59, up 12%, and non-GAAP earnings per share would have been $0.71, up 8%. GAAP and non-GAAP total revenues also would have been up 6%. GAAP new software licenses and cloud software subscriptions revenues would have been up 6% and non-GAAP new software licenses and cloud software subscriptions revenues would have been up 5%. Hardware systems product revenues would have been up 10%.


“In constant currency, our Cloud Software Subscriptions revenues grew 25% and our Engineered Systems revenue grew more than 30% in the quarter,” said Oracle President and CFO, Safra Catz. “Oracle Cloud Applications and Engineered Systems are both rapidly growing, billion dollar run-rate businesses. Those two high-growth businesses helped us deliver record year-to-date operating cash flow, and a record $15 billion of operating cash flow over the past twelve months.”

“Sales of Oracle’s Cloud Applications accelerated sharply in the quarter with bookings growth of over 60%,” said Oracle President Mark Hurd. “Our quarterly Cloud Application revenue is now approaching $300 million. All of our strategic Cloud Application Suites, including Fusion Enterprise Resource Planning, Fusion Human Capital Management and Fusion Customer Experience, posted triple-digit revenue growth.”

“Oracle’s Engineered Server Systems, including Exadata and SPARC SuperClusters, achieved over a 30% constant currency growth rate in the quarter, while throughout the industry traditional high-end server product lines are in steep decline,” said Oracle CEO, Larry Ellison. “Our Engineered Systems business is growing rapidly for the same fundamental reason that our Cloud Applications business is growing rapidly. In both cases, customers want us to integrate the hardware and software and make it work together, so they don’t have to.”

The Board of Directors declared a quarterly cash dividend of $0.12 per share of outstanding common stock. This dividend will be paid to stockholders of record as of the close of business on April 8, 2014, with a payment date of April 29, 2014.

Q3 Fiscal 2014 Earnings Conference Call and Webcast

Oracle will hold a conference call and webcast today to discuss these results at 2:00 p.m. Pacific. You may listen to the call by dialing (913) 312-6698, Passcode: 599932. To access the live webcast of this event, please visit the Oracle Investor Relations website at http://www.oracle.com/investor. In addition, Oracle’s Q3 results and Fiscal 2014 financial tables are available on the Oracle Investor Relations website.

A replay of the conference call will also be available by dialing (719) 457-0820 or (888) 203-1112, Passcode: 8881061.

About Oracle

Oracle engineers hardware and software to work together in the cloud and in your data center. For more information about Oracle (NYSE: ORCL), visit www.oracle.com or contact Investor Relations at investor_us@oracle.com or (650) 506-4073.

# # #


Trademarks

Oracle and Java are registered trademarks of Oracle and/or its affiliates. Other names may be trademarks of their respective owners.

“Safe Harbor” Statement: Statements in this press release relating to Oracle’s future plans, expectations, beliefs, intentions and prospects, including statements regarding the rapid growth of Oracle’s Engineered Systems and Cloud Application businesses, 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, including the current European economic crisis and slowing economic conditions in other parts of the world, can adversely affect our business, results of operations and financial condition, including our revenue growth and profitability, which in turn could adversely affect our stock price. (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 support contracts. (3) Our hardware systems revenues and profitability could decline further, and we may fail to achieve our financial forecasts with respect to this business. (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) Our international sales and operations subject us to additional risks that can adversely affect our operating results, including risks relating to foreign currency gains and losses. (6) Our periodic workforce restructurings, including reorganizations of our sales force, can be disruptive. (7) If we are unable to develop new or sufficiently differentiated products and services, or to enhance and improve our products 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, cloud software subscriptions or hardware systems products or purchase or renew support contracts. 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 press release is current as of March 18, 2014. Oracle undertakes no duty to update any statement in light of new information or future events.


ORACLE CORPORATION

Q3 FISCAL 2014 FINANCIAL RESULTS

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

($ in millions, except per share data)

 

     Three Months Ended February 28,     % Increase     % Increase
(Decrease)
 
      2014     % of
Revenues
    2013     % of
Revenues
    (Decrease)
in US $
    in Constant
Currency (1)
 

REVENUES

            

New software licenses and cloud software subscriptions

   $   2,415        26%      $   2,332        26%        4%        6%   

Software license updates and product support

     4,564        49%        4,340        48%        5%        7%   
  

 

 

     

Software Revenues

     6,979        75%        6,672        74%        5%        6%   
  

 

 

     

Hardware systems products

     725        8%        671        8%        8%        10%   

Hardware systems support

     598        6%        570        6%        5%        7%   
  

 

 

     

Hardware Systems Revenues

     1,323        14%        1,241        14%        7%        9%   
  

 

 

     

Services Revenues

     1,005        11%        1,045        12%        (4%     (2%
  

 

 

     

Total Revenues

     9,307        100%        8,958        100%        4%        6%   
  

 

 

     

OPERATING EXPENSES

            

