Our policy has been to reinvest earnings to fund future growth and to repurchase our common stock pursuant to a program approved by our Board of Directors. Accordingly, we have not paid cash dividends and do not anticipate declaring cash dividends on our common stock in the foreseeable future.

In the fourth quarter of fiscal ~~2004,~~2005, we sold an aggregate of ~~16,511~~12,473 shares of our common stock to eligible employees of Oracle EMEA Limited, an indirect subsidiary of the Company, who are participants in the Oracle Ireland Approved Profit Sharing Scheme (the Ireland APSS) at an aggregate purchase price of approximately ~~$207,000.~~$147,000. We purchased the shares in the open market at the same price the shares were sold to the Ireland APSS participants and paid customary brokerage commissions of approximately ~~$2,000~~$1,000 in connection with the purchase. There were no underwriting discounts or commissions in connection with the sale. The Ireland APSS permits an eligible employee to receive shares of common stock in a tax efficient manner as a portion of such employee’s bonus, as well as to contribute a portion of their base salary ~~and Flex Euro~~ allowance towards the purchase of additional shares in certain circumstances. The securities are held in trust for the employees for a minimum of two years. The shares of common stock were offered and sold in reliance upon Section 4(2) of the Securities Act of 1933, as amended, and the safe harbor provided by Rule 903 of Regulation S under the Securities Act, to employees of Oracle EMEA ~~Ltd~~Limited who are not “U.S. Persons” as that term is defined in Regulation S.

In 1992, our Board of Directors approved a program to repurchase shares of our common stock to reduce the dilutive effect of our stock option and stock purchase plans. The Board has expanded the repurchase program several times by either increasing the authorized number of shares to be repurchased or by authorizing a fixed dollar amount expansion, most recently in ~~April 2003.~~October 2004. From the inception of the stock repurchase program to May 31, ~~2004,~~2005, a total of ~~1,674.3 million~~1.8 billion shares have been repurchased for approximately ~~$19.1~~$20.4 billion. At May 31, ~~2004,~~2005, approximately ~~$1.3~~$1.9 billion was available to repurchase shares of our common stock pursuant to the stock repurchase program.

The following table summarizes the stock repurchase activity for the three months ending May 31, ~~2004,~~2005 and the approximate dollar value of shares that may yet be purchased pursuant to the stock repurchase program:

The following table sets forth selected financial data for the last ~~five~~5 years. This selected financial data should be read in conjunction with the consolidated financial statements and related notes included in Item 15 of this Form 10-K.

⁽¹⁾
⁽¹⁾	~~Net income for fiscal 2000 includes a $4.0 billion gain, net~~Total working capital decreased as of ~~tax, resulting from the sale of shares~~May 31, 2005 primarily due to cash paid to acquire PeopleSoft and an increase in ~~Oracle Japan, a majority owned subsidiary.~~short-term borrowings.


Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

We begin Management’s Discussion and Analysis of Financial Condition and Results of Operations with an overview of our acquisition activity and our key operating business segments and significant trends. This overview is followed by a discussion of our critical accounting policies and estimates that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results. We then provide a more detailed analysis of our financial condition and results of operations.

In January 2005, we completed the acquisition of PeopleSoft Inc., a provider of enterprise application software products for approximately $11.1 billion. We have completed the substantial majority of our planned legal-entity mergers, information system conversions and integration of PeopleSoft’s operations and expect to finalize our remaining integration activities within the next six months. In April 2005, we completed the acquisition of Retek, Inc., a provider of software solutions and services to the retail industry for approximately $700 million. We also completed other smaller acquisitions over the past several years and expect to continue to acquire or make investments in complementary companies, products, services and technologies in the future. See Note 2 of Notes to Consolidated Financial Statements for additional information related to our acquisitions.

We believe our acquisitions of PeopleSoft and Retek support our long-term strategic direction, strengthen our competitive position in the enterprise applications market, expand our customer base and provide greater scale to increase our investment in research and development to accelerate innovation and increase stockholder value.

We are the world’s largest enterprise software company. Our worldwide operations are comprised of two businesses, which consist of five operating segments based upon our software and service offerings. Each of these operating segments has unique characteristics and faces different opportunities and challenges. Although we report our actual results in United States dollars, we conduct a significant number of transactions in currencies other than United States dollars. ~~We, therefore,~~Therefore, we present constant currency information to provide a

framework for assessing how our underlying business performed excluding the effect of foreign currency rate fluctuations. An overview of our five operating segments ~~follows:~~

Our software business consists of new software license revenues and license updates and product support revenues. Our software business, which represents 80% of our total revenues, is also our highest margin business. We expect that our software business revenues will continue to increase, which should allow us to continually improve margins and profits.

New ~~software licenses~~Software Licenses:— We license our database, ~~technology software~~middleware and applications software to businesses of many sizes, government agencies, educational institutions and resellers. The growth in new software license revenues is affected by the strength of general economic and business conditions, as well as governmental budgetary constraints, ~~and~~ the competitive position of our software ~~products.~~products and acquisitions. The software business is also characterized by long sales ~~cycles and the~~cycles. The timing of a few large software license transactions can substantially affect our quarterly ~~operating results.~~new software license revenues. This is particularly true for applications products given the relatively small size of new application software license revenues. Since our new software license revenues in a particular quarter can be difficult to predict as a result of the timing of a few large software license transactions, we believe that new software revenues on a trailing twelve-month period provides more visibility into the underlying performance of our software revenues than quarterly revenues.

New software license revenues for fiscal 2005 were $4.1 billion, which represents a growth rate of 16% over the corresponding prior year period. License revenues earned from large transactions, defined as transactions greater than $500,000 were 40%, 37% and 36% in fiscal 2005, 2004 and 2003, respectively. Over the last few years,

customers delayed or limited their technology capital spending as a result of weak domestic and international economic conditions. These weak economic conditions resulted in more customers restricting their software procurement to well-defined current needs and a decline in purchases intended to accommodate future customer growth. AsIn fiscal 2005, revenues earned from large transactions increased by 23%, reflecting stronger business confidence as general economic conditions improved, particularly in the ~~global economy continues to improve, we~~United States. We believe that demand for our software products will continue to ~~increase.~~increase as a result of our acquisition of PeopleSoft and other companies, the improvements we have made to the features and functionality of our software products and the strengthening of our competitive position.

Competition in the software business is intense. Our goal is to maintain a first or second position in each of our software product ~~categories.~~categories and to grow our software revenues faster than our competitors. We believe that the features and functionality of our software products are as strong as they have ever been. We have focused on lowering the total cost of ownership of our software products by improving integration, decreasing installation times, lowering administration costs and improving the ease of use. Reducing the total cost of ownership of our products provides our customers with a higher return on their investment, which we believe will create more demand and provide us with a competitive advantage. We have also continued to focus on improving the overall quality of our software products and service levels. We believe this will lead to higher customer satisfaction and loyalty and help us achieve our goal of becoming our customers’ leading technology advisor.

Software ~~license updates~~License Updates and ~~product support~~Product Support:— Substantially all of our customers purchase software license updates and product support when they acquire new software licenses. In addition, ~~substantially all~~a substantial majority of our customers renew their software license updates and product support contracts annually. The growth of software license updates and product support is influenced by ~~two~~three factors: (1) the acquisition of PeopleSoft’s support contract base, (2) the renewal rate of the ~~existing~~ subscription base eligible for renewal in the current fiscal year and (3) the amount of new product support contracts associated with the sale of new software licenses.

As a result of the acquisition of PeopleSoft and other businesses, we recorded adjustments to reduce support obligations assumed in business acquisitions to their estimated fair value at the acquisition dates. Software license updates and product support revenues related to support contracts in the amount of $320 million that would have been otherwise recorded by PeopleSoft and other acquired businesses as independent entities, were not recognized in fiscal 2005. As customers renew these support contracts, we will recognize revenues for the full value of the support contracts as deferred revenues and recognize the related revenue ratably over the contract period.

As our product support subscription base grows, the renewal rate has a larger influence on the software license updates and product support revenue growth rate and the amount of new software license revenues has a diminishing effect. Therefore, the growth rate of software license updates and product support revenues do not necessarily correlate directly to the growth rate of new software license revenues. For example, if new software license revenues remained constant, license updates and product support revenues would continue to grow as a result of the incremental license updates and product support revenues associated with new software license revenues, assuming renewal and cancellation rates stayed relatively constant. We believe that software license updates and product support revenues will continue to grow as we anticipate that a substantial majority of our customers, including customers with PeopleSoft licenses, will renew their product support contracts and the sale of new software ~~license~~licenses will increase our subscription base.

Our services business consists of consulting, advanced product support and education revenues. Services revenues represent 20% of our total revenues, and this business has significantly lower margins than our software business.

Consulting~~— Customers typically seek consulting services after they have acquired software licenses, and therefore, consulting~~ revenues tend to lag software revenues by several ~~quarters. In recent periods,~~quarters since consulting services, if purchased, are typically performed after the purchase of new software licenses. Excluding revenues earned from

PeopleSoft consulting contracts, consulting revenues have declined in recent periods due to ~~weakening~~a shift in the mix of resources to lower cost countries, which has resulted in a decrease in billing rates. Consulting revenues also declined as a result of our decision to work more closely with partners who are performing an increasing number of the implementations of our software. In addition, we have experienced higher attrition rates in the United States and certain other countries as economic conditions improve and the demand for consulting implementation services and increased competitive pricing pressures, as well as our increased use of partners and our increased use of offshore resources that are billed at lower rates. In addition, the improvements we have made relatedtechnical talent in certain markets has increased. The higher attrition rate has contributed to ~~the enhancements of our software products and~~ the decrease in ~~installation time has also lead to the reduction in~~ consulting ~~revenues. In response to declining revenues, we have lowered~~ headcount levels, which has resulted in a decline in billable hours and ~~controlled discretionary spending~~revenues. We expect consulting revenues to increase in ~~an effort~~fiscal 2006, primarily due to ~~maintain~~incremental revenues from PeopleSoft consulting ~~margin levels.~~contracts.

Advanced ~~product services~~Product Services:— This segment includes Oracle On Demand, which is our outsourcing service, and other advanced product support services. We believe that Oracle On Demand provides an additional

opportunity for customers to lower their total cost of ownership and can therefore provide us with a competitive advantage. Although we have de-emphasized some advanced product services, Oracle On Demand revenues continue to grow. We will continue to make investments in our Oracle On Demand business to support current and future revenue growth.

~~Education~~Education:— The purpose of our education services is to further enhance the usability of our software products by our customers and to create opportunities to grow new software license revenues. ~~Personnel~~We expect education revenues to increase in fiscal 2006, primarily due to incremental revenues for training services provided to customers for PeopleSoft products. Over the last few years, education revenues declined due to personnel reductions in our customers’ information technology departments, tighter controls over discretionary spending and greater use of outsourcing ~~solutions have caused substantial declines in education revenues since fiscal 2000.~~solutions. As a consequence, we have reduced the number of personnel and facilities space in order to reduce costs and prevent further margin deterioration.

We ~~generate substantial cash flows from~~continually focus on improving our operating ~~activities~~margins by providing our customers with superior products and ~~plan~~services, as well as maintaining a world class cost structure by hiring personnel in countries where advanced technical expertise is available at lower costs. As part of this effort, we continually evaluate our workforce and make adjustments we deem appropriate. When we make adjustments to ~~continue~~our workforce, we may incur expenses associated with workforce reductions that delay the benefit of a more efficient workforce structure, but we believe that the fundamental shift towards globalization is crucial to ~~use~~maintaining a significant portion of these cash flows to repurchase shares of our common stock to reduce the dilutive effect of our stock option and stock purchase plans. Over the past ten years, our stock repurchase program has more than offset this dilutive effect.long-term competitive cost structure.

We have commenced an unsolicited tender offer for all of the outstanding shares of common stock of PeopleSoft. If we are successful in acquiring PeopleSoft at the current tender offer price of $21.00 per share, we will need up to approximately $8.0 billion to purchase all shares that we estimate will be outstanding prior to the expiration date of the offer and to pay estimated fees and expenses related to the offer. We have a $1.5 billion unsecured revolving credit facility available through December 22, 2004, for the acquisition of PeopleSoft. In addition to the credit facility, we could raise funds through additional borrowings or from the issuance of additional securities. We expect, based upon the combination of internally available cash and investments as of May 31, 2004, additional cash generated since that date, borrowings under the $1.5 billion credit facility or any other credit facility or the issuance of securities, to have sufficient cash on hand at the expiration of the offer to pay the offer price for all shares in the offer. The offer is not conditioned upon any financing arrangements. PeopleSoft has implemented a number of defensive tactics, including providing to customers negotiating new contracts a refund program that may require an acquiror, including us, to pay those customers two to five times their license fees if certain business events (such as the termination of support for PeopleSoft products) occur during a fixed period of time. Based on public statements by PeopleSoft, we anticipate that this program could result in more than $1.96 billion in potential refund liabilities if triggered. In addition, the U.S. Department of Justice and several state attorneys general have filed civil antitrust lawsuits to block our acquisition. There can be no assurance that our PeopleSoft tender offer will be successful.

We have in the past and expect in the future to acquire or make investments in complementary companies, products, services and technologies. We believe we ~~could~~can fund ~~other~~additional acquisitions with our internally available cash and ~~investments,~~marketable securities, cash generated from operations, ~~additional~~ credit facilities or from the issuance of additional securities. We analyze the financial impact of any potential acquisition with regard to earnings, operating margin, cash flow and return on invested capital targets.

Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (GAAP). These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. To the extent there are material differences between these estimates, judgments or assumptions and actual results, our financial statements will be affected. The accounting policies that reflect our more

significant estimates, judgments and assumptions and which we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following:

Business Combinations

• ~~Revenue Recognition~~
• ~~Allowances for Doubtful Accounts and Returns~~
• ~~Legal Contingencies~~
• ~~Accounting for Income Taxes~~

PeopleSoft Customer Assurance Program

Goodwill

Revenue Recognition

Accounting for Income Taxes

Legal Contingencies

Stock-Based Compensation

Allowances for Doubtful Accounts and Returns

In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application. There are also areas in which management’s judgment in selecting among available alternatives would not produce a materially different result. Our senior management has reviewed these critical accounting policies and related disclosures with our Finance and Audit Committee.

Business Combinations

In accordance with business combination accounting, we allocate the purchase price of acquired companies to the tangible and intangible assets acquired, liabilities assumed, as well as in-process research and development based on their estimated fair values. We engage third-party appraisal firms to assist management in determining the fair values of certain assets acquired and liabilities assumed. Such a valuation requires management to make significant estimates and assumptions, especially with respect to intangible assets.

Management makes estimates of fair value based upon assumptions believed to be reasonable. These estimates are based on historical experience and information obtained from the management of the acquired companies and are inherently uncertain. Critical estimates in valuing certain of the intangible assets include but are not limited to: future expected cash flows from license sales, maintenance agreements, consulting contracts, customer contracts and acquired developed technologies and patents; expected costs to develop the in-process research and development into commercially viable products and estimating cash flows from the projects when completed; the acquired company’s brand awareness and market position, as well as assumptions about the period of time the acquired brand will continue to be used in the combined company’s product portfolio; and discount rates. Unanticipated events and circumstances may occur which may affect the accuracy or validity of such assumptions, estimates or actual results.

In connection with the purchase price allocation of PeopleSoft, we have estimated the fair value of the support obligation assumed from PeopleSoft in connection with the acquisition. We based our determination of the fair value of the support obligation, in part, on a valuation completed by Standard & Poor’s Corporate Value Consulting using estimates and assumptions provided by management. The estimated fair value of the support obligation was determined utilizing a cost build-up approach. The cost build-up approach determines fair value by estimating the costs relating to fulfilling the obligation plus a normal profit margin. The estimated costs to fulfill the support obligation were based on the historical direct costs related to providing the support services and to correct any errors in PeopleSoft software products. We did not include any costs associated with selling efforts or research and development or the related fulfillment margins on these costs. Profit associated with selling effort is excluded because PeopleSoft had concluded the selling effort on the support contracts prior to the acquisition date. The estimated research and development costs have not been included in the fair value determination, as these costs were not deemed to represent a legal obligation at the time of acquisition. We estimated the normal profit margin to be 30%. The sum of the costs and operating profit approximates, in theory, the amount that we would be required to pay a third party to assume the support obligation. As a result, in allocating the acquisition purchase price, we recorded an adjustment to reduce the carrying value of PeopleSoft’s deferred support revenue at the date of acquisition by $418 million to $280 million, which amount represents our estimate of the fair value of the support obligation assumed.

As of the acquisition date, PeopleSoft had entered into support agreements for which the underlying service period had not yet started and for which PeopleSoft had not yet been paid. These support agreements were not reflected on PeopleSoft’s balance sheet since the service period had not yet begun and payment had not yet been received. We have recorded an intangible asset of $208 million to reflect the fair value of these contracts as of the acquisition date. The fair value of these contracts was determined on the same basis used to value the support contracts reflected on PeopleSoft’s balance sheet. This intangible asset is reflected as a component of prepaid expenses and other current assets in the accompanying consolidated balance sheet as of May 31, 2005. We are amortizing this intangible asset over the term of the support contracts. The amortization is being reflected as a reduction to software license updates and product support revenues. Accordingly, the revenue recorded under these contracts will reflect the estimated fair value to fulfill the assumed obligations.

As a result of the adjustments to record PeopleSoft’s support obligations assumed at fair value, $626 million of software license updates and product support revenue that would have been otherwise recorded by PeopleSoft as an independent entity will not be recognized in our consolidated results of operations. As former PeopleSoft customers renew these support contracts, we will recognize the full value of the support contracts over the remaining term of the contracts, the majority of which are one year. Software license updates and product support revenues in fiscal 2005 were reduced by $314 million as a result of reflecting the support obligations at estimated fair value. Had we included our estimated selling and research and development activities, and the associated margin for unspecified product upgrades and enhancements to be provided under our assumed support arrangements, the fair value of the support obligation would have been significantly higher than what we have recorded and we would have recorded a higher amount of software license updates and product support revenue in future periods related to these assumed contracts.

Other significant estimates associated with the accounting for acquisitions include restructuring costs. Restructuring costs are primarily comprised of severance costs, costs of consolidating duplicate facilities and contract termination costs. Restructuring expenses are based upon plans that have been committed to by management but which are subject to refinement. To estimate restructuring expenses, management utilized assumptions of the number of employees that would be involuntarily terminated and of future costs to operate and eventually vacate duplicate facilities. Estimated restructuring expenses may change as management executes the approved plan. Decreases to the estimates of executing the currently approved plans associated with pre-merger activities of the companies we acquire are recorded as an adjustment to goodwill indefinitely, whereas increases to the estimates are recorded as an adjustment to goodwill during the purchase price allocation period (generally within one year of the acquisition date) and as operating expenses thereafter. Changes in estimates of executing the currently approved plans associated with pre-merger activities of Oracle will be recorded in restructuring expenses.

We have identified certain pre-acquisition contingencies, but we have yet to conclude whether the fair values for such contingencies are determinable. If, during the purchase price allocation period, we are able to determine the fair value of a pre-acquisition contingency, we will include that amount in the purchase price allocation. If, as of the end of the purchase price allocation period, we are unable to determine the fair value of a pre-acquisition contingency, we will evaluate whether to include an amount in the purchase price allocation based on whether it is probable a liability had been incurred and whether an amount can be reasonably estimated. After the end of the purchase price allocation period, any adjustment that results from a pre-acquisition contingency will be included in our operating results in the period in which the adjustment is determined.

PeopleSoft Customer Assurance Program

As discussed in Note 17 of Notes to Consolidated Financial Statements, in June 2003, in response to our tender offer, PeopleSoft implemented what it referred to as the “customer assurance program” or “CAP.” The CAP incorporated a provision in PeopleSoft’s standard licensing arrangement that purports to contractually burden Oracle, as a result of our acquisition of PeopleSoft, with a contingent obligation to make payments to PeopleSoft customers should we fail to take certain business actions for a fixed period of time subsequent to the acquisition.

We have concluded that, as of the date of the acquisition, the penalty provisions under the CAP represent a contingent liability of Oracle. We have not recorded a liability related to the CAP, as we do not believe it is probable that our post-acquisition activities related to the PeopleSoft product line will trigger an obligation to make any payment pursuant to the CAP. The maximum potential penalty under the CAP as of May 31, 2005 was $3.5 billion. While no assurance can be given as to the ultimate outcome of potential litigation, we believe we would also have substantial defenses with respect to the legality and enforceability of the CAP contract provisions in response to any claims seeking payment from Oracle under the CAP terms. If we determine in the future that a payment pursuant to the CAP is probable, the estimated liability would be recorded in our operating results in the period in which such liability is determined.

Goodwill

We review goodwill for impairment annually and whenever events or changes in circumstances indicate its carrying value may not be recoverable in accordance with FASB Statement No. 142,Goodwill and Other Intangible Assets. The provisions of Statement 142 require that a two-step impairment test be performed on goodwill. In the first step, we compare the fair value of each reporting unit to its carrying value. Our reporting units are consistent with the reportable segments identified in Note 16 of the Notes to Consolidated Financial Statements. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit, goodwill is considered not impaired and we are not required to perform further testing. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, then we must perform the second step of the impairment test in order to determine the implied fair value of the reporting unit’s goodwill. If the carrying value of a reporting unit’s goodwill exceeds its implied fair value, then we would record an impairment loss equal to the difference.

Determining the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions. These estimates and assumptions include revenue growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount rates, future economic and market conditions and determination of appropriate market comparables. We base our fair value estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates. In addition, we make certain judgments and assumptions in allocating shared assets and liabilities to determine the carrying values for each of our reporting units. Our annual goodwill impairment analysis, which was performed during the fourth quarter of fiscal 2005, did not result in an impairment charge.

Revenue Recognition

We derive revenues from the following sources: (1) software, which includes new software license and software license updates and product support revenues and (2) services, which include consulting, advanced product services and education revenues.

New software license revenues represent all fees earned from granting customers licenses to use our database, ~~technology~~middleware and applications software, and exclude revenues derived from software license updates, which are included in software license updates and product support. While the basis for software license revenue recognition is substantially governed by the provisions of Statement of Position No. 97-2,Software Revenue Recognition, issued by the American Institute of Certified Public Accountants, we exercise judgment and use estimates in connection with the determination of the amount of software and services revenues to be recognized in each accounting period.

For software license arrangements that do not require significant modification or customization of the underlying software, we recognize new software license revenue when: (1) we enter into a legally binding arrangement with a customer for the license of software; (2) we deliver the products; (3) customer payment is deemed fixed or determinable and free of contingencies or significant uncertainties; and (4) collection is probable. Substantially all of our new software license revenues are recognized in this manner.

The vast majority of our software license arrangements include software license updates and product support, which are recognized ratably over the term of the arrangement, typically one year. Software license updates provide customers with rights to unspecified software product upgrades, maintenance releases and patches released during the term of the support period. Product support includes internet access to technical content, as well as internet and telephone access to technical support personnel. Software license updates and product support are generally priced as a percentage of the net new software license fees. ~~Software license updates can be purchased separately from product support; however, only customers who purchase software license updates can purchase product support.~~ Substantially all of our customers purchase both software license updates and product support when they acquire new software licenses. In addition, substantially all of our customers renew the software license updates and product support contracts annually.

Many of our software arrangements include consulting implementation services sold separately under consulting engagement contracts. Consulting revenues from these arrangements are generally accounted for separately from new software license revenues because the arrangements qualify as service transactions as defined in SOP 97-2. The more significant factors considered in determining whether the revenue should be accounted for separately include the nature of services (i.e., consideration of whether the services are essential to the functionality of the licensed product), degree of risk, availability of services from other vendors, timing of payments and impact of milestones or acceptance criteria on the realizability of the software license fee. Revenues for consulting services are generally recognized as the services are performed. If there is a significant uncertainty about the project completion or receipt of payment for the consulting services, revenue is deferred until the uncertainty is sufficiently resolved. We estimate the ~~percentage of completion~~proportional performance on contracts with fixed

or “not to exceed” fees on a monthly basis utilizing hours incurred to date as a percentage of total estimated hours to complete the project. We recognize no more than 90% of the milestone or total contract amount until project acceptance is obtained. If we do not have a sufficient basis to measure progress towards completion, revenue is recognized when we receive final acceptance from the customer. When total cost estimates exceed revenues, we accrue for the estimated losses immediately using cost estimates that are based upon an average fully burdened daily rate applicable to the consulting organization delivering the services. The complexity of the estimation process and factors relating to the assumptions, risks and uncertainties inherent with the application of the ~~percentage-of-completion~~proportional performance method of accounting affect the amounts of revenue and related expenses reported in our consolidated financial statements. A number of internal and external factors can affect our estimates, including labor rates, utilization and efficiency variances and specification and testing requirement changes.

If an arrangement does not qualify for separate accounting of the software license and consulting transactions, then new software license revenue is generally recognized together with the consulting services based on contract accounting using either the percentage-of-completion or completed-contract method. Contract accounting is applied to any arrangements: (1) that include milestones or customer specific acceptance criteria that may affect collection of the software license fees; (2) where services include significant modification or customization of the software; (3) where significant consulting services are provided for in the software license contract without additional charge or are substantially discounted; or (4) where the software license payment is tied to the performance of consulting services.

Advanced product services are comprised of Oracle On Demand ~~(formerly Oracle Outsourcing)~~ and advanced product support services. Oracle On Demand provides multi-featured software and hardware management and maintenance services for our database, ~~technology~~middleware and applications software. Advanced product support services are earned by providing ~~services to~~ customers ~~that include~~ configuration and performance analysis, personalized support and annual on-site technical services. Advanced product services revenues are recognized over the term of the service contract, which is generally one year.

Education revenues include instructor-led, media-based and internet-based training in the use of our products. Education revenues are recognized as the classes or other education offerings are delivered.

For arrangements with multiple elements, we allocate revenue to each element of a transaction based upon its fair value as determined by “vendor specific objective evidence.” Vendor specific objective evidence of fair value for all elements of an arrangement is based upon the normal pricing and discounting practices for those products and

services when sold separately and for software license updates and product support services, is additionally measured by the renewal rate offered to the customer. We may modify our pricing practices in the future, which could result in changes in our vendor specific objective evidence of fair value for these undelivered elements. As a result, our future revenue recognition for multi-element arrangements could differ significantly from our historical results.

We defer revenue for any undelivered elements, and recognize revenue when the product is delivered or over the period in which the service is performed, in accordance with our revenue recognition policy for such element. If we cannot objectively determine the fair value of any undelivered element included in bundled software and service arrangements, we defer revenue until all elements are delivered and services have been performed, or until fair value can objectively be determined for any remaining undelivered elements. When the fair value of a delivered element has not been established, we use the residual method to record revenue if the fair value of all undelivered elements is determinable. Under the residual method, the fair value of the undelivered elements is deferred and the remaining portion of the arrangement fee is allocated to the delivered elements and is recognized as revenue.

~~Our~~The significant majority of our software license arrangements ~~generally~~ do not include acceptance provisions. However, if acceptance provisions exist as part of public policy, for example in agreements with government entities when acceptance periods are required by law, or within previously executed terms and conditions that are referenced in the current agreement and are short-term in nature, we provide for a sales return allowance in accordance with FASB Statement No. 48,Revenue Recognition when Right of Return Exists. If acceptance provisions are

long-term in nature or are not included as standard terms of an arrangement or if we cannot reasonably estimate the incidence of returns, revenue is recognized upon the earlier of receipt of written customer acceptance or expiration of the acceptance period.

We also evaluate arrangements with governmental entities containing “fiscal funding” or “termination for convenience” provisions, when such provisions are required by law, to determine the probability of possible cancellation. We consider multiple factors, including the history with the customer in similar transactions, the “essential use” of the software licenses and the planning, budgeting and approval processes undertaken by the governmental entity. If we determine upon execution of these arrangements that the likelihood of ~~non-acceptance in these arrangements~~non- acceptance is remote, we then recognize revenue once all of the criteria described above have been met. If such a determination cannot be made, revenue is recognized upon the earlier of cash receipt or approval of the applicable funding provision by the governmental entity.

We assess whether fees are fixed or determinable at the time of sale and recognize revenue if all other revenue recognition requirements are met. Our standard payment terms are net 30; however, terms may vary based on the country in which the agreement is executed. Payments that are due within six months are generally deemed to be fixed or determinable based on our successful collection history on such arrangements, and thereby satisfy the required criteria for revenue recognition.

While most of our arrangements include short-term payment terms, we have a standard practice of providing long-term financing to credit worthy customers through our financing division. Since fiscal 1989, when our financing division was formed, we have established a history of collection, without concessions, on these receivables with payment terms that generally extend up to five years from the contract date. Provided all other revenue recognition criteria have been met, we recognize new software license ~~revenue~~revenues for these arrangements upon delivery, net of any payment discounts from financing transactions. In fiscal 2005, 2004 and 2003, ~~and 2002,~~$455.6 million, $356.6 million ~~$364.1 million~~ and ~~$453.6~~$364.1 million or approximately ~~10%~~11%, ~~11%~~10% and ~~13%~~11% of our new software license revenues were financed through our financing division. We have generally sold these receivables on a non-recourse basis to third party financing institutions. We account for the sale of these receivables as “true sales” as defined in FASB Statement No. 140,Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.

~~Allowances for Doubtful Accounts and Returns~~

We make judgments as to our ability to collect outstanding receivables and provide allowances for the portion of receivables when collection becomes doubtful. Provisions are made based upon a specific review of all significant outstanding invoices. For those invoices not specifically reviewed, provisions are provided at differing rates, based upon the age of the receivable. In determining these percentages, we analyze our historical collection experience and current economic trends. If the historical data we use to calculate the allowance for doubtful accounts does not reflect the future ability to collect outstanding receivables, additional provisions for doubtful accounts may be needed and the future results of operations could be materially affected.

We also record a provision for estimated sales returns and allowances on product and service related sales in the same period the related revenues are recorded in accordance with Statement 48. These estimates are based on historical sales returns, analysis of credit memo data and other known factors. If the historical data we use to calculate these estimates do not properly reflect future returns, then a change in the allowances would be made in the period in which such a determination is made and revenues in that period could be materially affected.

~~Legal Contingencies~~

We are currently involved in various claims and legal proceedings. Quarterly, we review the status of each significant matter and assess our potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, we accrue a liability for the estimated loss. Significant judgment is required in both the determination of probability and the determination as to whether an exposure is reasonably estimable. Because of uncertainties related to these matters, accruals

are based only on the best information available at the time. As additional information becomes available, we reassess the potential liability related to our pending claims and litigation and may revise our estimates. Such revisions in the estimates of the potential liabilities could have a material impact on our results of operations and financial position.

Accounting for Income Taxes

Significant judgment is required in determining our worldwide income tax provision. In the ordinary course of a global business, there are many transactions and calculations where the ultimate tax outcome is uncertain. Some of these uncertainties arise as a consequence of revenue sharing and cost reimbursement arrangements among related entities, the process of identifying items of revenue and expense that qualify for preferential tax treatment, and segregation of foreign and domestic income and expense to avoid double taxation. Although we believe that our estimates are reasonable, no assurance can be given that the final tax outcome of these matters will not be different ~~than~~from that which is reflected in our historical income tax provisions and accruals. Such differences could have a material effect on our income tax provision and net income in the period in which such determination is made.

Our effective tax rate includes the impact of certain undistributed foreign earnings for which no U.S. taxes have been provided because such earnings are planned to be indefinitely reinvested outside the United States. Remittances of foreign earnings to the U.S. are planned based on projected cash flow, working capital and investment needs of foreign and domestic operations. Based on these assumptions, we estimate the amount that will be distributed to the United States and provide U.S. federal taxes on these amounts. Material changes in our estimates could impact our effective tax rate.

We record a valuation allowance to reduce our deferred tax assets to the amount ~~of future tax benefit~~ that is more likely than not to be realized. ~~While~~In order for us to realize our deferred tax assets, we must be able to generate sufficient taxable income in those jurisdictions where the deferred tax assets are located. We have considered future market growth, forecasted earnings, future taxable income, the mix of earnings in the jurisdictions in which we operate and ~~ongoing~~ prudent and feasible tax planning strategies in ~~assessing~~determining the need for a valuation allowance. In the ~~valuation allowance, there is no assurance~~event we were to determine that ~~the valuation allowance will~~we would not ~~need~~be able to ~~be increased to cover additional~~realize all or part of our net deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to earnings in the period in which we make such determination. Likewise, if we later determine that it is more likely than not that the net deferred tax assets would be realized, we would reverse the applicable portion of the previously provided valuation allowance.

We calculate our current and deferred tax provision based on estimates and assumptions that could differ from the actual results reflected in income tax returns filed during the subsequent year. Adjustments based on filed returns are generally recorded in the period when the tax returns are filed and the global tax implications are known.

The amount of income taxes we pay is subject to ongoing audits by federal, state and foreign tax authorities, which often result in proposed assessments. Our estimate for the potential outcome for any uncertain tax issue is highly judgmental. We believe we have adequately provided for any reasonably foreseeable outcome related to these matters. However, our future results may include favorable or unfavorable adjustments to our estimated tax liabilities in the period the assessments are made or resolved or when statutes of limitation on potential assessments expire. Additionally, the jurisdictions in which our earnings or deductions are realized may differ from our current estimates. As a result, our effective tax rate may fluctuate significantly on a quarterly basis.

As part of our accounting for business combinations, some of the purchase price is allocated to goodwill and intangible assets. Impairment charges associated with goodwill will not be ~~realizable. Any increase~~tax deductible and will result in an increased effective income tax rate in the ~~valuation allowance~~quarter the impairment is recorded. Amortization expense associated with acquired intangible assets is likewise not tax deductible, however deferred taxes have been recorded as part of the purchase price allocation, and therefore, will not affect our post-acquisition income tax rate. Income tax contingencies existing as of the acquisition dates of the acquired companies are evaluated quarterly, and any adjustments are recorded as an adjustment to goodwill.

Legal Contingencies

proceeding is considered probable and the amount can be reasonably estimated, we accrue a liability for the estimated loss. Significant judgment is required in both the determination of probability and the determination as to whether an exposure is reasonably estimable. Because of uncertainties related to these matters, accruals are based only on the best information available at the time. As additional information becomes available, we reassess the potential liability related to our pending claims and litigation and may revise our estimates. Such revisions in the estimates of the potential liabilities could have a material ~~adverse~~ impact on our results of operations and financial position.

Stock-Based Compensation

We currently measure compensation expense for our stock-based incentive programs using the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25,Accounting for Stock Issued to Employees. Under this method, we do not record compensation expense when stock options are granted to eligible participants as long as the exercise price is not less than the fair market value of the stock when the option is granted. We also do not record compensation expense in connection with our Employee Stock Purchase Plan as long as the purchase price of the stock is not less than 85% of the lower of the fair market value of the stock at the beginning of each offering period or at the end of each purchase period. In accordance with FASB Statement No. 123,Accounting for Stock-Based Compensation, and FASB Statement No. 148,Accounting for Stock-Based Compensation—Transition and Disclosure, we disclose our pro forma net income ~~tax provision~~or loss and net income or loss per share as if the fair value-based method had been applied in measuring compensation expense for our stock-based incentive programs. We have elected to follow Opinion 25 because the fair value accounting provided for under Statement 123 requires the use of option valuation models that were not developed for use in valuing incentive stock options and employee stock purchase plan shares.

On December 16, 2004, the FASB issued Statement No. 123 (revised 2004),Share-Based Payment, which is a revision of Statement 123. Statement 123(R) generally requires share-based payments to employees, including grants of employee stock options and purchases under employee stock purchase plans, to be recognized in the statement of operations based on their fair values. This standard is effective for public companies for fiscal years beginning after June 15, 2005. We expect to adopt this new standard at the beginning of our fiscal year ending May 31, 2007 using the modified prospective method.