Sales and marketing

     1,928        21%        1,802        20%        7%        9%   

Software license updates and product support

     286        3%        306        3%        (7%     (4%

Hardware systems products

     379        4%        337        4%        13%        15%   

Hardware systems support

     207        2%        219        2%        (5%     (4%

Services

     804        9%        854        10%        (6%     (4%

Research and development

     1,292        14%        1,186        13%        9%        10%   

General and administrative

     251        3%        260        3%        (3%     (2%

Amortization of intangible assets

     560        6%        586        7%        (4%     (4%

Acquisition related and other

     (5     0%        32        0%        (117%     (115%

Restructuring

     38        0%        42        1%        (9%     (9%
  

 

 

     

Total Operating Expenses

     5,740        62%        5,624        63%        2%        4%   
  

 

 

     

OPERATING INCOME

     3,567        38%        3,334        37%        7%        9%   

Interest expense

     (228     (2%     (205     (2%     11%        11%   

Non-operating expense, net

     (90     (1%     (39     (1%     132%        113%   
  

 

 

     

INCOME BEFORE PROVISION FOR INCOME TAXES

     3,249        35%        3,090        34%        5%        8%   
  

 

 

     

Provision for income taxes

     684        7%        586        6%        17%        19%   
  

 

 

     

NET INCOME

   $ 2,565        28%      $ 2,504        28%        2%        5%   
  

 

 

     

EARNINGS PER SHARE:

            

Basic

   $ 0.57        $ 0.53         

Diluted

   $ 0.56        $ 0.52         

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:

            

Basic

     4,496          4,735         

Diluted

     4,575          4,812         
                                                  

 

(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 rates in effect on May 31, 2013, which was the last day of our prior fiscal year, rather than the actual exchange rates in effect during the respective periods. Movements in international currencies relative to the United States dollar during the three months ended February 28, 2014 compared with the corresponding prior year period decreased our revenues by 2 percentage points, operating expenses by 2 percentage points and operating income by 2 percentage points.


ORACLE CORPORATION

Q3 FISCAL 2014 FINANCIAL RESULTS

RECONCILIATION OF SELECTED GAAP MEASURES TO NON-GAAP MEASURES (1)

($ in millions, except per share data)

 

    Three Months Ended February 28,     % Increase (Decrease)
in US $
    % Increase (Decrease) in
Constant Currency (2)
 
     2014
GAAP
    Adj.     2014
Non-GAAP
    2013
GAAP
    Adj.    

2013

Non-GAAP

    GAAP     Non-GAAP     GAAP     Non-GAAP  

 

TOTAL REVENUES (3) (4)

  $   9,307      $ 8      $   9,315      $   8,958      $ 12      $   8,970        4%        4%        6%        6%   

TOTAL SOFTWARE REVENUES (3)

  $ 6,979      $ 6      $ 6,985      $ 6,672      $ 10      $ 6,682        5%        5%        6%        6%   

New software licenses and cloud software subscriptions (3)

    2,415        5        2,420        2,332        6        2,338        4%        4%        6%        5%   

Software license updates and product support

    4,564        1        4,565        4,340        4        4,344        5%        5%        7%        7%   

 

TOTAL HARDWARE SYSTEMS REVENUES (4)

  $ 1,323      $ 2      $ 1,325      $ 1,241      $ 2      $ 1,243        7%        7%        9%        9%   

Hardware systems products

    725               725        671               671        8%        8%        10%        10%   

Hardware systems support (4)

    598        2        600        570        2        572        5%        5%        7%        7%   

TOTAL OPERATING EXPENSES

  $ 5,740      $ (791   $ 4,949      $ 5,624      $ (832   $ 4,792        2%        3%        4%        5%   

Stock-based compensation (5)

    198        (198            172        (172            15%        *          15%        *     

Amortization of intangible assets (6)

    560        (560            586        (586            (4%     *          (4%     *     

Acquisition related and other

    (5     5               32        (32            (117%     *          (115%     *     

Restructuring

    38        (38            42        (42            (9%     *          (9%     *     

 

OPERATING INCOME

  $ 3,567      $ 799      $ 4,366      $ 3,334      $ 844      $ 4,178        7%        5%        9%        6%   

OPERATING MARGIN %

    38%          47%        37%          47%        111 bp.        30 bp.        120 bp.        24 bp.   

 

INCOME TAX EFFECTS (7)

  $ 684      $ 251      $ 935      $ 586      $ 240      $ 826        17%        13%        19%        15%   

NET INCOME

  $ 2,565      $    548      $ 3,113      $ 2,504      $    604      $ 3,108        2%        0%        5%        2%   

 

DILUTED EARNINGS PER SHARE

  $ 0.56        $ 0.68      $ 0.52        $ 0.65        8%        5%        10%        7%   

DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING

    4,575               4,575        4,812               4,812        (5%     (5%     (5%     (5%
                                                                                 

 

(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) 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 rates in effect on May 31, 2013, which was the last day of our prior fiscal year, rather than the actual exchange rates in effect during the respective periods.