Allowances for Doubtful Accounts and Returns

We make judgments as to our ability to collect outstanding receivables and provide allowances for the portion of receivables when collection becomes doubtful. Provisions are made based upon a specific review of all significant outstanding invoices. For those invoices not specifically reviewed, provisions are recorded at differing rates, based upon the age of the receivable. In determining these percentages, we analyze our historical collection experience and current economic trends. If the historical data we use to calculate the allowance for doubtful accounts does not reflect the future ability to collect outstanding receivables, additional provisions for doubtful accounts may be needed and the future results of operations could be materially affected.

We also record a provision for estimated sales returns and allowances on product and service related sales in the same period the related revenues are recorded. These estimates are based on historical sales returns, analysis of credit memo data and other known factors. If the historical data we use to calculate these estimates do not properly reflect future returns, then a change in the allowances would be made in the period in which such a determination is ~~made.~~made and revenues in that period could be materially affected.

Results of Operations

As a result of our acquisition of PeopleSoft, we have included the financial results of PeopleSoft in our consolidated financial statements beginning December 29, 2004, the date we acquired a majority interest. Therefore, the fluctuations in operating results of Oracle in the second half of fiscal 2005 compared with the same period in fiscal 2004 are generally due to the acquisition.

In our discussion of changes in our results of operations from fiscal 2005 to fiscal 2004, we quantify the amount of revenues associated with PeopleSoft products and services and present supplemental disclosure related to acquisition accounting. Although revenues were quantifiable, we are unable to allocate the costs associated with the PeopleSoft products and services because the substantial majority of former PeopleSoft sales and services personnel were fully integrated into our existing operations. We caution readers that, while pre- and post-acquisition comparisons as well as the quantified amounts themselves may provide indications of general trends, the information has inherent limitations for ~~United States income taxes~~the following reasons:

The quantification cannot address the substantial effects attributable to our sales force integration efforts, in particular the effect of having a single sales force offer the Oracle, PeopleSoft and J.D. Edwards legacy product families on a neutral basis. The commissions earned by our integrated sales force did not vary based on the ~~earnings~~application product family sold. In the fourth quarter of foreign subsidiaries unless they are considered permanently reinvested outside the United States. At May 31, 2004, the cumulative earnings upon which United States income taxes have not been provided are approximately $4.8 billion. If these earningsfiscal 2005, our sales forces were ~~repatriated to~~integrated in the United States ~~they~~and certain other countries. We believe that if our sales forces had not been integrated, the relative mix of Oracle and PeopleSoft products sold would ~~generate foreign tax credits that could reduce~~have been different.

The acquisition did not result in our entering a new line of business or product category. Therefore, we provided multiple products with substantially similar features and functionality.

Although substantially all of our customers, including customers from acquired companies, renew their contracts when the ~~Federal tax liability associated with~~contract is eligible for renewal, amounts shown as support deferred revenue in our supplemental disclosure related to acquisition accounting are not necessarily indicative of revenue improvements we will achieve upon contract renewal to the ~~foreign dividend. Assuming a full utilization of the foreign tax credits, the potential deferred tax liability for these earnings is $902.0 million.~~extent customers do not renew.

~~Results of Operations~~

Constant Currency Presentation

We compare the percent change in the results from one period to another period in this Annual Report 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 ~~that~~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 the last day of the prior fiscal year, rather than the actual exchange rates in effect during the ~~current period.~~respective periods. For example, if an entity reporting in ~~British Pounds~~Euros had revenues of 1.0 million ~~British Pounds~~Euros from products sold on ~~the last day of both fiscal~~May 31, 2005 and May 31, 2004, ~~and 2003,~~ our financial statements would reflect revenues of ~~$1.8~~$1.25 million in fiscal 2005 (using 1.25 as the exchange rate) and $1.21 million in fiscal 2004 (using ~~1.82 as the exchange rate) and $1.6 million in fiscal 2003 (using 1.63~~1.21 as the exchange rate). The constant currency presentation would translate the fiscal ~~2004~~2005 results using the fiscal ~~2003~~2004 exchange rate and indicate, in this example, no change in revenues during the periods. ~~We present constant currency information to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency rate fluctuations.~~ In each of the tables below, we present the percent change based on actual results as reported and based on constant currency.

Total Revenues and Operating Expenses

Year Ended May 31,
Percent Change Percent Change
(Dollars in millions) 2004 Actual Constant 2003 Actual Constant 2002
Total Revenues by Geography:

Americas $ 4,983 3% 2% $ 4,844 -8% -7% $ 5,293
EMEA⁽¹⁾
3,677 13% 1% 3,254 7% -6% 3,050
Asia Pacific 1,496 9% 1% 1,377 4% -1% 1,330

Total revenues 10,156 7% 2% 9,475 -2% -6% 9,673
Total Operating Expenses
6,292 4% 0% 6,035 -1% -5% 6,102

Total Operating Margin
$ 3,864 12% 5% $ 3,440 -4% -9% $ 3,571

Total Operating Margin %
38% 36% 37%

% Revenues by Geography:

Americas 49% 51% 55%
EMEA 36% 34% 31%
Asia Pacific 15% 15% 14%

Total Revenues by Business:

Software $ 8,070 12% 6% $ 7,199 2% -2% $ 7,053
Services 2,086 -8% -13% 2,276 -13% -17% 2,620

Total revenues $ 10,156 7% 2% $ 9,475 -2% -6% $ 9,673

% Revenues by Business:

Software 79% 76% 73%
Services 21% 24% 27%


	Year Ended May 31,
			Percent Change				Percent Change
(Dollars in millions)	2005		Actual	Constant	2004		Actual	Constant	2003
*Total Revenues by Geography:*
Americas	$	5,798	16%	16%	$	4,983	3%	2%	$	4,844
EMEA⁽¹⁾		4,288	17%	9%		3,677	13%	1%		3,254
Asia Pacific		1,713	15%	10%		1,496	9%	1%		1,377

Total revenues		11,799	16%	12%		10,156	7%	2%		9,475

*Total Operating Expenses*		7,777	24%	20%		6,292	4%	0%		6,035


*Total Operating Margin*	$	4,022	4%	-1%	$	3,864	12%	5%	$	3,440


*Total Operating Margin %*		34%				38%				36%

*% Revenues by Geography:*
Americas		49%				49%				51%
EMEA		36%				36%				34%
Asia Pacific		15%				15%				15%

*Total Revenues by Business:*
Software	$	9,421	17%	13%	$	8,070	12%	6%	$	7,199
Services		2,378	14%	10%		2,086	-8%	-13%		2,276

Total revenues	$	11,799	16%	12%	$	10,156	7%	2%	$	9,475


*% Revenues by Business:*
Software		80%				79%				76%
Services		20%				21%				24%

⁽¹⁾
~~(1)~~ Comprised of Europe, the Middle East and Africa

Fiscal 2005 Compared to Fiscal 2004: Excluding the effect of currency rate fluctuations, the increase in total revenues reflects $685 million associated with PeopleSoft products and services as well as an increase in sales of our products and services resulting from improved sales execution as a result of product specialization, a strengthening in our competitive position and a stronger economy, particularly in the United States. Total revenues were favorably affected by foreign currency rate fluctuations due to a weakening of the United States dollar against certain major international currencies, primarily the Euro, British Pound and Japanese Yen. Excluding the effect of currency rate fluctuations, the Americas contributed 61% to the increase in total revenues, EMEA contributed 27% and Asia Pacific contributed 12%.

Excluding the effect of currency rate fluctuations, total operating expenses increased 20%. Operating expenses were unfavorably affected as a result of the weakening of the United States dollar relative to other major international currencies. Operating margins as a percentage of total revenues decreased from 38% to 34%. The decline in operating margins is primarily due to costs incurred as a result of the acquisition of PeopleSoft such as amortization of intangible assets, acquisition related costs, restructuring costs and stock-based compensation resulting from the assumption of unvested PeopleSoft stock options.

International operations will continue to provide a significant portion of total revenues. As a result, total revenues and expenses will be affected by changes in the relative strength of the United States dollar against certain major international currencies.

Fiscal 2004 Compared to Fiscal 2003: Total revenues increased in fiscal 2004 due to an increase in both new software license revenues and software license updates and product support revenues, partially offset by lower services revenues, most notably consulting revenues. In addition, total revenues were favorably affected by foreign currency rate fluctuations due to a weakening of the United States dollar against certain major international currencies, primarily the Euro, British Pound and Japanese Yen.

Improved sales execution, a strengthening of our competitive position and improvements in the economy resulted in a 3% increase in new software license revenues, excluding foreign currency rate fluctuations. The increase in software license updates and product support revenues is a result of the renewal of substantially all of the prior year period subscription base, the addition of software license updates and product support revenues associated with new software license revenues in the current fiscal year and more timely renewals.

Weak economic conditions in the United States in the first quarter of fiscal 2004, as well as weak economic conditions internationally, particularly in EMEA, in the first half of fiscal 2004 have affected our services growth rates. Historically, services revenue growth rates have lagged new software license revenue growth rates by several quarters, as implementation services and education services are typically provided after our customers purchase software licenses. In addition, consulting revenues have declined due to a soft demand for consulting implementation services, the increased use of partners, competitive pricing pressures that have led to higher discounts, and the increased use of offshore resources that are billed at lower rates. Excluding the effect of currency rate fluctuations, the Americas contributed 60% to the increase in total revenues in fiscal 2004, EMEA contributed 28% and Asia Pacific contributed 12%.

Operating expenses were unfavorably affected as a result of the weakening of the United States dollar relative to other major international currencies, resulting in a 4% increase in operating expenses. Excluding currency rate fluctuations, total operating expenses remained flat due to lower salary expenses related to a shift in the personnel mix from the United States and EMEA to lower cost countries, offset by discretionary bonus expenses as well as professional fees incurred in connection with the PeopleSoft tender offer.

Operating margins as a percentage of total revenues increased from 36% to 38% due to the increase in new software license revenues and software license updates and product support revenues, which have higher margins than services revenues.

~~International operations will continue~~

Supplemental Disclosure Related to ~~provide~~Acquisition Accounting

To supplement our consolidated financial information we believe the following information is helpful to an overall understanding of our past financial performance and prospects for the future. Readers are directed to the introduction under “—Results of Operations” for a ~~significant portion of total revenues. As a result, total revenues and expenses will be affected by changes in the relative strength~~discussion of the ~~United States dollar against certain major international currencies.~~inherent limitations in comparing pre- and post-acquisition information.

~~Fiscal 2003 Compared to Fiscal 2002:~~ ~~Total revenues declined~~

The results of operations include the following purchase accounting adjustments and significant expenses incurred in fiscal 2003 primarily due to lower new software license, consulting and education revenues. The decline in total revenues was primarily attributable to weak economic conditions, both domestically and internationally, that resulted in customers delaying or limiting their technology spending. Total revenues were favorably affected by currency rate fluctuations. The favorable currency rate fluctuations were due to a weakening of the United States dollar against certain major international currencies, primarily the Euro, British Pound and Japanese Yen. Excluding the effect of currency rate fluctuations, the Americas contributed 63% to the decline in total revenues in fiscal 2003, EMEA contributed 34% and Asia Pacific contributed 3%connection with acquisitions:


	Year Ended May 31,
(in millions)	2005			2004			2003
Support deferred revenue⁽¹⁾	$	320		$	—		$	—
Amortization of intangible assets⁽²⁾		219			36			43
Acquisition related charges⁽³⁾⁽⁵⁾		208			54			—
Restructuring⁽⁴⁾		147			—			—
Stock-based compensation⁽⁵⁾		25			—			—
Income tax effect⁽⁶⁾		(264	)		(29	)		(14	)

	$	655		$	61		$	29

⁽¹⁾

In connection with our purchase price allocation, we estimated the fair value of support obligations assumed in connection with business acquisitions made during fiscal 2005. Due to our application of business combination accounting rules, software license updates and product support revenue related to support contracts assumed in business acquisitions in the amount of $320 million, that would have been otherwise recorded by the acquired entities, was not recognized as revenue by Oracle in fiscal 2005. Estimated software license updates and product support revenues related to support contracts assumed that will not be recognized due to the application of business combination accounting rules in future periods are as follows:


(in millions)	Year Ended May 31,
2006	$	290
2007		35
2008		9

Total	$	334

To the extent customers renew these support contracts, we expect to recognize revenue for the full contract value over the support renewal period.

⁽²⁾	Primarily represents the amortization of intangible assets acquired in connection with our acquisition of PeopleSoft. Estimated future amortization expense related to intangible assets is as follows:


(in millions)	Year Ended May 31,
2006	$	478
2007		473
2008		464
2009		464
2010		380
Thereafter		1,114

Total	$	3,373

⁽³⁾

Acquisition related charges primarily consist of in-process research and development expenses, costs associated with our tender offer for PeopleSoft prior to the agreement date, stock-based compensation expenses, as well as personnel-related costs for transitional employees who have been or will be terminated after the completion of the legal entity mergers or integration activities.

⁽⁴⁾

Restructuring costs include Oracle employee severance and Oracle duplicate facility closures. We expect to incur $19 million of additional restructuring charges within the next six months. Total expected costs under this plan are $166 million ($145 million of severance and $21 million of facilities charges).

⁽⁵⁾	Stock-based compensation is included in the following operating expense line items of our consolidated statements of operations:


(in millions)	Year Ended May 31, 2005
Sales and marketing	$	6
Software license updates and product support		2
Cost of services		7
Research and development		10

Subtotal		25
Stock-based compensation included in acquisition related charges		47

Total	$	72

As of May 31, 2005, the portion of the intrinsic value of unvested PeopleSoft options related to future service, which is approximately $45 million, is recorded as deferred stock-based compensation on our consolidated balance sheet and will be amortized using the accelerated expense attribution method over the remaining vesting period, which averages 2.5 years.

Stock-based compensation included in acquisition related charges resulted from unvested options assumed in the PeopleSoft acquisition whose vesting was fully accelerated upon termination of the employees pursuant to the terms of these options.

⁽⁶⁾	The income tax effect on purchase accounting adjustments and other significant expenses incurred in connection with acquisitions was calculated based on our effective tax rate of 28.8%, 32.0% and 32.6% in fiscal 2005, 2004 and 2003, respectively.

Software

Excluding currency rate fluctuations, total operating expenses decreased due to lower salary expenses as a result of lower personnel levels and related expenditures, tighter controls over discretionary spending and productivity improvements. International operating expenses were unfavorably affected as a result of the weak United States dollar relative to other major international currencies.

~~Operating margins as a percentage of total revenues decreased from 37% to 36%, primarily due to the decline in total revenues.~~

~~Expected Results for the Three Months Ended August 31, 2004:~~ We expect the total revenue growth in the first quarter of fiscal 2005 to range between 6% and 9%, while the new software license revenue growth is expected to range between 5% and 15%. These expected revenue growth rates assume that the United States dollar will remain weak relative to major international currencies, contributing three percentage points of revenue growth. In addition, we anticipate reported earnings per share to be $0.09. These estimates are forward looking and are based on current expectations and assumptions. Actual results may differ materially and you should not rely on these estimates. Factors that may affect our actual results include our critical accounting policies and estimates and those identified below under the caption “Factors That May Affect Our Future Results or the Market Price of Our Stock”. We undertake no specific obligation to provide any updates regarding these estimates.

~~Software~~

Software includes new software licenses and software license updates and product support.

New Software Licenses: New software license revenues represent fees earned from granting customers licenses to use our database ~~technology~~ and middleware products, as well as application software products and ~~exclude~~excludes revenues derived from software license updates, which are included in software license updates and product support ~~revenues. New software license revenues also include other revenues, which consist of documentation and miscellaneous~~

revenues. We continue to place significant emphasis, both domestically and internationally, on direct sales through our own sales force. We also continue to market our products through indirect channels.

Year Ended May 31,
Percent Change Percent Change
(Dollars in millions) 2004 Actual Constant 2003 Actual Constant 2002
New Software License Revenues:

Americas $ 1,490 4% 4% $ 1,426 -15% -13% $ 1,671
EMEA 1,371 12% 1% 1,225 5% -8% 1,167
Asia Pacific 680 10% 3% 619 -8% -12% 675

Total revenues 3,541 8% 3% 3,270 -7% -11% 3,513
Sales and Marketing Expenses
2,136 3% -2% 2,072 -6% -5% 2,209

Total Margin
$ 1,405 17% 10% $ 1,198 -8% -9% $ 1,304

Total Margin %
40% 37% 37%

% Revenues by Geography:

Americas 42% 44% 48%
EMEA 39% 37% 33%
Asia Pacific 19% 19% 19%

Revenues by Product:

Database technology $ 2,893 11% 4% $ 2,618 -4% -9% $ 2,739
Applications 615 2% -2% 605 -14% -17% 703

Total revenues by product 3,508 9% 3% 3,223 -6% -11% 3,442
Other revenues 33 -30% -32% 47 -34% -36% 71

Total new software license revenues $ 3,541 8% 3% $ 3,270 -7% -11% $ 3,513

% Revenues by Product:

Database technology 82% 81% 80%
Applications 18% 19% 20%


	Year Ended May 31,
			Percent Change				Percent Change
(Dollars in millions)	2005		Actual	Constant	2004		Actual	Constant	2003
*New Software License Revenues:*
Americas	$	1,805	21%	20%	$	1,490	4%	4%	$	1,426
EMEA		1,505	10%	3%		1,371	12%	1%		1,225
Asia Pacific		781	15%	11%		680	10%	3%		619

Total revenues		4,091	16%	12%		3,541	8%	3%		3,270

*Expenses:*
Sales and marketing⁽¹⁾		2,505	18%	14%		2,123	4%	-3%		2,050
Stock-based compensation		6	*	*		—	*	*		—
Amortization of intangible assets		59	*	*		13	*	*		22

Total expenses		2,570	20%	17%		2,136	3%	-2%		2,072


*Total Margin*	$	1,521	8%	4%	$	1,405	17%	10%	$	1,198


*Total Margin %*		37%				40%				37%

*% Revenues by Geography:*
Americas		44%				42%				44%
EMEA		37%				39%				37%
Asia Pacific		19%				19%				19%

*Revenues by Product:*
Database and middleware	$	3,265	13%	9%	$	2,893	11%	4%	$	2,618
Applications		785	28%	25%		615	2%	-2%		605

Total revenues by product		4,050	15%	12%		3,508	9%	3%		3,223
Other revenues		41	24%	21%		33	-30%	-32%		47

Total new software license revenues	$	4,091	16%	12%	$	3,541	8%	3%	$	3,270


*% Revenues by Product:*
Database and middleware		81%				82%				81%
Applications		19%				18%				19%

⁽¹⁾	Excluding stock-based compensation

*	not meaningful

Fiscal 2005 Compared to Fiscal 2004: Excluding the effect of currency rate fluctuations, new software license revenues increased due to improved sales execution, a strengthening in our competitive position, a stronger economy, particularly in the United States, and revenues from the licensing of PeopleSoft products of $126 million.