 

(3) As of February 28, 2014, approximately $3 million in estimated revenues related to assumed cloud software subscriptions contracts will not be recognized for each of the remainder of fiscal 2014 and fiscal 2015 due to business combination accounting rules.

 

(4) As of February 28, 2014, approximately $1 million and $2 million in estimated revenues related to hardware systems support contracts will not be recognized for the remainder of fiscal 2014 and fiscal 2015, respectively, due to business combination accounting rules.

 

(5) Stock-based compensation was included in the following GAAP operating expense categories:

 

     Three Months Ended
February 28, 2014
     Three Months Ended
February 28, 2013
 
        GAAP      Adj.      Non-GAAP      GAAP      Adj.      Non-GAAP  

Sales and marketing

   $ 42       $ (42    $       $ 32       $ (32    $   

Software license updates and product support

     6         (6              5         (5        

Hardware systems products

     1         (1              1         (1        

Hardware systems support

     1         (1              1         (1        

Services

     7         (7              7         (7        

Research and development

     99         (99              86         (86        

General and administrative

     42         (42              40         (40        
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Subtotal

     198         (198              172         (172        
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Acquisition related and other

                             8         (8        
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total stock-based compensation

   $   198       $   (198    $   —       $   180       $   (180    $   —   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(6) Estimated future annual amortization expense related to intangible assets as of February 28, 2014 was as follows:

 

Remainder of Fiscal 2014

   $   554   

Fiscal 2015

     1,894   

Fiscal 2016

     1,315   

Fiscal 2017

     722   

Fiscal 2018

     588   

Fiscal 2019

     489   

Thereafter

     932   
  

 

 

 

Total intangible assets subject to amortization

     6,494   

In-process research and development

     64   
  

 

 

 

Total intangible assets, net

   $   6,558   
  

 

 

 

 

(7) Income tax effects were calculated reflecting an effective GAAP tax rate of 21.0% and 19.0% in the third quarter of fiscal 2014 and 2013, respectively, and an effective non-GAAP tax rate of 23.1% and 21.0% in the third quarter of fiscal 2014 and 2013, respectively. The difference between our GAAP and non-GAAP tax rates in the third quarter of fiscal 2014 was primarily due to the net tax effects of acquisition related items, including the tax effect of amortization of intangible assets. The difference between our GAAP and non-GAAP tax rates in the third quarter of fiscal 2013 was primarily due to the net tax effects of acquisition related items, including the tax effect of amortization of intangible assets, and the disproportionate rate impact of discrete items for the quarter.

 

* Not meaningful

 

2


ORACLE CORPORATION

Q3 FISCAL 2014 YEAR TO DATE FINANCIAL RESULTS

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

($ in millions, except per share data)

 

     Nine Months Ended February 28,     % Increase     % Increase
(Decrease)
 
      2014     % of
Revenues
    2013     % of
Revenues
    (Decrease)
in US $
    in Constant
Currency (1)
 

REVENUES

            

New software licenses and cloud software subscriptions

   $   6,447        24%      $   6,295        24%        2%        4%   

Software license updates and product support

     13,511        50%        12,740        49%        6%        7%   
  

 

 

     

Software Revenues

     19,958        74%        19,035        73%        5%        6%   
  

 

 

     

Hardware systems products

     2,108        8%        2,185        8%        (3%     (2%

Hardware systems support

     1,800        7%        1,730        7%        4%        6%   
  

 

 

     

Hardware Systems Revenues

     3,908        15%        3,915        15%        0%        1%   
  

 

 

     

Services Revenues

     3,089        11%        3,283        12%        (6%     (4%
  

 

 

     

Total Revenues

       26,955        100%          26,233        100%        3%        4%   
  

 

 

     

OPERATING EXPENSES

            

Sales and marketing

     5,601        21%        5,120        19%        9%        11%   

Software license updates and product support

     860        3%        860        3%        0%        2%   

Hardware systems products

     1,078        4%        1,087        4%        (1%     1%   

Hardware systems support

     630        2%        670        3%        (6%     (5%

Services

     2,461        9%        2,668        10%        (8%     (6%

Research and development

     3,803        14%        3,586        14%        6%        7%   

General and administrative

     773        3%        798        3%        (3%     (2%

Amortization of intangible assets

     1,732        6%        1,789        7%        (3%     (3%

Acquisition related and other (2)

     21        0%        (347     (1%     106%        106%   

Restructuring

     146        1%        318        1%        (54%     (55%
  

 

 

     

Total Operating Expenses

     17,105        63%        16,549        63%        3%        5%   
  

 

 

     

OPERATING INCOME

     9,850        37%        9,684        37%        2%        4%   

Interest expense

     (674     (3%     (588     (2%     15%        15%   

Non-operating expense, net

     (60     0%        (24     0%        151%        64%   
  

 

 

     