The increase in database and middleware new software license revenues was driven by a 23% increase in application server revenues, and a 12% increase in database technology revenues. The increase in applications new software license revenues was primarily due to revenues from the licensing of PeopleSoft products, improved sales execution as a result of product specialization and increased demand for our products, particularly in North America. Excluding the effect of currency rate fluctuations, the Americas contributed 71%, EMEA contributed 12% and Asia Pacific contributed 17% to the increase in new software license revenues.

New software license revenues earned from large transactions, defined as new software license transactions over $0.5 million, increased from 37% of new software license revenues in fiscal 2004 to 40% of new software license revenues in fiscal 2005. New software license revenues earned from large transactions increased by 23% in fiscal 2005, reflecting higher business confidence as general economic conditions improved, particularly in the United States, as customers are purchasing more licenses to accommodate their future growth.

Sales and marketing expenses increased primarily due to higher commission expenses that resulted from higher revenue levels, as well as higher personnel related costs associated with increased sales headcount.

Stock-based compensation expense relates to the assumption of unvested PeopleSoft stock options in connection with the acquisition.

Amortization of intangible assets relates primarily to intangible assets acquired in connection with the PeopleSoft acquisition.

The total new software license margin as a percentage of revenues was negatively affected as a result of higher personnel related expenditures, amortization of intangible assets, as well as stock-based compensation charges.

Fiscal 2004 Compared to Fiscal 2003: Excluding the effect of currency rate fluctuations, new software license revenues increased in fiscal 2004 primarily due to higher database technology revenues in all geographic areas, offset slightly by lower application revenues, primarily in Asia Pacific. Improved sales execution, a strengthening in our competitive position and improvements in the economy resulted in a 5% increase in new software license sales in the United States and 1% internationally. The Americas contributed 62% to the increase in new software license revenues in fiscal 2004, EMEA contributed 15% and Asia Pacific contributed 23%.

New software license revenues earned from large transactions, defined as new software license transactions over $0.5 million, increased by 11% in fiscal 2004, contributing to the increase in new software license revenues. New software license revenues generated from large transactions increased as a percentage of total new software license revenues from 36% in fiscal 2003 to 37% in fiscal 2004.

Excluding the effect of foreign currency rate fluctuations, sales and marketing expenses decreased in fiscal 2004 due to lower headcount levels and advertising costs, offset partially by higher commissions. New software license margin increased in fiscal 2004 due primarily to higher new software license revenues.

~~Fiscal 2003 Compared to Fiscal 2002:~~ The decline in new software license revenues was primarily due to customers delaying or limiting their technology capital spending as a result of weak domestic and international economic conditions. These weak economic conditions resulted in more customers restricting their software procurement to well-defined current needs and a decline in purchases intended to accommodate future

customer growth. New software license revenues earned from large transactions decreased by 11% in fiscal 2003, contributing to the decline in new software license revenues. New software license revenues generated from large transactions declined slightly as a percentage of total new software license revenues from 37% in fiscal 2002 to 36% in fiscal 2003. Excluding the effect of currency rate fluctuations, the Americas contributed 53% to the decline in new software license revenues in fiscal 2003, EMEA contributed 26% and Asia Pacific contributed 21%.

Sales and marketing expenses decreased due to lower headcount levels and related expenditures, as well as tighter controls over discretionary spending. The overall decrease in new software license margin is primarily due to the decrease in new software license revenues, partially offset by lower sales and marketing expenses.

Software License Updates and Product Support: Software license updates grant customers rights to unspecified software product upgrades and maintenance releases issued during the support period. Product support includes internet access to technical content, as well as internet and telephone access to technical support personnel. The cost of providing support services consists largely of personnel related expenses.

Year Ended May 31,
Percent Change Percent Change
(Dollars in millions) 2004 Actual Constant 2003 Actual Constant 2002
Software License Updates and Product Support Revenues:
Americas $ 2,407 11 % 10% $ 2,170 4 % 6% $ 2,077
EMEA 1,542 21 % 8% 1,272 22 % 7% 1,043
Asia Pacific 580 19 % 10% 487 16 % 10% 420

Total revenues 4,529 15 % 9% 3,929 11 % 7% 3,540
Expenses
547 15 % 9% 474 3 % -2% 462

Total Margin
$ 3,982 15 % 9% $ 3,455 12 % 8% $ 3,078

Total Margin %
88% 88% 87%

% Revenues by Geography:

Americas 53% 55% 59%
EMEA 34% 32% 29%
Asia Pacific 13% 13% 12%


	Year Ended May 31,
			Percent Change				Percent Change
(Dollars in millions)	2005		Actual	Constant	2004		Actual	Constant	2003
*Software License Updates and Product Support Revenues:*
Americas	$	2,759	15%	14%	$	2,407	11%	10%	$	2,170
EMEA		1,866	21%	13%		1,542	21%	8%		1,272
Asia Pacific		705	22%	17%		580	19%	10%		487

Total revenues		5,330	18%	14%		4,529	15%	9%		3,929

*Expenses:*
Software license updates and product support⁽¹⁾		616	13%	9%		547	15%	9%		474
Stock-based compensation		2	*	*		—	*	*		—
Amortization of intangible assets		127	*	*		—	*	*		—

Total expenses		745	36%	32%		547	15%	9%		474

*Total Margin*	$	4,585	15%	11%	$	3,982	15%	9%	$	3,455

*Total Margin %*		86%				88%				88%

*% Revenues by Geography:*
Americas		52%				53%				55%
EMEA		35%				34%				32%
Asia Pacific		13%				13%				13%

⁽¹⁾	Excluding stock-based compensation

*	not meaningful

Fiscal ~~2004~~2005 Compared to Fiscal ~~2003:~~2004: ~~Software license updates and product support revenue growth rates are affected by~~ Excluding the ~~overall new software license revenue growth rates, as well as the renewal~~effect of currency rate ~~of annual support contracts by existing customers. The increase in~~fluctuations, software license updates and product support revenues ~~in fiscal 2004 is~~increased as a result of the renewal of ~~substantially all~~a substantial majority of the ~~prior year period~~ subscription base eligible for renewal in the current year, the addition of software license updates and product support revenues associated with new software license revenues recognized in fiscal 2005, more timely contract renewals, as well as $258 million in revenues from the expansion of our customer base resulting from the acquisition of PeopleSoft. Excluding the effect of currency rate fluctuations, the Americas contributed 53% to the growth in software license updates and product support revenues, EMEA contributed 32% and Asia Pacific contributed 15%.

In connection with our purchase price allocation, we estimated the fair value of support obligations assumed in connection with business acquisitions made during fiscal 2005. Software license updates and product support revenue related to support contracts assumed in business acquisitions in the amount of $320 million, that would have been otherwise recorded by the acquired entities, was not recognized as revenue by Oracle in fiscal 2005. As customers renew these support contracts over the next year, we will recognize the full contract value over the support period.

Excluding the effect of currency rate fluctuations, software license updates and product support expenses increased primarily due to higher personnel costs associated with increased headcount, higher discretionary bonuses and facility expenses.

Stock-based compensation expense relates to the assumption of unvested PeopleSoft stock options in connection with the acquisition.

Amortization of intangible assets relates primarily to intangible assets acquired in connection with the acquisition of PeopleSoft.

The total software license updates and product support margin as a percentage of revenues decreased in fiscal 2005 primarily due to the amortization of intangible assets and stock-based compensation charges.

Fiscal 2004 Compared to Fiscal 2003: Excluding the effect of currency rate fluctuations, software license updates and product support revenues in fiscal 2004 ~~and more timely renewals. The growth rate~~increased 9% as a result of the renewal of a substantial majority of the subscription base eligible for renewal in fiscal 2004, the addition of software license updates and product support revenues ~~does not necessarily correlate directly to the growth rate of~~associated with new software license ~~revenues.~~revenues recognized in fiscal 2004, as well as more timely contract renewals. Excluding the effect of currency rate fluctuations, the Americas contributed 57% to the growth in software license updates and product support revenues in fiscal 2004, EMEA contributed 30%, and Asia Pacific contributed 13%.

Excluding the effect of currency rate fluctuations, software license updates and product support expenses increased in fiscal 2004 primarily due to the accrual of discretionary bonuses, as well as higher salary expenses due to increased headcount. The software license updates and product support margin as a percent of revenues remained flat as a result of higher revenues offset by increased salary and discretionary bonus expenses.

~~Fiscal 2003 Compared to Fiscal 2002:~~ The growth in software license updates and product support revenues in fiscal 2003 is attributed to the same reasons noted above. Excluding the effect of currency rate fluctuations, the Americas contributed 50% to the growth in software license updates and product support revenues in fiscal 2003, EMEA contributed 33% and Asia Pacific contributed 17%.Services

Excluding the effect of currency rate fluctuations, software license and product support expenses decreased slightly due to controls over non-headcount related operating expenses. The software license and product support margin as a percent of revenues increased in fiscal 2003 as compared to the prior year, as a result of increased revenues.

~~Services~~

Services consist of consulting, advanced product services and education.

Consulting: Consulting revenues are earned by providing services to customers specializing in the design, implementation, deployment ~~upgrade~~ and ~~migration~~upgrade of our database, ~~technology~~middleware and applications software. The cost of providing consulting services consists primarily of personnel related expenditures.

Year Ended May 31,
Percent Change Percent Change
(Dollars in millions) 2004 Actual Constant 2003 Actual Constant 2002
Consulting Revenues:

Americas $ 859 -14% -15% $ 999 -19% -18% $ 1,236
EMEA 581 0% -11% 583 -5% -16% 613
Asia Pacific 149 -17% -22% 179 35% 27% 133

Total revenues 1,589 -10% -14% 1,761 -11% -14% 1,982
Expenses
1,347 -8% -13% 1,472 -3% -7% 1,522

Total Margin
$ 242 -16% -19% $ 289 -37% -38% $ 460

Total Margin %
15% 16% 23%

% Revenues by Geography:

Americas 54% 57% 62%
EMEA 37% 33% 31%
Asia Pacific 9% 10% 7%


	Year Ended May 31,
	2005		Percent Change		2004		Percent Change		2003
(Dollars in millions)	2005		Actual	Constant	2004		Actual	Constant	2003
*Consulting Revenues:*
Americas	$	956	11%	11%	$	859	-14%	-15%	$	999
EMEA		716	23%	15%		581	0%	-11%		583
Asia Pacific		138	-7%	-12%		149	-17%	-22%		179

Total revenues		1,810	14%	12%		1,589	-10%	-14%		1,761

*Expenses:*
Cost of services⁽¹⁾		1,549	15%	11%		1,347	-8%	-13%		1,472
Stock-based compensation		6	*	*		—	*	*		—
Amortization of intangible assets		1	*	*		—	*	*		—

Total expenses		1,556	16%	11%		1,347	-8%	-13%		1,472

*Total Margin*	$	254	5%	1%	$	242	-16%	-19%	$	289

*Total Margin %*		14%				15%				16%

*% Revenues by Geography:*
Americas		53%				54%				57%
EMEA		39%				37%				33%
Asia Pacific		8%				9%				10%

⁽¹⁾	Excluding stock-based compensation

*	not meaningful

Fiscal 2005 Compared to Fiscal 2004: Consulting revenues increased $258 million due to revenues earned by performing services under PeopleSoft consulting contracts, partially offset by a decline in consulting revenues earned from services rendered under Oracle consulting contracts. The decline in revenue from Oracle consulting contracts is due to a shift in the mix of resources to lower cost countries, which has resulted in a decrease in billing rates. Consulting revenues also declined as a result of our decision to work more closely with partners, who are performing a higher percentage of the implementations of our software. Excluding PeopleSoft related consulting revenues, the decline in consulting revenues in the Americas is primarily due to a decrease in the United States. We experienced higher attrition rates in the United States, which led to lower consulting headcount levels, resulting in a decline in billable hours and revenues. The decline in Asia Pacific consulting revenues was primarily due to a large consulting project in Japan, which was substantially completed at the end of fiscal 2004.

Excluding the effect of currency rate fluctuations, consulting expenses increased 11% primarily due to higher external contractor costs and personnel related expenditures due to higher headcount and revenue levels.

Stock-based compensation expense related to the assumption of unvested PeopleSoft stock options in connection with the acquisition.

The total consulting margin as a percentage of revenues was negatively affected as a result of additional consulting expenses attributed to headcount levels and external contractor related expenditures, as well as stock-based compensation charges.

Fiscal 2004 Compared to Fiscal 2003: Excluding the effect of currency rate fluctuations, the decline in total consulting revenues in fiscal 2004 was primarily due to companies delaying or limiting technology spending and product implementations. Historically, consulting revenue growth rates have lagged new software license revenue growth rates by several quarters, as consulting services are typically provided after customers purchase software licenses. In addition, consulting revenues have declined due to soft demand for consulting implementation services, the increased use of partners, competitive pricing pressures that have led to higher discounts and the increased use of offshore resources that are billed at lower rates. The Americas contributed 57% to the decline in consulting revenues in fiscal 2004, EMEA contributed 27% and Asia Pacific contributed 16%.

Excluding the effect of currency rate fluctuations, the decline in consulting expenses is due primarily to a reduction of personnel related expenditures as a result of lower headcount and revenue levels, as well as the hiring of personnel in countries where personnel costs are lower than in the United States and certain European countries. The consulting margin as a percentage of revenues decreased slightly, as consulting revenues declined at a higher rate than consulting expenses.

~~Fiscal 2003 Compared to Fiscal 2002:~~ The decline in total consulting revenues in fiscal 2003 was primarily due to weak economic conditions, both domestically and internationally, which caused companies to delay or limit technology spending and product implementations. Excluding the effect of currency rate fluctuations, the Americas contributed 77% and EMEA contributed 36% to the decrease in consulting revenues in fiscal 2003, offset by higher revenues in Asia Pacific.

Excluding the effect of currency rate fluctuations, the decline in consulting expenses was due to a reduction of personnel related expenditures as a result of lower headcount levels, as well as controls over discretionary

spending. The consulting margin as a percentage of revenues declined to 16% in fiscal 2003, as consulting revenues declined at a higher rate than consulting expenses. In Europe, the consulting margins deteriorated more significantly than margins in other geographies. Due to labor regulations in most countries throughout Europe, we were unable to reduce headcount quickly in response to deteriorating market conditions. The margins in Europe were also negatively affected by high employee severance costs recorded in the second and fourth quarters of fiscal 2003.

Advanced Product Services: Advanced product services are comprised of Oracle On Demand ~~(formerly Oracle Outsourcing)~~ and advanced product support services. Oracle On Demand provides multi-featured software and hardware management and maintenance services for our database, ~~technology~~middleware and applications software. Advanced product support services are earned by providing ~~services to~~ customers ~~that include~~ configuration and performance analysis, personalized support and annual on-site technical services. The cost of providing advanced product services consists primarily of personnel related expenditures and hardware and facilities costs for Oracle On Demand.

Year Ended May 31,
Percent Change Percent Change
(Dollars in millions) 2004 Actual Constant 2003 Actual Constant 2002
Advanced Product Services Revenues:

Americas $ 140 -7% -7% $ 150 -16% -14% $ 178
EMEA 84 8% -5% 78 -31% -39% 113
Asia Pacific 34 17% 12% 29 -3% -10% 30

Total revenues 258 0% -4% 257 -20% -23% 321
Expenses
216 19% 12% 182 -3% -7% 188

Total Margin
$ 42 -44% -45% $ 75 -44% -46% $ 133

Total Margin %
16% 29% 41%

% Revenues by Geography:

Americas 54% 59% 56%
EMEA 33% 30% 35%
Asia Pacific 13% 11% 9%


	Year Ended May 31,
	2005		Percent Change		2004		Percent Change		2003
(Dollars in millions)	2005		Actual	Constant	2004		Actual	Constant	2003
*Advanced Product Services Revenues:*
Americas	$	165	18%	17%	$	140	-7%	-7%	$	150
EMEA		93	11%	3%		84	8%	-5%		78
Asia Pacific		41	21%	15%		34	17%	12%		29

Total revenues		299	16%	14%		258	0%	-4%		257

*Cost of Services*		253	17%	14%		216	19%	12%		182

*Total Margin*	$	46	10%	6%	$	42	-44%	-45%	$	75

*Total Margin %*		15%				16%				29%

*% Revenues by Geography:*
Americas		55%				54%				59%
EMEA		31%				33%				30%
Asia Pacific		14%				13%				11%

Fiscal 2005 Compared to Fiscal 2004: Excluding the effect of currency rate fluctuations, advanced product services revenues increased primarily due to the expansion of our subscription base in Oracle On Demand services. Excluding the effect of currency rate fluctuations, the Americas contributed 72% to the increase in advanced product services revenues, EMEA contributed 12% and Asia Pacific contributed 16%.

Excluding the effect of currency rate fluctuations, total advanced product services expenses increased 14% primarily due to higher employee related expenditures related to increased headcount. The advanced product services margin as a percent of revenues decreased as expenses grew at a higher rate than revenues.