INCOME BEFORE PROVISION FOR INCOME TAXES

     9,116        34%        9,072        35%        0%        3%   
  

 

 

     

Provision for income taxes

     1,807        7%        1,953        8%        (8%     (5%
  

 

 

     

NET INCOME

   $ 7,309        27%      $ 7,119        27%        3%        5%   
  

 

 

     

EARNINGS PER SHARE:

            

Basic

   $ 1.61        $ 1.48         

Diluted

   $ 1.58        $ 1.46         

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:

            

Basic

     4,546          4,798         

Diluted

     4,616          4,873         
                                                  

 

(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 rates in effect on May 31, 2013, which was the last day of our prior fiscal year, rather than the actual exchange rates in effect during the respective periods. Movements in international currencies relative to the United States dollar during the nine months ended February 28, 2014 compared with the corresponding prior year period decreased our revenues by 1 percentage point, operating expenses by 2 percentage points and operating income by 2 percentage points.

 

(2) Acquisition related and other expenses for the nine months ended February 28, 2013 included a benefit of $306 million related to certain litigation and a net benefit of $118 million due to an acquisition related item.

 

3


ORACLE CORPORATION

Q3 FISCAL 2014 YEAR TO DATE FINANCIAL RESULTS

RECONCILIATION OF SELECTED GAAP MEASURES TO NON-GAAP MEASURES (1)

($ in millions, except per share data)

 

    Nine Months Ended February 28,     % Increase (Decrease)
in US $
    % Increase (Decrease) in
Constant Currency (2)
 
     2014
GAAP
    Adj.     2014
Non-GAAP
    2013
GAAP
    Adj.     2013
Non-GAAP
    GAAP     Non-GAAP     GAAP     Non-GAAP  

 

TOTAL REVENUES (3) (4)

  $   26,955      $ 25      $   26,980      $   26,233      $ 59      $   26,292        3%        3%        4%        4%   

TOTAL SOFTWARE REVENUES (3)

  $ 19,958      $ 14      $ 19,972      $ 19,035      $ 49      $ 19,084        5%        5%        6%        6%   

New software licenses and cloud software subscriptions (3)

    6,447        12        6,459        6,295        37        6,332        2%        2%        4%        4%   

Software license updates and product support

    13,511        2        13,513        12,740        12        12,752        6%        6%        7%        7%   

 

TOTAL HARDWARE SYSTEMS REVENUES (4)

  $ 3,908      $ 11      $ 3,919      $ 3,915      $ 10      $ 3,925        0%        0%        1%        1%   

Hardware systems products

    2,108               2,108        2,185               2,185        (3%     (3%     (2%     (2%

Hardware systems support (4)

    1,800        11        1,811        1,730        10        1,740        4%        4%        6%        6%   

TOTAL OPERATING EXPENSES

  $ 17,105      $   (2,478   $ 14,627      $ 16,549      $   (2,296   $ 14,253        3%        3%        5%        4%   

Stock-based compensation (5)

    579        (579            536        (536            8%        *          8%        *     

Amortization of intangible assets (6)

    1,732        (1,732            1,789        (1,789            (3%     *          (3%     *     

Acquisition related and other

    21        (21            (347     347               106%        *          106%        *     

Restructuring

    146        (146            318        (318            (54%     *          (55%     *     

 

OPERATING INCOME

  $ 9,850      $ 2,503      $ 12,353      $ 9,684      $ 2,355      $ 12,039        2%        3%        4%        4%   

OPERATING MARGIN %

    37%          46%        37%          46%        (37) bp.        0 bp.        (23) bp.        1 bp.   

 

INCOME TAX EFFECTS (7)

  $ 1,807      $ 783      $ 2,590      $ 1,953      $ 630      $ 2,583        (8%     0%        (5%     2%   

NET INCOME

  $ 7,309      $ 1,720      $ 9,029      $ 7,119      $ 1,725      $ 8,844        3%        2%        5%        4%   

 

DILUTED EARNINGS PER SHARE

  $ 1.58        $ 1.96      $ 1.46        $ 1.81        8%        8%        11%        10%   

DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING

    4,616               4,616        4,873               4,873        (5%     (5%     (5%     (5%
                                                                                 

 

(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) 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 rates in effect on May 31, 2013, which was the last day of our prior fiscal year, rather than the actual exchange rates in effect during the respective periods.

 

(3) As of February 28, 2014, approximately $3 million in estimated revenues related to assumed cloud software subscriptions contracts will not be recognized for each of the remainder of fiscal 2014 and fiscal 2015 due to business combination accounting rules.

 

(4) As of February 28, 2014, approximately $1 million and $2 million in estimated revenues related to hardware systems support contracts will not be recognized for the remainder of fiscal 2014 and fiscal 2015, respectively, due to business combination accounting rules.

 

(5) Stock-based compensation was included in the following GAAP operating expense categories:

 

     Nine Months Ended
February 28, 2014
     Nine Months Ended
February 28, 2013
 
        GAAP      Adj.      Non-GAAP      GAAP      Adj.      Non-GAAP  

Sales and marketing

   $ 123       $ (123    $  —       $ 112       $ (112    $   

Software license updates and product support

     16         (16              15         (15        

Hardware systems products

     4         (4              2         (2        

Hardware systems support

     4         (4              3         (3        

Services

     20         (20              24         (24        

Research and development

     285         (285              258         (258        

General and administrative

     127         (127              122         (122        
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Subtotal

     579         (579              536         (536        
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Acquisition related and other

     4         (4              30         (30        
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total stock-based compensation

   $   583       $   (583    $   —       $   566       $   (566    $   —   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(6) Estimated future annual amortization expense related to intangible assets as of February 28, 2014 was as follows:

 

Remainder of Fiscal 2014

   $ 554   

Fiscal 2015

       1,894   

Fiscal 2016

     1,315   

Fiscal 2017

     722   

Fiscal 2018

     588   

Fiscal 2019

     489   

Thereafter

     932   
  

 

 

 

Total intangible assets subject to amortization

     6,494   

In-process research and development

     64   
  

 

 

 

Total intangible assets, net

   $ 6,558   
  

 

 

 

 

(7) Income tax effects were calculated reflecting an effective GAAP tax rate of 19.8% and 21.5% in the first nine months of fiscal 2014 and 2013, respectively, and an effective non-GAAP tax rate of 22.3% and 22.6% in the first nine months of fiscal 2014 and 2013, respectively. The differences between our GAAP and non-GAAP tax rates in the first nine months of fiscal 2014 and 2013 were primarily due to the net tax effects of acquisition related items, including the tax effects of amortization of intangible assets.

 

* Not meaningful

 

4


ORACLE CORPORATION

Q3 FISCAL 2014 FINANCIAL RESULTS

CONDENSED CONSOLIDATED BALANCE SHEETS

($ in millions)

 

     

 

February 28,
2014

     May 31,
2013
 

 

ASSETS

     

Current Assets:

     

Cash and cash equivalents

   $   16,832       $   14,613   

Marketable securities

     20,393         17,603   

Trade receivables, net

     4,071         6,049   

Inventories

     227         240   

Deferred tax assets

     1,012         974   

Prepaid expenses and other current assets

     1,869         2,213   
  

 

 

 

 

Total Current Assets

     44,404         41,692   

 

Non-Current Assets:

     

Property, plant and equipment, net

     3,052         3,053   

Intangible assets, net

     6,558         6,640   

Goodwill

     29,322         27,343   

Deferred tax assets

     720         766   

Other assets

     2,506         2,318   
  

 

 

 

Total Non-Current Assets

     42,158         40,120   
  

 

 

 

 

TOTAL ASSETS

   $ 86,562       $ 81,812   
  

 

 

 

 

LIABILITIES AND EQUITY

     

 

Current Liabilities:

     

Notes payable, current and other current borrowings

   $ 1,516       $   

Accounts payable

     396         419   

Accrued compensation and related benefits

     1,583         1,851   

Income taxes payable

     438         911   

Deferred revenues

     6,473         7,118   

Other current liabilities

     2,686         2,573   
  

 

 

 

 

Total Current Liabilities

     13,092         12,872   

 

Non-Current Liabilities:

     

Notes payable and other non-current borrowings

     22,677         18,494   

Income taxes payable

     4,055         3,899   

Other non-current liabilities

     1,503         1,402   
  

 

 

 

 

Total Non-Current Liabilities

     28,235         23,795   

Equity

     45,235         45,145   
  

 

 

 

 

TOTAL LIABILITIES AND EQUITY

   $ 86,562       $ 81,812   
  

 

 

 
                   

 

5


ORACLE CORPORATION

Q3 FISCAL 2014 FINANCIAL RESULTS

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

($ in millions)

 

     Nine Months Ended February 28,  
        2014     2013  

Cash Flows From Operating Activities:

    

Net income

   $ 7,309      $ 7,119   

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

    

Depreciation

     452        400   

Amortization of intangible assets

     1,732        1,789   

Deferred income taxes

     (307     108   

Stock-based compensation

     583        566   

Tax benefits on the exercise of stock options and vesting of restricted stock-based awards

     288        372   

Excess tax benefits on the exercise of stock options and vesting of restricted stock-based awards

     (162     (220

Other, net

     72        120   

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

    

Decrease in trade receivables, net

     2,006        2,269   

Decrease (increase) in inventories

     20        (48

Decrease (increase) in prepaid expenses and other assets

     181        (241

Decrease in accounts payable and other liabilities

     (730     (912

Decrease in income taxes payable

     (457     (853

Decrease in deferred revenues

     (522     (809
  

 

 

 

 

Net cash provided by operating activities

     10,465        9,660   
  

 

 

 

 

Cash Flows From Investing Activities:

    

Purchases of marketable securities and other investments

     (25,550     (24,027

Proceeds from maturities and sales of marketable securities and other investments