Fiscal 2004 Compared to Fiscal 2003: Excluding the effect of currency rate fluctuations, advanced product support services revenues decreased in fiscal 2004 due to companies delaying or limiting technology spending. A portion of the decrease was also due to a de-emphasis of certain services. The decrease in advanced product support services revenues was offset by an increase in Oracle On Demand revenues. The Americas contributed 91% and EMEA contributed 40% to the decrease in advanced product services revenues in fiscal 2004, offset by higher revenues in Asia Pacific.

Excluding the effect of currency rate fluctuations, total advanced product services expenses increased primarily due to investments made in facilities and headcount to support current and future growth in our Oracle On Demand business. The decrease in the advanced product services margin as a percent of revenues in fiscal 2004 is due to lower advanced product support revenues and higher Oracle On Demand expenses.

~~Fiscal 2003 Compared to Fiscal 2002:~~Education: Advanced product services revenues decreased in fiscal 2003 due to continued weak domestic and international economic conditions and a de-emphasis of certain services. Additionally, primarily in Europe, responsibility for performing certain on-site support services on a time and materials basis was transferred to the consulting line of business, which contributed to the reduction in advanced product services revenues. Excluding the effect of currency rate fluctuations, EMEA contributed 62% to the decline in advanced product services revenues in fiscal 2003, the Americas contributed 34% and Asia Pacific contributed 4%.

Excluding the effect of currency rate fluctuations, total advanced product services expenses decreased primarily due to a reduction of personnel related expenditures as a result of lower headcount levels. Due to the decline in advanced product services revenues, the total advanced product services margin as a percent of revenues decreased to 29% in fiscal 2003.

~~Education:~~ Education revenues are earned by providing instructor led, media based and internet based training in the use of our database, ~~technology~~middleware and applications software. Education expenses primarily consist of personnel related expenditures, facilities and external contractor costs.

Year Ended May 31,
Percent Change Percent Change
(Dollars in millions) 2004 Actual Constant 2003 Actual Constant 2002
Education Revenues:

Americas $ 87 -12% -13% $ 99 -24% -23% $ 131
EMEA 99 3% -8% 96 -16% -25% 114
Asia Pacific 53 -16% -20% 63 -13% -16% 72

Total revenues 239 -7% -13% 258 -19% -22% 317
Expenses
207 -3% -9% 214 -9% -13% 234

Total Margin
$ 32 -27% -32% $ 44 -47% -50% $ 83

Total Margin %
13% 17% 26%

% Revenues by Geography:

Americas 36% 38% 41%
EMEA 42% 37% 36%
Asia Pacific 22% 25% 23%


	Year Ended May 31,
			Percent Change				Percent Change
(Dollars in millions)	2005		Actual	Constant	2004		Actual	Constant	2003
*Education Revenues:*
Americas	$	113	30%	29%	$	87	-12%	-13%	$	99
EMEA		108	9%	2%		99	3%	-8%		96
Asia Pacific		48	-9%	-13%		53	-16%	-20%		63

Total revenues		269	13%	10%		239	-7%	-13%		258

*Expenses:*
Cost of services⁽¹⁾		224	8%	4%		207	-3%	-9%		214
Stock-based compensation		1	*	*		—	*	*		—

Total expenses		225	9%	11%		207	-3%	-13%		214


*Total Margin*	$	44	38%	42%	$	32	-27%	-32%	$	44

*Total Margin %*		16%				13%				17%

*% Revenues by Geography:*
Americas		42%				36%				38%
EMEA		40%				42%				37%
Asia Pacific		18%				22%				25%

⁽¹⁾	Excluding stock-based compensation

*	not meaningful

Fiscal 2005 Compared to Fiscal 2004:Education revenues increased due to revenues related to PeopleSoft. Excluding the effect of currency rate fluctuations, the Americas contributed 127%, EMEA contributed 7%, while Asia Pacific contributed a negative 34% to the overall increase in education revenues.

Excluding the effect of currency rate fluctuations, the increase in education expenses is primarily due to fees paid to education partners that provide training to our customers.

The education margin as a percentage of revenues increased as revenues increased at a higher rate than expenses.

Fiscal 2004 Compared to Fiscal 2003: Excluding the effect of currency rate fluctuations, the decline in education revenues is attributable to headcount reductions of information technology personnel across multiple industry sectors that have resulted in a continued reduction of the demand for technical product training. In addition, companies have delayed or limited technology spending. Education revenue growth rates have lagged new software license revenue growth rates by several quarters, as education services are typically provided after our customers purchase software licenses. The Americas contributed 39% to the decline in education revenues in fiscal 2004, EMEA contributed 23% and Asia Pacific contributed 38%.

Excluding the effect of currency rate fluctuations, education expenses decreased due to reductions in personnel and related expenditures. The education margin as a percentage of revenues decreased in fiscal 2004 as revenues declined at a higher rate than expenses.

~~Fiscal 2003 Compared to Fiscal 2002:~~ The decline in education revenues is attributable to lower new software license revenue growth rates, as well as weak economic conditions that resulted in a decline in customer discretionary spending. In addition, as a result of headcount reductions of information technology personnel across multiple industry sectors, the demand for technical product training has declined. Excluding the effect of currency rate fluctuations, the Americas contributed 42% to the decline in education revenues in fiscal 2003, EMEA contributed 41% and Asia Pacific contributed 17%.

Education expenses decreased due to reductions in personnel and related expenditures and tighter controls over discretionary spending. The education margins as a percentage of revenue decreased to 17% in fiscal 2003, as revenues declined at a faster rate than expenses.

Research and Development Expenses: Research and development expenses consist primarily of personnel related expenditures. We intend to continue to invest significantly in our research and development efforts because, in our judgment, they are essential to maintaining our competitive position.

Year Ended May 31,
Percent Change Percent Change
(Dollars in millions) 2004 Actual Constant 2003 Actual Constant 2002
Expenses
$ 1,278 8 % 6 % $ 1,180 10 % 8 % $ 1,076
Percent of Total Revenues
13% 12% 11%


	Year Ended May 31,
			Percent Change				Percent Change
(Dollars in millions)	2005		Actual	Constant	2004		Actual	Constant	2003
*Research and Development:*
Research and development⁽¹⁾	$	1,481	18%	17%	$	1,254	8%	4%	$	1,159
Stock-based compensation		10	*	*		—	*	*		—
Amortization of intangible assets		32	39%	39%		23	7%	7%		21

Total expenses	$	1,523	19%	18%	$	1,277	8%	6%	$	1,180

*Percent of Total Revenues*		13%				13%				12%

⁽¹⁾	Excluding stock-based compensation

*	not meaningful

Fiscal 2005 Compared to Fiscal 2004:Excluding the effect of currency rate fluctuations, research and development expenses increased in fiscal 2005 due to higher external contractor costs, as well as higher personnel and related expenditures related to the increase in headcount. In fiscal 2005, total research and development headcount increased by 2,656 employees or 25%. The database and middleware technology division has continued to hire engineers, resulting in a 6% headcount increase in fiscal 2005. Applications research and development headcount increased 45% in fiscal 2005 as a result of the hiring of former PeopleSoft engineers.

Stock-based compensation expense relates to the assumption of unvested PeopleSoft stock options in connection with the acquisition.

Amortization of intangible assets relates primarily to intangible assets acquired in connection with the acquisition of PeopleSoft.

Fiscal 2004 Compared to Fiscal 2003: Excluding the effect of foreign currency rate fluctuations, research and development expenses increased in fiscal 2004 primarily due to an increase in discretionary bonus expenses. In fiscal 2004, research and development headcount increased 12% and 10% in the database and middleware technology division and applications development organizations, respectively. While total headcount increased from 9,429 to 11,436, salary expenses did not increase in proportion to the higher headcount because the hiring occurred in countries where personnel costs are significantly lower than in the United States.

~~Fiscal 2003 Compared to Fiscal 2002:~~ Excluding the effect of currency rate fluctuations, research and development expenses increased in fiscal 2003 due to a 9% and 1% increase in headcount in the database technology and applications development organizations, respectively. While total headcount increased, salary expenses did not increase in proportion to the higher headcount because the hiring occurred in countries where personnel costs are significantly lower than in the United States.

General and Administrative Expenses: General and administrative expenses primarily consist of personnel related expenditures for information technology, finance, legal and human resources support functions.

Year Ended May 31,
Percent Change Percent Change
(Dollars in millions) 2004 Actual Constant 2003 Actual Constant 2002
Expenses
$ 561 27 % 19 % $ 441 7 % 2 % $ 411
Percent of Total Revenues
6% 5% 4%


	Year Ended May 31,
			Percent Change				Percent Change
(Dollars in millions)	2005		Actual	Constant	2004		Actual		Constant	2003
*General and Administrative:*
General and administrative	$	550	8%	6%	$	508	15%	��	8%	$	441

*Percent of Total Revenues*		5%				5%					5%

Fiscal 2005 Compared to Fiscal 2004:Excluding the effect of currency rate fluctuations, general and administrative expenses increased 6% in fiscal 2005 as compared to the prior year corresponding period primarily due to higher discretionary bonuses and benefit expenses.

Fiscal 2004 Compared to Fiscal 2003: Excluding the effect of foreign currency rate fluctuations, the increase in general and administrative expenses in fiscal 2004 was primarily attributed to ~~professional fees incurred in connection with the PeopleSoft tender offer,~~ discretionary bonus expenses, as well as costs associated with globalizing certain processes.

~~Fiscal 2003 Compared~~Amortization of Intangible Assets: Amortization of intangible assets primarily represents purchased intangible assets associated with our acquisition of PeopleSoft, which will be amortized over a period of 5 to ~~Fiscal 2002:~~10 years.

Amortization of intangible assets relate to the following intangible assets:


	Useful Life	Year Ended May 31,
(in millions)	Useful Life	2005		2004		2003
Software support agreements and related relationships	10 years	$	88	$	—	$	—
Developed technology	5 years		86		36		43
Core technology	5 years		30		—		—
Customer relationships	10 years		10		—		—
Trademarks	7 years		5		—		—

Total amortization of intangible assets		$	219	$	36	$	43

Acquisition Related Charges: ~~Excluding~~ Acquisition related charges primarily consist of in-process research and development expenses, costs associated with our tender offer for PeopleSoft prior to the ~~effect~~agreement date, stock-based compensation expenses, as well as personnel related costs for transitional employees who have been or will be terminated after the completion of ~~currency rate fluctuations, general~~the legal entity mergers or integration activities. Stock-based compensation included in acquisition related charges resulted from unvested options assumed in the PeopleSoft acquisition whose vesting was fully accelerated upon termination of the employees pursuant to the terms of these options.


	Year Ended May 31,
(in millions)	2005		2004		2003
In-process research and development	$	46	$	—	$	—
Transitional employee related costs		52		—		—
Stock-based compensation		47		—		—
Tender offer costs		63		54		—

Total acquisition related charges	$	208	$	54	$	—

Restructuring: Restructuring expenses primarily consist of Oracle employee severance costs and ~~administrative expenses grew slightly~~Oracle duplicate facility closures.


	Year Ended May 31,
(in millions)	2005		2004		2003
Severance costs	$	126	$	—	$	—
Excess facilities		21		—		—

Total restructuring charges	$	147	$	—	$	—

Interest Expense: Interest expense increased in fiscal 2005 primarily due to ~~increased headcount.~~borrowings in December 2004 of $9.2 billion under a $9.5 billion unsecured term loan agreement, which we repaid in various installments from February 2005 through May 2005. In the fourth quarter of fiscal 2005, we borrowed $2.0 billion under a commercial paper program and $700 million under a 364-day unsecured loan facility that are outstanding at May 31, 2005. Interest expense in fiscal 2004 included $5.5 million in commitment fees related to an unused $1.5 billion revolving credit facility that expired in December 2004 and additional interest associated with our $150 million senior notes that matured in February 2004.


	Year Ended May 31,
			Percent Change				Percent Change
(Dollars in millions)	2005		Actual	Constant	2004		Actual	Constant	2003
Interest expense	$	135	543%	543%	$	21	31%	26%	$	16

~~Net Investment Gains (Losses) Related to Equity Securities:~~Non-Operating Income, net: ~~Net~~ Non-operating income, net consists primarily of interest income, net foreign currency exchange gains (losses), net investment gains (losses) related to equity securities ~~primarily related to our investment~~and the minority interest share in ~~Liberate Technologies.~~the net profits of Oracle Japan.

Year Ended May 31,
Percent Change Percent Change
(Dollars in millions) 2004 Actual Constant 2003 Actual Constant 2002
Liberate Technologies $ 35 * * $ (87 ) * * $ (174 )
Other equity securities (6 ) * * (24 ) * * (70 )

Total net investment gains (losses) related to equity securities $ 29 * * $ (111 ) * * $ (244 )


	Year Ended May 31,
				Percent Change					Percent Change
(Dollars in millions)	2005			Actual	Constant	2004			Actual	Constant	2003
Interest income	$	185		57%	53%	$	118		-9%	-13%	$	129
Foreign currency gains (losses)		(14	)	8%	3%		(13	)	-263%	-286%		8
Net investment gains (losses) related to equity securities		2		-93%	-93%		29		*	*		(111	)
Minority interest		(42	)	14%	14%		(37	)	12%	12%		(33	)
Other		33		*	*		5		-38%	-23%		8

Total non-operating income, net	$	164		61%	58%	$	102		*	*	$	1

* not meaningful

~~Fiscal 2004 Compared to Fiscal 2003:~~The net increase in non-operating income in fiscal 2005 is primarily due to higher interest income earned resulting from higher average cash balances and slightly higher interest rates available in the capital markets. In fiscal 2005, the weighted average interest rate earned on cash, cash equivalents and marketable securities increased from 1.5% to 1.9%.

The net ~~investment gains~~increase in non-operating income in fiscal 2004 as compared to fiscal 2003 ~~was~~is primarily due to higher net investment gains compared to a loss in fiscal 2003. In fiscal 2004, we recorded a gain of $35.4 million from the sale of all of our common stock in Liberate Technologies ~~in the first quarter of fiscal 2004~~ to a third-party for approximately $83.5 million.

~~Fiscal 2003 Compared to Fiscal 2002:~~ ~~The decrease in net investment losses in~~ In fiscal 2003, ~~as compared to fiscal 2002 was due to lower impairment charges. We~~we recorded impairment charges relating to other than temporary declines in the fair value of our investment in Liberate Technologies of $87.1 ~~million and $173.5 million in fiscal 2003 and 2002, respectively.~~million. We concluded that our investment was other than temporarily impaired because our cost basis exceeded the publicly traded market value of the Liberate Technologies common stock for approximately six months.

~~In fiscal 2003 and 2002, we~~ We also recognized $23.9 million ~~and $70.0 million, respectively,~~ of impairment losses related to our other investments, which ~~include~~included investments in privately held companies, venture funds and publicly traded ~~companies.~~companied. We determined that the decreases in the fair value of these investments were other than temporary based upon the financial condition and near term prospects of the underlying investees, ~~changes~~changed in the market demand for technology being sold or developed by the underlying investees and our intent regarding providing future funding to the underlying investees.

~~Other Income, Net:~~ ~~Other income, net consists primarily of interest income, interest expense, foreign currency exchange gains (losses) and the minority interest share in the net profits of Oracle Japan.~~

Year Ended May 31,
Percent Change Percent Change
(Dollars in millions) 2004 Actual Constant 2003 Actual Constant 2002
Interest income $ 118 -9% -13% $ 129 -22% -25% $ 166
Interest expense (21 ) 31% 26% (16 ) -20% -15% (20 )
Minority interest (37 ) 12% 12% (33 ) -8% -8% (36 )
Foreign currency gains (losses) (13 ) -263% -286% 8 138% 127% (21 )
Other 5 -38% -23% 8 200% 224% (8 )

Total other income, net $ 52 -46% -49% $ 96 19% 18% $ 81

~~Fiscal 2004 Compared to Fiscal 2003:~~ Other income, net decreased in fiscal 2004 due primarily to foreign currency losses, lower interest income and higher interest expenses. The decrease in interest income is primarily due to lower interest rates available in the capital markets. In fiscal 2004, the weighted average interest rate earned on cash, cash equivalents and investments decreased to 1.5% from 1.6%. Interest expense increased in fiscal 2004 primarily due to $5.5 million in commitment fees related to our revolving credit facility obtained in connection with the PeopleSoft tender offer.

~~Fiscal 2003 Compared to Fiscal 2002:~~ Other income, net increased in fiscal 2003 as compared to fiscal 2002, primarily due to foreign currency exchange gains, which were partially offset by lower interest income. In fiscal 2002, the Argentine Peso was devalued resulting in foreign currency exchange losses. In fiscal 2003, interest income decreased as a result of lower interest rates available in the capital markets. In fiscal 2003, the weighted average interest rate earned on cash, cash equivalents and investments decreased to 1.6% as compared to 2.0% in fiscal 2002.

Provision for Income Taxes:The effective tax rate in all periods is the result of the mix of income earned in various tax jurisdictions that apply a broad range of income tax rates. The provision for income taxes differs from the tax computed at the federal statutory income tax rate due primarily to state taxes and earnings considered as ~~permanently~~indefinitely reinvested in foreign operations. Future effective tax rates could be adversely affected if earnings are

lower than anticipated in countries where we have lower statutory rates, by unfavorable changes in tax laws and regulations, or by adverse rulings in tax related litigation.

~~Our~~

The effective ~~income~~ tax ~~rates were~~rate was 28.8%, 32.0%, and 32.6% ~~and 34.7%~~ in fiscal 2005, 2004 and 2003, ~~and 2002,~~ respectively. The decrease in our effective tax rate in fiscal 2005 is primarily attributable to higher earnings in low tax rate jurisdictions. In ~~fiscal 2004,~~addition, the effective tax rate ~~on operating and other income~~ was ~~32.0%. In fiscal 2003 and 2002, the effective tax rate is a blend of the effective tax rate on operating and other income of 33.5% and 35.0%, respectively,~~ reduced by ~~the 40% tax benefit on the impairment charges on our investment in Liberate Technologies. The fiscal 2003 effective income tax rate also benefited from the reversal of previously accrued taxes~~0.6% due to the ~~Internal Revenue Service conceding~~following items identified in the ~~Tax Court case regarding Foreign Sales Corporation benefits~~third and fourth quarters of fiscal 2005:


	% of Effective Tax Rate
Acquisition and restructuring costs	(0.6	)%
Dividend pursuant to the American Jobs Creation Act of 2004	(3.0	)
Settlement of audits and expiration of statutes	3.2
True-up of estimated tax accruals upon filing of prior year tax returns	1.0

Total	0.6	%

Acquisition and restructuring costs relate to non-deductible expenses resulting from in-process research and development charges and additional taxes associated with tender offer costs incurred from June 9, 2003 to December 12, 2004 for PeopleSoft that, upon acquisition in the third quarter of fiscal 2005, had to be capitalized into the basis of the stock for tax purposes. The dividend pursuant to the American Jobs Creation Act of 2004 represents federal and state tax accrued on ~~our~~the $3.1 billion dividend paid in May 2005 pursuant to this Act. The settlement of audits and expiration of statutes of limitation on assessments relates to the favorable settlement of several domestic and foreign ~~royalties.~~audits and the expiration of statutes of limitation on assessments. The true-up of estimated tax accruals upon filing of prior year tax returns reflects a net favorable revision to estimated tax accruals upon filing fiscal 2004 tax returns.

We provide for United States income taxes on the earnings of foreign subsidiaries unless they are considered ~~permanently~~indefinitely reinvested outside of the United States. At May 31, ~~2004,~~2005, the cumulative earnings upon which United States income taxes have not been provided were approximately ~~$4.8~~$2.2 billion. If these earnings were repatriated to the United States, they would generate foreign tax credits that could reduce the ~~Federal~~federal tax liability associated with the foreign dividend. Assuming a full utilization of the foreign tax credits, the potential deferred tax liability for these earnings would be ~~$902.0~~approximately $500 million. In May 2005, we repatriated $3.1 billion of the earnings of foreign subsidiaries in accordance with the American Jobs Creation Act of 2004 and recorded a federal tax expense of $118 million and a state tax expense (net of the federal tax benefit) of $3 million. We repatriated the maximum amount available for repatriation under the American Jobs Creation Act of 2004.

~~Under FASB Statement No. 109,~~~~Accounting for Income Taxes~~~~, deferred assets and liabilities are determined based on differences between the financial reporting and tax basis~~

This distribution from previously indefinitely reinvested earnings does not change our position going forward that future earnings of ~~assets and liabilities and are measured using enacted tax rates and laws that~~certain of our foreign subsidiaries will be in effect when the differences are expected to reverse. Statement 109 provides for the recognition of deferred tax assets if realization of such assets is more likely than not. We will continue to evaluate the realizability of the deferred tax assets on a quarterly basis. We believe that all deferred tax assets will be realized, and therefore, no valuation allowance is necessary.indefinitely reinvested.

~~Quarterly Results of Operations~~

Quarterly revenues and expenses have historically been affected by a variety of seasonal factors, including sales compensation plans. These seasonal factors are common in the software industry. These factors have caused a decrease in our first quarter revenues as compared to revenues in the immediately preceding fourth quarter, which historically, has been the highest quarter. We expect this trend to continue in the first quarter of fiscal 2005. In addition, our European operations generally provide lower revenues in our first fiscal quarter because of the reduced economic activity in Europe during the summer.

The following table sets forth selected unaudited quarterly information for our last eight fiscal quarters. We believe that all necessary adjustments, which consisted only of normal recurring adjustments, have been included in the amounts stated below to present fairly the results of such periods when read in conjunction with the consolidated financial statements and related notes included elsewhere in this Form 10-K. The sum of the quarterly financial information may vary from the annual data due to rounding.

Fiscal 2004 Quarter Ended (Unaudited)
(Dollars in millions, except per share amounts) August 31 November 30 February 29 May 31
Revenues $ 2,072 $ 2,498 $ 2,509 $ 3,076
Operating income $ 616 $ 915 $ 927 $ 1,404
Net income $ 440 $ 617 $ 635 $ 988
Earnings per share— basic $ 0.08 $ 0.12 $ 0.12 $ 0.19
Earnings per share— diluted $ 0.08 $ 0.12 $ 0.12 $ 0.19

Fiscal 2003 Quarter Ended (Unaudited)
(Dollars in millions, except per share amounts) August 31 November 30 February 28 May 31
Revenues $ 2,028 $ 2,309 $ 2,307 $ 2,832
Operating income $ 580 $ 794 $ 796 $ 1,271
Net income $ 343 $ 535 $ 571 $ 858
Earnings per share— basic $ 0.06 $ 0.10 $ 0.11 $ 0.16
Earnings per share— diluted $ 0.06 $ 0.10 $ 0.11 $ 0.16

Liquidity and Capital Resources

As of and for the Fiscal Year Ended May 31,
(Dollars in millions) 2004 Change 2003 Change 2002
Working capital $ 7,064 39% $ 5,069 6% $ 4,768
Cash, cash equivalents and short-term investments $ 8,587 32% $ 6,519 12% $ 5,841
Cash provided by operating activities $ 3,177 5% $ 3,023 -4% $ 3,135
Cash provided by (used for) investing activities $ (2,561 ) -386% $ 895 144% $ (2,030 )
Cash used for financing activities $ (1,289 ) -47% $ (2,454 ) 0% $ (2,465 )


	As of and for the Fiscal Year Ended May 31,
(Dollars in millions)	2005			Change	2004			Change	2003
Working capital	$	416		-94%	$	7,064		39%	$	5,069
Cash, cash equivalents and marketable securities	$	4,802		-44%	$	8,587		32%	$	6,519
Cash provided by operating activities	$	3,552		11%	$	3,195		5%	$	3,050
Cash provided by (used for) investing activities	$	(5,753	)	126%	$	(2,548	)	-385%	$	895
Cash provided by (used for) financing activities	$	1,884		243%	$	(1,320	)	-47%	$	(2,481	)

Working capital: The decline in working capital in fiscal 2005 is primarily due to cash paid to acquire PeopleSoft and an increase in short-term borrowings.

Cash, cash equivalents and ~~short-term investments:~~marketable securities: Cash and cash equivalents consist of highly liquid investments in time deposits held at major banks, commercial paper, United States government agency discount notes, money market mutual funds and other money market securities with original maturities of 90 days or less. ~~Short-term investments include all investments with original maturities~~Marketable securities primarily consist of ~~greater than 90 days that mature in fiscal 2005.~~commercial paper, corporate notes and Unites States government agency notes. Cash, cash equivalents and ~~short-term investments~~marketable securities include ~~$6.5~~$3.1 billion held by our foreign subsidiaries, ~~$4.8~~$2.2 billion of which we consider ~~permanently~~indefinitely reinvested outside of the United States. These earnings would be subject to United States income tax if repatriated to the United States. Assuming a full utilization of the foreign tax credits, the ~~potential~~hypothetical deferred tax liability for these earnings would be ~~$902.0~~$500 million.

Improved timeliness in the collection of accounts receivable has contributed to the increase in cash, cash equivalents and short-term investments in fiscal 2004. Days sales outstanding, which is calculated by dividing period end accounts receivable by average daily sales for the quarter, was 59, 61 and 66 as of May 31, 2004, 2003 and 2002, respectively.

Cash flows from operating activities: Our largest source of operating cash flows is cash collections from our customers following the purchase and renewal of their software license updates and product support agreements. Payments from customers for software license updates and product support are generally received by the beginning of the contract term, which is generally one year in length. ~~Additionally, we~~We also generate significant cash from new software license sales, and to a lesser extent, services. Our primary uses of cash from operating activities are for personnel related expenditures, payment of taxes, facilities and technology ~~costs,~~costs. Additionally in 2005, our cash flows from operations were affected by acquisition of assets and assumption of liabilities in connection with the acquisition of PeopleSoft.

Fiscal 2005 Compared to Fiscal 2004: Cash flows from operating activities increased in fiscal ~~2004, expenditures~~2005 primarily due to higher net income, excluding non-cash charges, and increases in non-acquisition related deferred revenues, partially offset by the payment of liabilities assumed in connection with the PeopleSoft acquisition.

Days sales outstanding, which is calculated by dividing period end accounts receivable by average daily sales for the quarter, was 56 at May 31, 2005 and 59 days at May 31, 2004. The days sales outstanding calculation excludes the adjustment to reduce software license updates and product support revenue related to ~~our tender offer~~adjusting the carrying value for ~~PeopleSoft.~~deferred support revenues acquired, primarily from PeopleSoft, to its estimated fair value. The decline in days sales outstanding is due to more timely collections, as well as a shift in the mix of total revenues. Software license updates and product support revenues are generally billed one year in advance, while the revenues are recognized ratably over the annual contract period. Software license updates and product support revenues as a percentage of total revenues increased, resulting in higher cash collections and lower days sales outstanding.

Fiscal 2004 Compared to Fiscal 2003: Cash flows from operating activities increased in fiscal 2004, primarily due to higher net income and the timing of income tax payments, partially offset by higher trade receivables.

~~Fiscal 2003 Compared to Fiscal 2002:~~ ~~Cash flows from operating activities decreased in fiscal 2003, primarily due to an increase in income tax payments partially offset by a decline in compensation and bonus payments.~~

Cash flows from investing activities: The changes in cash flows from investing activities primarily relate to acquisitions and the timing of purchases and maturities of investments. We also use cash to invest in capital and other assets to support our growth.

Fiscal 2005 Compared to Fiscal 2004: Cash used for investing activities increased in fiscal 2005 primarily due to cash paid to acquire PeopleSoft. The increase was partially offset by higher proceeds from maturities of marketable securities, net of purchases.

Fiscal 2004 Compared to Fiscal 2003: Cash flows from investing activities decreased in fiscal 2004 due to higher purchases of ~~short-term investments partially~~marketable securities offset by lower capital expenditures.

~~Fiscal 2003 Compared to Fiscal 2002:~~ ~~Cash flows from investing activities increased in~~ In fiscal 2003, ~~due to lower purchases of short-term investments as well as~~we exercised an ~~increase in proceeds from~~option under a master lease facility and purchased the ~~maturities and sale of short-term investments.~~leased properties for $168.3 million.

Cash flows from financing activities: ~~We incurred negative~~ The changes in cash flows from financing activities ~~in fiscal 2004, 2003~~primarily relate to payments made for stock repurchases, as well as borrowings and ~~2002 primarily as a result of common stock repurchases. Cash flow from operations and existing cash balances were used to repurchase our common stock.~~payments under debt obligations.

Our Board of Directors has approved a program to repurchase shares of our common stock to reduce the dilutive effect of our stock option and stock purchase plans. The Board has expanded the repurchase program several

times by either increasing the authorized number of shares to be repurchased or by authorizing a fixed dollar amount expansion, most recently in October 2004. From the inception of the stock repurchase program in 1992 to May 31, ~~2004,~~2005, a total of ~~1,674.3 million~~1.8 billion shares have been repurchased for approximately ~~$19.1~~$20.4 billion. ~~We repurchased 117.8 shares for $1.5 billion, 270.4 million shares for $2.7 billion and 210.1 million shares for $2.8 billion in fiscal 2004, 2003 and 2002, respectively.~~ At May 31, ~~2004,~~2005, approximately ~~$1.3~~$1.9 billion was available to repurchase shares of our common stock pursuant to the stock repurchase program. Cash flow from operations and existing cash balances were used to repurchase our common stock.

~~During~~

Fiscal 2005 Compared to Fiscal 2004: We generated cash flow from financing activities in fiscal ~~1997, we issued $150.0 million in 6.72% senior notes due in February 2004 and $150.0 million in 6.91% senior notes due in February 2007.~~2005 as a result of net borrowings of $2.7 billion primarily used to pay for the acquisition of PeopleSoft. In the third quarter of fiscal 2005, we borrowed $9.2 billion under a bridge loan to fund the acquisition of PeopleSoft and repaid the entire balance as of May 31, 2005 with cash flows from operations, proceeds from maturities and sale of marketable securities, the repatriation of foreign earnings and new borrowings. We borrowed $2.0 billion under a $3.0 billion commercial paper program and $700 million under a 364-day loan facility through a wholly-owned subsidiary in the fourth quarter of fiscal 2005.

Fiscal 2004 Compared to Fiscal 2003: We incurred negative cash flows from financing activities in fiscal 2004 primarily as a result of common stock repurchases.

In fiscal 2004, we repaid our $150.0 million senior notes that matured in February 2004.

In ~~February~~fiscal 1998, we entered into a forward contract to sell 36.0 million shares of our common stock at $4.42 per share plus accretion, subject to adjustments over time. The forward contract had a stated maturity of February 13, 2003 and was accounted for as an equity instrument. The forward contract collateralized our master lease facility that provided for the construction or purchase of up to $182.0 million of property and improvements leased by us. ~~On October 31, 2002,~~In fiscal 2003, we settled the forward contract with a cash payment of $166.3 million, which was recorded as a reduction to additional paid in capital. ~~In May 2003, we exercised~~

Free cash flow: We believe reporting free cash flow provides more visibility to our ability to generate cash. We believe that this measure is also useful to investors as one of the bases for comparing our operating performance with our competitors. Free cash flow is not a measure of financial performance under U.S. generally accepted accounting principles and should not be considered in isolation or as an ~~option under the master lease facility and purchased the leased properties for $168.3 million.~~alternative to net income as an indicator of our performance, or as an alternative to cash flows from operating activities as a measure of liquidity. We calculate free cash flows as follows:


	Year Ended May 31,
(Dollars in millions)	2005			Change	2004			Change	2003
Cash provided by operating activities	$	3,552		11%	$	3,195		5%	$	3,050
Capital expenditures⁽¹⁾	$	(188	)	-1%	$	(189	)	-35%	$	(291	)
Free cash flow	$	3,364		12%	$	3,006		9%	$	2,759
Net income	$	2,886		8%	$	2,681		16%	$	2,307
Free cash flow as a percent of net income		117%				112%				120%

⁽¹⁾	Represents capital expenditures as reported in cash flows from investing activities in our consolidated statements of cash flows presented in accordance with U.S. generally accepted accounting principles.

Long-Term Customer Financing

We offer our customers the option to acquire our software and services through separate long-term payment contracts. We generally sell such contracts on a non-recourse basis to financial institutions. We record the transfers of amounts due from customers to financial institutions as sales of financial assets because we are considered to have surrendered control of these financial ~~assets under the provisions of FASB Statement No. 140, A~~~~ccounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.~~assets. In fiscal 2005, 2004 and 2003, ~~and 2002,~~$455.6 million, $356.6 million ~~$364.1 million~~ and ~~$453.6~~$364.1 million or approximately ~~10%~~11%, ~~11%~~10% and ~~13%~~11%, respectively, of our new software license revenues were financed through our financing division.

Contractual Obligations

~~Contractual Obligations~~

The contractual obligations presented in the table below represent our estimates of future payments under fixed contractual obligations and commitments. Changes in our business needs, cancellation provisions, changing interest rates and other factors may result in actual payments differing from these estimates. We cannot provide certainty regarding the timing and amounts of payments. We have presented below a summary of the most significant assumptions used in our information within the context of our consolidated financial position, results of operations and cash flows. The following is a summary of our contractual obligations as of May 31, ~~2004:~~

Year Ending May 31,
(in millions) Total 2005 2006 2007 2008 2009 Thereafter
Balance Sheet Contractual Obligations

Principal payments on senior notes $ 150 $ — $ — $ 150 $ — $ — $ —
Notes payable 15 9 — 6 — — —
Long-term deferred tax liabilities⁽¹⁾
59

Total balance sheet contractual obligations 224 9 — 156 — — —
Other Contractual Obligations

Interest payments on senior notes⁽²⁾
15 5 5 5 — — —
Operating leases 530 132 96 65 49 42 146
Purchase obligations⁽³⁾
11 9 2 — — — —
Funding commitments⁽¹⁾⁽⁴⁾
27

Total other contractual obligations 583 146 103 70 49 42 146

Total contractual obligations $ 807 $ 155 $ 103 $ 226 $ 49 $ 42 $ 146

2005:


	Year Ending May 31,
(in millions)	Total		2006		2007		2008		2009		2010		Thereafter
Balance Sheet Contractual Obligations:
Short-term borrowings⁽¹⁾	$	2,693	$	2,693	$	—	$	—	$	—	$	—	$	—
Principal payments on senior notes		150		—		150		—		—		—		—
Payable to PeopleSoft stockholders⁽²⁾		6		6		—		—		—		—		—
Notes payable		6		—		6		—		—		—		—

Total balance sheet contractual obligations		2,855		2,699		156		—		—		—		—
Other Contractual Obligations:
Interest payments on short-term borrowings⁽¹⁾		32		32		—		—		—		—		—
Interest payments on senior notes⁽³⁾		14		8		6		—		—		—		—
Operating leases		660		157		134		102		85		66		116
Purchase obligations⁽⁴⁾		27		12		13		2		—		—		—
Funding commitments⁽⁵⁾		10		10		—		—		—		—		—

Total other contractual obligations		743		219		153		104		85		66		116

Total contractual obligations	$	3,598	$	2,918	$	309	$	104	$	85	$	66	$	116

⁽¹⁾ Short-term borrowings include approximately $2.0 billion in promissory notes under our commercial paper program with various maturities through September 2005 (weighted average effective interest rate of 3.13% at May 31, 2005) and borrowings under an unsecured $700 million loan facility due May 2006 (effective interest rate of 3.53% at May 31, 2005).

⁽¹⁾⁽²⁾

~~The timing~~On January 7, 2005, we completed the merger of ~~future~~PeopleSoft and converted each remaining outstanding share of PeopleSoft common stock not tendered into a right to receive $26.50 per share in cash, ~~outflows related~~without interest. As of May 31, 2005, $6 million remained payable to ~~these obligations is~~PeopleSoft stockholders who had not ~~known.~~submitted their shares.