     23,110        22,359   

Acquisitions, net of cash acquired

     (3,066     (1,592

Capital expenditures

     (426     (467
  

 

 

 

 

Net cash used for investing activities

     (5,932     (3,727
  

 

 

 

 

Cash Flows From Financing Activities:

    

Payments for repurchases of common stock

     (7,841     (8,204

Proceeds from issuances of common stock

     1,519        1,300   

Payments of dividends to stockholders

     (1,640     (1,433

Proceeds from borrowings, net of issuance costs

     5,566        4,974   

Repayments of borrowings

            (1,700

Excess tax benefits on the exercise of stock options and vesting of restricted stock-based awards

     162        220   

Distributions to noncontrolling interests

     (28     (31
  

 

 

 

 

Net cash used for financing activities

     (2,262     (4,874
  

 

 

 

Effect of exchange rate changes on cash and cash equivalents

     (52     87   
  

 

 

 

Net increase in cash and cash equivalents

     2,219        1,146   
  

 

 

 

Cash and cash equivalents at beginning of period

     14,613        14,955   
  

 

 

 

Cash and cash equivalents at end of period

   $ 16,832      $ 16,101   
  

 

 

 
                  

 

6


ORACLE CORPORATION

Q3 FISCAL 2014 FINANCIAL RESULTS

FREE CASH FLOW—TRAILING 4-QUARTERS (1)

($ in millions)

 

     Fiscal 2013      Fiscal 2014
        Q1      Q2      Q3      Q4      Q1      Q2          Q3              Q4    

 

GAAP Operating Cash Flow

   $       13,993       $       13,533       $       13,717       $       14,224       $       14,845       $       15,196       $       15,029      

Capital Expenditures (2)

     (627      (710      (684      (650      (664      (578      (609   
  

 

 

 

Free Cash Flow

   $ 13,366       $ 12,823       $ 13,033       $ 13,574       $ 14,181       $ 14,618       $ 14,420      
  

 

 

% Growth over prior year

     8%         2%         1%         4%         6%         14%         11%        

 

GAAP Net Income

   $ 10,175       $ 10,564       $ 10,571       $ 10,925       $ 11,082       $ 11,054       $ 11,115      

Free Cash Flow as a % of Net Income

     131%         121%         123%         124%         128%         132%         130%      
                                                                     

 

(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) Derived from capital expenditures as reported in cash flows from investing activities as per our consolidated statements of cash flows presented in accordance with GAAP.

 

7


ORACLE CORPORATION

Q3 FISCAL 2014 FINANCIAL RESULTS

SUPPLEMENTAL ANALYSIS OF GAAP REVENUES AND HEADCOUNT (1)

($ in millions)

 

    Fiscal 2013     Fiscal 2014  
       Q1     Q2     Q3     Q4     TOTAL     Q1     Q2     Q3     Q4     TOTAL  

 

REVENUES

                   

New software licenses and cloud software subscriptions

  $ 1,574      $ 2,389      $ 2,332      $ 4,026      $ 10,321      $ 1,653      $ 2,380      $ 2,415        $ 6,447   

Software license updates and product support

    4,140        4,260        4,340        4,402        17,142        4,431        4,516        4,564          13,511   
 

 

 

 

Software Revenues

    5,714        6,649        6,672        8,428        27,463        6,084        6,896        6,979          19,958   

 

Hardware systems products

    779        734        671        849        3,033        669        714        725          2,108   

Hardware systems support

    574        587        570        582        2,313        592        609        598          1,800   
 

 

 

 

Hardware Systems Revenues

    1,353        1,321        1,241        1,431        5,346        1,261        1,323        1,323          3,908   

Services Revenues

    1,114        1,124        1,045        1,088        4,371        1,027        1,056        1,005          3,089   
 

 

 

 

 

Total Revenues

  $ 8,181      $ 9,094      $ 8,958      $ 10,947      $   37,180      $ 8,372      $ 9,275      $ 9,307        $   26,955   
 

 

 

 

AS REPORTED REVENUE GROWTH RATES

                   

New software licenses and cloud software subscriptions

    5%        17%        (2%     1%        4%        5%        0%        4%          2%   

Software license updates and product support

    3%        7%        7%        6%        6%        7%        6%        5%          6%   

Software Revenues

    4%        10%        4%        4%        5%        6%        4%        5%          5%   

Hardware systems products

    (24%     (23%     (23%     (13%     (21%     (14%     (3%     8%          (3%

Hardware systems support

    (11%     (6%     (6%     (3%     (7%     3%        4%        5%          4%   

Hardware Systems Revenues

    (19%     (16%     (16%     (9%     (15%     (7%     0%        7%          0%   

 

Services Revenues

    (6%     (5%     (8%     (9%     (7%     (8%     (6%     (4%       (6%

Total Revenues

    (2%     3%        (1%     0%        0%        2%        2%        4%          3%   

 

CONSTANT CURRENCY GROWTH RATES (2)