⁽²⁾⁽³⁾	Represents estimated interest payments on our senior notes using an effective interest rate of ~~3.31%~~5.23% at May 31, ~~2004.~~2005. We entered into an interest-rate swap agreement that has the economic effect of modifying the interest obligations associated with our 6.91% senior notes so that the interest payable on the senior notes effectively becomes variable.


⁽³⁾⁽⁴⁾	Represents amounts associated with agreements that are enforceable, legally binding and specify terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the payment.


⁽⁴⁾⁽⁵⁾	Funding commitments relate to the maximum additional capital we may need to contribute toward our venture fund investments which are payable upon demand.

~~Tender Offer for PeopleSoft, Inc.~~

On June 9, 2003, we commenced an unsolicited $16.00 per share, or approximately $5.1 billion, tender offer for all of the outstanding shares of common stock of PeopleSoft, Inc., a Delaware corporation. On June 18, 2003, we increased the value of our tender offer to $19.50 per share or approximately $6.2 billion. In connection with PeopleSoft’s acquisition of J.D. Edwards & Company, PeopleSoft issued additional shares of its stock, which increased the value of our offer to approximately $7.5 billion. On February 4, 2004, we increased the value of our tender offer to $26.00 per share or approximately $9.4 billion. On May 14, 2004, we revised the value of our tender offer to $21.00 per share, or approximately $7.7 billion. Our tender offer will expire on July 16, 2004, unless we extend the offer. In connection with the tender offer, we have been named as a defendant in various legal proceedings, including civil antitrust lawsuits filed by the U.S. Department of Justice and several state attorneys general to block our acquisition of PeopleSoft, and may be a party to additional legal proceedings in the future.

On December 24, 2003, we entered into a 364-Day Revolving Credit Facility (the Credit Facility) with Credit Suisse First Boston (an affiliate of Credit Suisse First Boston LLC) and certain other syndicated lenders named in the Credit Facility. The Credit Facility provides an unsecured revolving credit facility to us or an acquisition subsidiary, with the underlying obligation guaranteed by us, in the aggregate amount of up to $1.5 billion and is available through December 22, 2004 for the purpose of financing the acquisition of PeopleSoft. At May 31, 2004, no amounts were borrowed under the Credit Facility.

We have incurred approximately $59.7 million of expenditures as of May 31, 2004, associated with our tender offer for PeopleSoft. During fiscal 2004, expenditures of $54.2 million are included in general and administrative expense in the consolidated statements of operations. The remaining $5.5 million, which relates to commitment fees for the Credit Facility, is included in other income, net in the consolidated statements of operations. We will continue to incur costs in connection with our tender offer for PeopleSoft.

We believe that our current cash and cash equivalents, ~~short-term investments~~marketable securities and cash generated from operations will be sufficient to meet our working capital, capital expenditure, contractual obligations and investment needs. If we acquire PeopleSoft, we will need up to approximately $8.0 billion to purchase all shares that we estimate will be outstanding prior to the expiration date of the offer and to pay estimated fees and expenses related to the offer. In addition to the Credit Facility, we could raise funds through additional borrowings or from the issuance of additional securities. We expect, based upon the combination of internally available cash and investments as of May 31, 2004, additional cash generated since that date, borrowings under the Credit Facility or any other credit facility or the issuance of securities, to have sufficient cash on hand at the expiration of the offer to pay the offer price for all shares in the offer. The offer is not conditioned upon any financing arrangements. In addition, we believe we could fund other acquisitions with our internally available cash and investments, cash

generated from operations, amounts available under our commercial paper program, additional ~~credit facilities~~borrowings or from the issuance of additional securities.

Quarterly Results of Operations

Quarterly revenues and expenses have historically been affected by a variety of seasonal factors, including sales compensation plans. These seasonal factors are common in the software industry. These factors have caused a decrease in our first quarter revenues as compared to revenues in the immediately preceding fourth quarter, which historically, has been the highest quarter. We expect this trend to continue in the first quarter of fiscal 2006. In addition, our European operations generally provide lower revenues in our first fiscal quarter because of the reduced economic activity in Europe during the summer.

The following table sets forth selected unaudited quarterly information for our last eight fiscal quarters. Revenues and expenses from PeopleSoft are included in our financial results beginning on December 29, 2004. We believe that all necessary adjustments, which consisted only of normal recurring adjustments, have been included in the amounts stated below to present fairly the results of such periods when read in conjunction with the consolidated financial statements and related notes included elsewhere in this Form 10-K. The sum of the quarterly financial information may vary from the annual data due to rounding.

   Fiscal 2005 Quarter Ended (Unaudited)
(in millions, except per share amounts)
   August 31
   November 30
   February 28
   May 31
Revenues
   $ 2,215    $ 2,756    $ 2,950    $ 3,878
Gross profit
   $ 1,180    $ 1,611    $ 1,495    $ 2,164
Operating income
   $ 715    $ 1,131    $ 770    $ 1,407
Net income
   $ 509    $ 815    $ 540    $ 1,022
Earnings per share—basic
   $ 0.10    $ 0.16    $ 0.11    $ 0.20
Earnings per share—diluted
   $ 0.10    $ 0.16    $ 0.10    $ 0.20
   Fiscal 2004 Quarter Ended (Unaudited)
(in millions, except per share amounts)
   August 31
   November 30
   February 29
   May 31
Revenues
   $ 2,072    $ 2,498    $ 2,509    $ 3,076
Gross profit
   $ 1,045    $ 1,375    $ 1,400    $ 1,881
Operating income
   $ 616    $ 915    $ 927    $ 1,406
Net income
   $ 440    $ 617    $ 635    $ 990
Earnings per share—basic
   $ 0.08    $ 0.12    $ 0.12    $ 0.19
Earnings per share—diluted
   $ 0.08    $ 0.12    $ 0.12    $ 0.19

Stock Options

Our stock option program is a key component of the compensation package we provide to attract and retain talented employees and align their interests with the interests of existing stockholders. We recognize that options dilute existing stockholders and have sought to control the number of options granted while providing competitive compensation packages. Consistent with these dual goals, our cumulative potential dilution over the last three full fiscal years has been less than ~~1.0%,~~2.0% and has averaged ~~0.7%~~1.1% per year. The potential dilution percentage is calculated as the new option grants for the year, net of options forfeited by employees leaving the company, divided by the total outstanding shares at the beginning of the year. This maximum potential dilution will only result if all options are exercised. Many of these options, which have 10-year exercise periods, have exercise prices substantially higher than the current market price. At May 31, ~~2004, 33.6%~~2005, 24% of our outstanding stock options had exercise prices in excess of the current market price. Consistent with our historic practices, we do not expect that dilution from future grants before the effect of our stock repurchase program will exceed 1.5% per year for our ongoing business. Over the last 10 years, our stock repurchase program has more than offset the dilutive effect of our stock option ~~program.~~program, however, we may reduce the level of our stock repurchases in the future as we may use our available cash to repay indebtedness. At May 31, ~~2004,~~2005, the maximum

potential dilution

from all outstanding and unexercised option awards, regardless of when granted and regardless of whether vested or unvested and including options where the strike price is higher than the current market price, was ~~8.5%~~9.1%.

The Committee on Compensation and Management Development of the Board of Directors reviews and approves the organization-wide stock option grants to selected employees, all stock option grants to executive officers and any individual stock option ~~grant~~grants in excess of 25,000 shares. A separate Plan Committee, which is an executive officer committee, approves individual stock option grants up to 25,000 shares to non-executive officers and employees.

Options granted from ~~fiscal~~June 1, 2002 through ~~fiscal 2004~~May 31, 2005 are summarized as follows:


				(Shares in millions)
		~~(Shares~~
			~~in millions)~~

Options outstanding at May 31, ~~2001~~2002			454
Options granted⁽¹⁾		249
Options exercised		(157	)
Forfeitures		(77	)
		~~442~~
	Options ~~granted~~outstanding at May 31, 2005			~~175~~
	~~Options exercised~~			~~(115)~~
	~~Cancellations~~			~~(62)~~469

~~Options outstanding at May 31, 2004~~			~~440~~

Average annualized options granted, net of ~~cancellations~~forfeitures				3846
Average annualized stock repurchases			~~199~~168

Shares outstanding at May 31, ~~2004~~2005			~~5,171~~5,145
Weighted average shares outstanding from June 1, ~~2001~~2002 through May 31, ~~2004~~2005			~~5,345~~5,218

Options outstanding as a percent of shares outstanding at May 31, ~~2004~~2005			~~8.5%~~9.1%

In the money options outstanding (based on our May 31, ~~2004~~2005 stock price) as a percent of shares outstanding at May 31, ~~2004~~2005			~~5.6%~~6.9%

Average annualized options granted, net of ~~cancellations~~forfeitures and before stock repurchases, as a percent of weighted average shares outstanding from June 1, ~~2001~~2002 through May 31, ~~2004~~2005			~~0.7%~~0.9%

Average annualized options granted, net of ~~cancellations~~forfeitures and after stock repurchases, as a percent of average shares outstanding from June 1, ~~2001~~2002 through May 31, ~~2004~~2005			~~-3.0%~~-2.3%

⁽¹⁾	Includes 97 options assumed in connection with the PeopleSoft acquisition.

Generally, we grant stock options to our existing employees on an annual basis. During ~~the year ended May 31, 2004,~~fiscal 2005, we made our annual grant of options and other grants to purchase approximately ~~44.1~~42.6 million shares, ~~of our stock,~~which were partially offset by ~~21.4~~cancellations of options to purchase 24.6 million ~~shares~~shares. In June 2005, we made our annual grant of stock options to employees of the company to purchase approximately 52.8 million shares.

As discussed in the Critical Accounting Policies, we expect to adopt Statement 123(R) on June 1, 2006 and expense stock-based compensation using the modified prospective method.

New Accounting Pronouncements

Share-Based Payment: On December 16, 2004, the FASB issued Statement No. 123 (revised 2004),Share-Based Payment, which is a revision of Statement 123. Statement 123(R) supersedes Opinion 25, and amends FASB Statement No. 95,Statement of Cash Flows. Generally, the approach in Statement 123(R) is similar to the approach described in Statement 123. However, Statement 123(R) generally requires share-based payments to employees, including grants of employee stock options and purchases under employee stock purchase plans, to be recognized in the statement of operations based on their fair values. Pro forma disclosure of fair value recognition will no longer be an alternative.

Statement 123(R) permits public companies to adopt its requirements using one of two methods:

Modified prospective method: Compensation cost is recognized beginning with the effective date of adoption (a) based on the requirements of Statement 123(R) for ~~canceled options.~~all share-based payments granted after

the effective date of adoption and (b) based on the requirements of Statement 123 for all awards granted to employees prior to the effective date of adoption that remain unvested on the date of adoption.

Modified retrospective method: Includes the requirements of the modified prospective method described above, but also permits restatement using amounts previously disclosed under the pro forma provisions of Statement 123 either for (a) all prior periods presented or (b) prior interim periods of the year of adoption.

On April 14, 2005, the Securities and Exchange Commission announced that the Statement 123(R) effective transition date will be extended to annual periods beginning after June 15, 2005. We expect to adopt this new standard on June 1, 2006, using the modified prospective method.

Statement 123(R) also requires the benefits of tax deductions in excess of recognized compensation expense to be reported as a financing cash flow, rather than as an operating cash flow as prescribed under current accounting rules. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption. Total cash flow will remain unchanged from cash flow as it would have been reported under prior accounting rules.

As permitted by Statement 123, we currently account for share-based payments to employees using Opinion 25’s intrinsic value method. As a consequence, we generally recognize no compensation cost for employee stock options and purchases under our Employee Stock Purchase Plan. Although the adoption of Statement 123(R)’s fair value method will have no adverse impact on our balance sheet or total cash flows, it will affect our net income and diluted earnings per share. The ~~net options~~actual effects of adopting Statement 123(R) will depend on numerous factors including the amounts of share-based payments granted in the ~~year ended May 31,~~future, the valuation model we use to value future share-based payments to employees and estimated forfeiture rates. See Note 1 for the effect on reported net income and earnings per share if we had accounted for our stock option and stock purchase plans using the fair value recognition provisions of Statement 123.

Exchanges of Nonmonetary Assets: On December 16, 2004, the FASB issued Statement No. 153,Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions. Statement 153 addresses the measurement of exchanges of nonmonetary assets and redefines the scope of transactions that should be measured based on the fair value of the assets exchanged. Statement 153 is effective for nonmonetary asset exchanges beginning in our second quarter of fiscal 2006. We do not believe adoption of Statement 153 will have a material effect on our consolidated financial position, results of operations or cash flows.

Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004: On December 21, 2004, the FASB issued Staff Position No. FAS 109-2,Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004. The American Jobs Creation Act introduces a special one-time dividends received deduction on the repatriation of certain foreign earnings to a U.S. taxpayer (repatriation provision), provided certain criteria are met. FSP FAS 109-2 provides accounting and disclosure guidance for the repatriation provision. In the fourth quarter of fiscal 2005, we repatriated $3.1 billion of cumulative foreign earnings invested outside the United States. The additional income tax associated with this amount was $118 million.

Accounting Changes and Error Corrections: On June 7, 2005, the FASB issued Statement No. 154,Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20,Accounting Changes, and Statement No. 3,Reporting Accounting Changes in Interim Financial Statements. Statement 154 changes the requirements for the accounting for and reporting of a change in accounting principle. Previously, most voluntary changes in accounting principles were required recognition via a cumulative effect adjustment within net income of the period of the change. Statement 154 requires retrospective application to prior periods’ financial statements, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. Statement 154 is effective for accounting changes made in fiscal years beginning after ~~cancellations represented 0.4%~~December 15, 2005; however, the Statement does not change the transition provisions of any existing accounting pronouncements. We do not believe adoption of Statement 154 will have a material effect on our ~~total outstanding shares~~consolidated financial position, results of ~~approximately 5,171 million as of May 31, 2004.~~operations or cash flows.

Factors That May Affect Our Future Results or the Market Price of Our Stock

We operate in a rapidly changing economic and technological environment that presents numerous ~~risks. Many~~risks, many of ~~these risks are beyond our control and~~which are driven by factors that we cannot control or predict. The following discussion, as well as ~~our discussion~~that above of critical accounting policies and estimates, highlights some of these risks.

Economic, political and market conditions can adversely affect our revenue ~~growth.~~ ~~Our revenue~~ growth and ~~profitability depend on~~ profitability. Our business is influenced by a range of factors that are beyond our control and that we have no comparative advantage in forecasting. These include:

the overall demand for enterprise computer software and services, particularly in the sectors in which we offer products. Because our sales are primarily to corporate and government customers, the health of our business is directly related to the strength of general economic and business conditions. A general weakening of the global economy and weakening of business services;

conditions ~~particularly~~ in the high technology, telecommunications, financial services and manufacturing industry ~~sectors, as well as the imposition of~~ sectors;

governmental budgetary constraints ~~could result~~or shifts in ~~delays~~government spending priorities;

general economic and ~~decreases of customer purchases. In addition to sales of new software licenses, we derive a significant proportion of our revenues from new purchases~~business conditions; and ~~recurring renewals of software license updates~~

general political developments, such as the war on terrorism.

Recovery in the global economic environment has been modest and ~~product support.~~uneven. A general weakening of the global economy, or a curtailment in government spending, could delay and ~~weakening of business conditions could result in decreases in our renewal rates for software~~

license updates and product support. Despite an improving global economic environment, some governmental spending remains constrained by budgetary limits, especially domestically. If demand for our software and related services does not continue to strengthen, our revenue growth rates for new software licenses and, to a lesser extent, our revenue growth rates for software license updates and product support will be adversely affected.decrease customer purchases. In addition, the war on terrorism and the potential for other hostilities in various parts of the world continue to contribute to a climate of economic and political uncertainty that could adversely affect our revenue growth and ~~results.~~

results of operations. These impacts generally fall most strongly on our sales of software licenses, and to a lesser extent, also affect our renewal rates for software license updates and product support.

~~Although~~

We may fail to achieve our financial forecasts due to inaccurate sales forecasts or other factors. Our revenues, and particularly our new software license revenues, are difficult to forecast, and as a result our quarterly operating results can fluctuate substantially. We use a “pipeline” system, a common industry practice, to forecast sales and trends in our business. Our sales personnel monitor the status of all proposals and estimate when a customer will make a purchase decision and the dollar amount of the sale. These estimates are aggregated periodically to generate a sales pipeline. Our pipeline estimates can prove to be unreliable both in a particular quarter or over a longer period of time, in part because the “conversion rate” of the pipeline into contracts can be very difficult to estimate. A variation in the conversion rate, or in the pipeline itself, could cause us to plan or budget incorrectly and adversely affect our business ~~depends materially on~~or results of operations. In particular, a slowdown in information technology spending or economic conditions generally can reduce the ~~condition~~conversion rate in particular periods as purchasing decisions are delayed, reduced in amount or cancelled. The conversion rate can also be affected by the tendency of ~~domestic and foreign economies, and on the performance of key industry sectors that generate a disproportionate percentage~~some of our ~~revenues and earnings, our management has no comparative advantage in forecasting macroeconomic trends and developments relating~~customers to these general business conditions. Our management is, however, required to make forecasts in order to develop budgets, plan research and development strategies and perform a wide variety of general management functions. Towait until the ~~extent that our forecasts are in error, because we are either overly optimistic or overly pessimistic about the performance of an economy or of an industry sector, our performance could suffer because~~end of a ~~failure~~fiscal period in the hope of obtaining more favorable terms. In addition, we have limited experience regarding how the PeopleSoft pipeline will convert into actual sales. Because a substantial portion of our software license revenue contracts are completed in the latter part of a quarter, and our cost structure is largely fixed in the short term, revenue shortfalls tend to ~~properly match corporate strategy with economic conditions.~~have a disproportionately negative impact on our profitability. A delay in even a small number of large software license transactions could cause our quarterly results to fall significantly short of our predictions.