                   

New software licenses and cloud software subscriptions

    10%        18%        0%        2%        6%        7%        1%        6%          4%   

Software license updates and product support

    8%        8%        8%        8%        8%        8%        7%        7%          7%   

Software Revenues

    9%        11%        5%        5%        7%        8%        5%        6%          6%   

 

Hardware systems products

    (21%     (23%     (22%     (12%     (19%     (13%     (2%     10%          (2%

Hardware systems support

    (6%     (5%     (5%     (1%     (4%     5%        5%        7%          6%   

Hardware Systems Revenues

    (15%     (16%     (15%     (8%     (13%     (6%     2%        9%          1%   

Services Revenues

    0%        (3%     (7%     (8%     (5%     (6%     (5%     (2%       (4%

 

Total Revenues

    3%        5%        0%        2%        2%        4%        3%        6%          4%   
                                                                                  

GEOGRAPHIC REVENUES

                   

 

REVENUES

                   

Americas

  $ 4,324      $ 4,787      $ 4,698      $ 5,911      $ 19,719      $ 4,517      $ 4,995      $ 4,953        $ 14,466   

Europe, Middle East & Africa

    2,383        2,701        2,745        3,328        11,158        2,439        2,817        2,923          8,178   

Asia Pacific

    1,474        1,606        1,515        1,708        6,303        1,416        1,463        1,431          4,311   
 

 

 

 

 

Total Revenues

  $ 8,181      $ 9,094      $ 8,958      $ 10,947      $   37,180      $ 8,372      $ 9,275      $ 9,307        $   26,955   
 

 

 

 
                                                                                  

HEADCOUNT

                   

 

GEOGRAPHIC AREA

                   

Americas

    49,145        49,584        50,402        51,519          53,465        53,073        53,799       

Europe, Middle East & Africa

    22,584        22,594        22,592        22,860          23,349        23,178        23,350       

Asia Pacific

    44,170        45,051        45,663        45,855          45,513        45,617        45,561       
 

 

 

 

 

Total Company

      115,899          117,229          118,657          120,234            122,327          121,868        122,710                              
 

 

 

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

 

(2) 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 rates in effect on May 31, 2013 and 2012 for the fiscal 2014 and fiscal 2013 constant currency growth rate calculations presented, respectively, rather than the actual exchange rates in effect during the respective periods.

 

8


ORACLE CORPORATION

Q3 FISCAL 2014 FINANCIAL RESULTS

SUPPLEMENTAL GEOGRAPHIC REVENUES ANALYSIS (1)

($ in millions)

 

    Fiscal 2013     Fiscal 2014  
       Q1     Q2     Q3     Q4     TOTAL     Q1     Q2     Q3     Q4     TOTAL  

 

AMERICAS

                   

New software licenses and cloud software subscriptions

  $ 814      $ 1,253      $ 1,205      $ 2,194      $ 5,465      $ 926      $ 1,295      $ 1,287        $ 3,507   
 

 

 

 

Hardware systems products

  $ 380      $ 370      $ 307      $ 439      $ 1,495      $ 335      $ 381      $ 348        $ 1,064   
 

 

 

 

AS REPORTED GROWTH RATES

                   

New software licenses and cloud software subscriptions

    12%        22%        (2%     3%        7%        14%        3%        7%          7%   

Hardware systems products

    (20%     (25%     (25%     (12%     (20%     (12%     3%        13%          1%   

 

CONSTANT CURRENCY GROWTH RATES (2)

                   

New software licenses and cloud software subscriptions

    14%        22%        (1%     4%        8%        15%        5%        9%          9%   

Hardware systems products

    (19%     (25%     (25%     (12%     (20%     (11%     4%        16%          2%   
           

 

EUROPE / MIDDLE EAST / AFRICA

                   

 

New software licenses and cloud software subscriptions

  $ 403      $ 641      $ 690      $ 1,224      $ 2,959      $ 388      $ 675      $ 727        $ 1,789   
 

 

 

 

Hardware systems products

  $ 214      $ 198      $ 201      $ 228      $ 842      $ 177      $ 184      $ 218        $ 579   
 

 

 

 

 

AS REPORTED GROWTH RATES

                   

New software licenses and cloud software subscriptions

    (8%     10%        0%        5%        3%        (4%     5%        5%          3%   

Hardware systems products

    (38%     (27%     (24%     (12%     (26%     (18%     (7%     8%          (6%

CONSTANT CURRENCY GROWTH RATES (2)

                   

New software licenses and cloud software subscriptions

    1%        12%        1%        5%        5%        (5%     3%        3%          1%   

Hardware systems products

    (30%     (25%     (24%     (11%     (23%     (20%     (8%     8%          (7%
                                                                                 

 

ASIA PACIFIC

                   

New software licenses and cloud software subscriptions

  $ 357      $ 495      $ 437      $ 608      $ 1,897      $ 339      $ 410      $ 401        $ 1,151   
 

 

 

 

Hardware systems products

  $ 185      $ 166      $ 163      $ 182      $ 696      $ 157      $ 149      $ 159        $ 465   
 

 

 

 

AS REPORTED GROWTH RATES

                   

New software licenses and cloud software subscriptions

    8%        13%        (3%     (12%     (1%     (5%     (17%     (8%       (11%

Hardware systems products

    (12%     (10%     (16%     (17%     (14%     (15%     (10%     (2%       (10%

 

CONSTANT CURRENCY GROWTH RATES (2)

                   

New software licenses and cloud software subscriptions

    12%        13%        1%        (7%     3%        5%        (10%     (2%       (3%

Hardware systems products

    (10%     (12%     (14%     (14%     (12%     (10%     (6%     2%          (5%
           

TOTAL COMPANY

                   

 

New software licenses and cloud software subscriptions

  $   1,574      $   2,389      $   2,332      $   4,026      $   10,321      $   1,653      $   2,380      $   2,415                           $ 6,447   
 

 

 

 

Hardware systems products

  $ 779      $ 734      $ 671      $ 849      $ 3,033      $ 669      $ 714      $ 725        $ 2,108   
 

 

 

 

 

AS REPORTED GROWTH RATES

                   

New software licenses and cloud software subscriptions

    5%        17%        (2%     1%        4%        5%        0%        4%          2%   

Hardware systems products

    (24%     (23%     (23%     (13%     (21%     (14%     (3%     8%          (3%

CONSTANT CURRENCY GROWTH RATES (2)

                   

New software licenses and cloud software subscriptions

    10%        18%        0%        2%        6%        7%        1%        6%          4%   

Hardware systems products

    (21%     (23%     (22%     (12%     (19%     (13%     (2%     10%          (2%
                                                                                 

 

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

 

(2) 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 rates in effect on May 31, 2013 and 2012 for the fiscal 2014 and fiscal 2013 constant currency growth rate calculations presented, respectively, rather than the actual exchange rates in effect during the respective periods.

 

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APPENDIX A

ORACLE CORPORATION

Q3 FISCAL 2014 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 tables, 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 effects:

 

 

New software licenses and cloud software subscriptions, software license updates and product support and hardware systems support deferred revenues: Business combination accounting rules require us to account for the fair values of cloud software subscriptions contracts, software license updates and product support contracts and hardware systems support contracts assumed in connection with our acquisitions. Because these contracts are generally one year in duration, our GAAP revenues generally for the one year period subsequent to our acquisition of a business do not reflect the full amount of revenues on these assumed cloud software subscriptions contracts and support contracts that would have otherwise been recorded by the acquired entity. The non-GAAP adjustment to our new software licenses and cloud software subscriptions revenues, software license updates and product support revenues and hardware systems support revenues is intended to include, and thus reflect, the full amount of such revenues. We believe the adjustment to these revenues is useful to investors as a measure of the ongoing performance of our business. We have historically experienced high renewal rates on our software license updates and product support contracts and our objective is to increase the renewal rates on acquired and new cloud software subscriptions and hardware systems support contracts; however, we cannot be certain that our customers will renew our cloud software subscriptions contracts, software license updates and product support contracts or our hardware systems support contracts.

 

 

Stock-based compensation expenses: We have excluded the effect of stock-based compensation expenses from our non-GAAP operating expenses and net income measures. Although stock-based compensation is a key incentive offered to our employees, and we believe such compensation contributed to the revenues earned during the periods presented and also believe it will contribute to the generation of future period revenues, 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 intangible assets from our non-GAAP operating expenses and net income measures. Amortization of intangible assets is inconsistent in amount and frequency and is significantly affected by the timing and size of our acquisitions. Investors should note that the use of intangible assets contributed to our revenues earned during the periods presented and will contribute to our future period revenues as well. Amortization of intangible assets will recur in future periods.

 

 

Acquisition related and other expenses; and restructuring expenses: We have excluded the effect of acquisition related and other expenses and the effect of restructuring expenses from our non-GAAP operating expenses and net income measures. We incurred significant expenses in connection with our acquisitions and also incurred certain other operating expenses or income, which we generally would not have otherwise incurred in the periods presented as a part of our continuing operations. Acquisition related and other expenses consist of personnel related costs for transitional employees, other acquired employee related costs, stock-based compensation expenses (in addition to the stock-based compensation expenses described above), integration related professional services, certain business combination adjustments including adjustments after the measurement period has ended and certain other operating items, net. Substantially all of the stock-based compensation expenses included in acquisition related and other expenses resulted from unvested options assumed in acquisitions whose vesting was fully accelerated upon termination of the employees pursuant to the original terms of those options. Restructuring expenses consist of employee severance and other exit costs. We believe it is useful for investors to understand the effects of these items on our total operating expenses. Although acquisition related expenses and restructuring expenses generally diminish over time with respect to past acquisitions, we generally will incur these expenses in connection with any future acquisitions.

 

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