Our success depends upon our ability to develop new products and services, integrate acquired products and services and enhance our existing products and services. Rapid technological advances ~~in hardware~~ and ~~software development,~~ evolving standards in computer hardware, software ~~technology~~development and communications infrastructure, changing and increasingly sophisticated customer needs and frequent new product introductions and enhancements characterize the enterprise software market in which we compete. To keep pace with technological developments, satisfy increasingly sophisticated customer requirements and achieve market acceptance, we must enhance and improve existing products and services like Oracle Database, Oracle Application Server, Oracle E-Business Suite, Oracle Collaboration Suite and Oracle On Demand and we must also continue to introduce new products and services. If we are unable to develop new products and services, or ~~adapt our current products to run on new or popular operating systems, if we are unable~~ to enhance and improve our products ~~successfully~~and support services in a timely manner or ~~if we fail~~ to position and/or price our products and services to meet market demand, customers may not buy new software licenses ~~and our business and operating results will be adversely affected. If our enhancements to existing products do not deliver the functionality that our customer base demands, our customers may not~~or renew software license updates and product ~~support and our business and operating results will be adversely affected.~~support. In addition, standards for network protocols, as well as other industry adopted and de facto standards for the internet, are rapidly evolving. We cannot provide any assurance that the standards on which we choose to develop new products will allow us to compete effectively for business opportunities ~~as they arise~~ in emerging areas. ~~Accelerated product introductions~~

Following the PeopleSoft acquisition, we announced Project Fusion, a next generation platform planned to combine the best features, flows and short product life cycles require high levels of expenditures for research and development that could adversely affect our operating results. Further, any new products we develop may not be introduced in a timely manner and may not achieve the broad market acceptance necessary to generate significant revenues. Finally, while customers make first-time buying decisions based on the products, many make future license and support buying decisions based upon the qualityusability traits of the ~~support offering.~~Oracle and PeopleSoft applications. If we do not develop and release Project Fusion products within the anticipated time frames or if there is a delay in market acceptance of the combined product line, our applications business may be adversely affected.

There are specific risks remaining from the acquisition and integration of PeopleSoft. We completed the acquisition of PeopleSoft in January 2005 and have substantially integrated PeopleSoft’s business operations into our global business operations as of June 2005. Despite this progress, we are still in the process of completing the integration and continue to ~~enhance our~~face several integration-related risks, including:

we may have higher than anticipated costs in continuing support ~~services our renewal rates for product support may decline, which could affect our operating results.~~

~~Our sales forecasts may not consistently correlate to revenues in a particular quarter.~~ ~~We use a “pipeline” system, a common industry practice, to forecast sales~~ and ~~trends in our business. Our sales personnel monitor the status~~development of all proposals, such as the date when they estimate that a customer will make a purchase decision and the potential dollar amount of the sale. These estimates are aggregated periodically to generate a sales pipeline. We compare this pipeline at various points in time to evaluate trends in our business. This analysis provides some guidance in business planning and budgeting, but these pipeline estimates are by their nature speculative. Our pipeline estimates are not necessarily reliable predictors of revenues in a particular quarter or over a longer period of time, partially because of changes in conversion rates of the pipeline into contracts that can be very difficult to estimate. A variation in the conversion rate of the pipeline into contracts, or in the pipeline itself, could cause us to plan or budget incorrectly and thereby adversely affect our business or results of operations. In particular, a slowdown in information technology spending or economic conditions can cause purchasing decisions to be delayed, reduced in amount or cancelled, which would reduce the overall softwareacquired PeopleSoft products;

~~license pipeline conversion rate in a particular period of time. Because a substantial portion of our software license revenue contracts are completed in the latter part of a quarter,~~ we may not ~~be able to adjust our cost structure promptly in response to a decrease~~realize the anticipated increase in our ~~pipeline conversion rate.~~

~~Our quarterly~~ revenues ~~and operating results can be difficult to predict and can fluctuate substantially.~~ ~~Our revenues in general, and our new software license revenues in particular, are difficult to forecast and are likely to fluctuate substantially from quarter to quarter due to~~if a larger than predicted number of ~~factors, many of which are outside of our control. These factors include:~~

• ~~the relatively long sales cycles for many of our products;~~
• ~~the tendency of some of our customers to wait until the end of a fiscal quarter or our fiscal year in the hope of obtaining more favorable terms;~~
• ~~the timing of our or our competitors’ new products or product enhancements or any delays in such introductions;~~
• ~~delays or deferrals of customer implementations of our products;~~
• ~~changes in customer budgets that could affect both the timing and size of any transaction;~~
• ~~delays in recognizing revenue on any transaction;~~
• ~~changes in the renewal rate for software license updates and product support contracts;~~
• ~~seasonality of technology purchases;~~
• ~~changes in local, national and international regulatory requirements;~~
• ~~changes in general economic, political or market conditions;~~
• ~~changes in exchange rates;~~
• ~~changes in the product selection purchasing patterns of our customers between standard edition products and higher premium products; and~~
• ~~changes in our pricing policies or the policies of our competitors.~~

~~Our new software license revenues in any quarter depend on orders booked and delivered in that particular quarter. Our~~PeopleSoft customers decline to renew software license updates and product support;

PeopleSoft’s Customer Assurance Program may expose us to substantial liabilities if triggered. In June 2003, in response to our tender offer, PeopleSoft implemented what it referred to as the “customer assurance program” or “CAP”. The CAP incorporated a provision in PeopleSoft’s standard licensing arrangement that purports to contractually burden Oracle, as a result of its acquisition of PeopleSoft, with a contingent obligation to make payments to PeopleSoft customers should Oracle fail to take certain business actions for a fixed period of time subsequent to the acquisition. The payment obligation is fixed at an amount generally between two and five times the license and first year support ~~revenues, which are recognized ratably~~fees paid to PeopleSoft in the applicable license transaction. This purported obligation was not reflected as a liability on PeopleSoft’s balance sheet as PeopleSoft concluded that it could be triggered only following the consummation of an acquisition. PeopleSoft used six different standard versions of the CAP over the ~~support term, are impacted by~~18-month period commencing June 2003. PeopleSoft ceased using the ~~renewal rate of annual support contracts by existing customers, as well as customers purchasing software license updates and product support~~CAP on December 29, 2004, the date on which we acquired our controlling interest in connection with purchasing new software licenses. Our operating expenses are budgeted based on our estimates of revenues and a high percentage of our expenses are fixed. Accordingly, our quarterly results are difficult to predict with any accuracy until the very end of a quarter. If even a small number of large software license transactions are delayed until after a quarter ends, our operating results and our net income for the quarter could fall significantly short of our predictions.

~~Our international sales and operations subject us to additional risks that can adversely affect our operating results.~~ ~~We derive a substantial portion of our revenues from customers outside the United States.~~PeopleSoft. We have ~~significant operations outside~~concluded that, as of the United States, including software development, sales, customer support and shared administrative service centers, and we plan to expand our international operations, including continued expansion in China and India. Our international operations are subject todate of the acquisition, the penalty provisions under the CAP represent a ~~variety~~contingent liability of ~~risks, including:~~


	•	~~general economic conditions in each country or region;~~

	•	~~the overlap of different tax regimes;~~

	•	~~fluctuations in currency exchange rates and difficulties in transferring funds from certain countries;~~

	•	~~the difficulty of managing an organization operating in various countries;~~


	•	~~growing political sentiment against international outsourcing of support services and development;~~

	•	~~changes in regulatory requirements;~~

	•	~~compliance with a variety of international laws and regulations, including trade restrictions, local labor ordinances and changes in tariff rates;~~

	•	~~longer payment cycles and difficulties in collecting accounts receivable;~~

	•	~~import and export licensing requirements;~~

	•	~~political unrest, terrorism and the potential for other hostilities, particularly in areas in which we have facilities; and~~

	•	~~reduced protection for intellectual property rights in some countries.~~

~~Our success depends, in part, on our ability to anticipate and address these risks. We cannot guarantee that these or other factors will not adversely affect our business or operating results.~~

~~We conduct a significant portion~~Oracle. The aggregate potential CAP obligation as of ~~our business in currencies other than the United States Dollar.~~May 31, 2005 was $3.5 billion. We have no comparative advantage in forecasting these rates. Our operating results are therefore subject to fluctuations in foreign currency exchange rates. Our revenues and operating results are adversely affected when the United States Dollar strengthens relative to other currencies and are positively affected when the United States Dollar weakens. Changes in the value of major foreign currencies, particularly the Euro, Japanese Yen and British Pound relativenot recorded a liability related to the value of the United States Dollar positively affected revenues and operating results in fiscal 2004 and 2003. If the United States Dollar strengthens relative to other currencies, our revenues and operating results will be adversely affected. Our foreign currency transaction gains and losses are primarily related to sublicense fees and other agreements among our subsidiaries, our distributors and ourselves. These gains and losses are charged against earnings in the period incurred. To reduce our transaction and translation gains and losses associated with converting foreign currencies into United States Dollars, we enter into foreign exchange forward contracts to hedge certain transaction and translation exposures in major currencies. In certain instances,CAP, as we do not ~~hedge foreign currencies, such~~believe it is probable that our post-acquisition activities related to the PeopleSoft product line will trigger an obligation to make any payment pursuant to the CAP.

In addition, while no assurance can be given as ~~when~~to the ~~forward contracts~~ultimate outcome of litigation, we believe we would also have substantial defenses with respect to the legality and enforceability of the CAP contract provisions in response to any claims seeking payment from Oracle under the ~~relevant currency are~~CAP terms. While we have taken extensive steps to assure customers that we intend to continue developing and supporting the PeopleSoft line of products, we cannot assure you that PeopleSoft customers will not ~~readily available or are not, in our opinion, cost effective. As a result, we will continue to experience foreign currency gains and losses.~~assert claims for CAP payments.

Acquisitions present many risks, and we may not realize the financial and strategic goals that were contemplated at the time of any transaction. ~~We have in the past~~ An active acquisition program is an important element of our corporate strategy, and we expect ~~in the future~~to continue to acquire ~~complementary~~ companies, products, services and technologies. ~~The risks~~Risks we may encounter in acquisitions include:


	•	~~we may find that the acquired company or assets do not further our business strategy or that we paid more than what the company or assets are worth;~~

	•	~~we may have difficulty integrating the operations and personnel of the acquired businesses;~~

	•	~~we may have difficulty incorporating the acquired technologies or products with our existing product lines;~~

	•	~~we may have product liability, customer liability or intellectual property liability associated with the sale of the acquired company’s products;~~

	•	~~our ongoing business may be disrupted by transition or integration issues;~~

	•	~~our management’s attention may be diverted from other business concerns;~~

	•	~~our management may not be able to improve our financial and strategic position;~~

	•	~~we may be unable to obtain timely approvals from governmental authorities under applicable competition and antitrust laws;~~

	•	~~we may have difficulty maintaining uniform standards, controls, procedures and policies;~~


	•	~~our relationship with current and new employees, customers and distributors could be impaired;~~

	•	~~the acquisition may result in litigation from terminated employees or third parties; and~~

	•	our due diligence process may fail to identify significant issues with the target’s product quality, financial disclosures and accounting practices, internal control deficiencies, including material weaknesses, product architecture and legal contingencies, among other matters.

These factors could have a material adverse effect on our business, results of operations, financial condition or cash flows, particularly in the case of a larger acquisition or number of acquisitions.

While we have generally paid for acquisitions in ~~cash. We may in the future pay for acquisitions in whole or in part with stock, other equity-related purchase rights or debt. To~~cash, to the extent that we issue ~~shares of stock or other rights to purchase stock, including options,~~equity securities in connection with future acquisitions, existing stockholders may be diluted and earnings per share may decrease.

~~There are specific risks associated with our proposed acquisition of PeopleSoft.~~ In June 2003, we commenced an unsolicited cash tender offer for all of the outstanding shares of common stock of PeopleSoft. In addition to the risks we face in connection with acquisitions generally, there are several unique risks we face in connection with the PeopleSoft offer including:


	•	in February 2004, the United States Department of Justice, joined by several state attorneys general, filed a civil antitrust suit in U.S. District Court to block our proposed merger with PeopleSoft. We believe the Department’s claim that there are only three vendors that meet the needs of large enterprises does not fit with the reality of the highly competitive, dynamic and rapidly changing market and have decided to challenge the lawsuit. The trial began on June 7, 2004, and we anticipate that the trial will last for four weeks. While we believe that we will prevail in the lawsuit, if we are not successful we would not be able to acquire PeopleSoft and the Department’s analysis may impact our ability to acquire other companies. In addition, the lawsuit could result in substantial costs and could divert management’s attention and other corporate resources;

	•	we have also received, and have responded to, requests for additional information from various other governmental authorities regarding possible antitrust concerns. If these authorities challenge our proposed acquisition, there may be additional costs and delays;

	•	in connection with the tender offer, we have also been named as a defendant in various legal proceedings and we may be a party to additional legal proceedings in the future. These proceedings could result in substantial costs and could divert management’s attention and other corporate resources;

	•	~~PeopleSoft has a “poison pill” in place, which may prevent us from consummating the proposed merger;~~

	•	PeopleSoft has implemented several other defensive tactics, including providing customers negotiating new contracts a refund program that may require an acquiror, including us, to pay those customers two to five times their license fees if certain business events (such as the termination of support for PeopleSoft products) occur during a fixed period of time. Based on public statements by PeopleSoft, we anticipate that this program could result in more than $1.96 billion in potential refund liabilities if triggered;

	•	our offer is not conditioned on any financing arrangements. We plan to pay for the PeopleSoft shares and related transaction fees and expenses with internally available cash and borrowings. We may not be able to arrange favorable financing terms. Depending upon the final financial structure of the transaction, our credit rating may be reduced, which may increase the cost of future borrowings;

	•	beyond reviewing publicly available information, we have not been able to conduct any due diligence on PeopleSoft and there may be liabilities or accounting or internal control issues of which we are not aware;


	•	~~we have little experience integrating and managing a multi-billion dollar acquisition; and~~

	•	~~we may have higher than anticipated costs in continuing support and development of acquired PeopleSoft products.~~

~~While we intend to proceed with our offer, we cannot assure you that we will be successful in acquiring PeopleSoft.~~

We may need to change our pricing models to compete successfully. The intensely competitive markets in which we compete can put pressure on us to reduce our prices. If our competitors offer deep discounts on certain ~~products in an effort to recapture or gain market share or to sell other software or hardware~~ products, we may need to lower prices or offer other favorable terms in order to compete successfully. Any such changes would be likely to reduce margins and could adversely affect operating results. Our software license updates and product support fees are generally priced as a percentage of our new license fees. Our competitors may offer a lower percentage pricing on product updates and support, which could put pressure on us to further discount our new license ~~prices to compete effectively. We have recently changed our pricing for our database management software and outsourcing services and any broadly based~~prices. Any broadly-based changes to our prices and pricing policies could cause new software license and services revenues to decline or be delayed as our sales force implements and our customers adjust to the new pricing policies. Some of our competitors may bundle software products for promotional purposes or as a long-term pricing strategy or provide guarantees of prices and product implementations. These practices could, over time, significantly constrain the prices that we can charge for our products. In addition, if we do not adapt our pricing models to reflect changes in customer use of our products, our new software license revenues could decrease. Additionally, ~~although the~~increased distribution of applications through application service providers may ~~provide a new market for our products, these new distribution methods could also~~ reduce the average price ~~paid~~ for our products or adversely affect other sales of our ~~products. If~~products, reducing new software license revenues unless we ~~cannot~~can offset price reductions with ~~a corresponding increase in the number of sales~~volume increases or ~~with~~ lower ~~spending, then the reduced new software license revenues resulting from lower prices would adversely affect our results.~~spending.

~~Disruptions of our indirect sales channel could affect our future operating results.~~ ~~In addition~~We may be unable to marketing our products and services through our own direct sales and service forces, we market our products and services through indirect channels. Our indirect channel network is comprised primarily of resellers, system integrators/ implementers, consultants, education providers, internet service providers, network integrators, and independent software vendors. We believe that our relationships with these channel participants enhance our marketing and sales efforts. Our financial results could be adversely affected if our contracts with channel participants were terminated, if our relationship with channel participants were to deteriorate, if any of our competitors enter into strategic relationships or acquire a significant channel participant, or if the financial condition of our channel participants were to weaken. In connection with our efforts to further penetrate markets, we will need to maintain or expand our relationships with indirect channel participants and develop additional relationships. There can be no assurance that we will be successful in maintaining, expanding or developing our relationships with these channel participants. If we are not successful, we may lose sales opportunities, customers and market share.

~~To be successful we must~~compete effectively ~~compete~~ in a range of markets within the highly competitive software industry. ~~The software industry is intensely competitive.~~ Many vendors develop and market databases, internet application server products, application development tools, business applications, collaboration products and business intelligence products that compete with our offerings. In addition, several companies offer business outsourcing as a competitive alternative to buying software. Some of these competitors have greater financial or technical resources than we do. We expect to continue to face intense competition in each market in which we compete. We could lose market share if our competitors introduce new competitive products into one or more of our markets, add new functionality into an existing competitive product, acquire a competitive product, reduce prices, or form strategic alliances with other companies. In addition, because new distribution methods and opportunities offered by the internet and electronic commerce have removed many of the barriers to entry historically faced by small and start-up companies in the software industry, we expect to face additional future competition from these companies. We may also face increasing competition from


þ~~ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF~~ ~~THE SECURITIES EXCHANGE ACT OF 1934~~

~~For the fiscal year ended May 31, 2004~~

OR

o ~~TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF~~ ~~THE SECURITIES EXCHANGE ACT OF 1934~~


Delaware		94-2871189
~~Delaware~~		~~94-2871189~~
(State or other jurisdiction of incorporation or organization)		(I.R.S. employer identification no.)


			Page
PART I.
					~~Page~~

~~PART I.~~
Item 1.		Business		1

Item 2.		Properties		9	10

Item 3.		Legal Proceedings		9	10

Item 4.		Submission of Matters to a Vote of Security Holders		9	10

PART II.

Item 5.		Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		10	11

Item 6.		Selected Financial Data		11	12

Item 7.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		11	13

Item 7A.		Quantitative and Qualitative Disclosures About Market Risk		41	52

Item 8.		Financial Statements and Supplementary Data		43	55

Item 9.		Changes In and Disagreements with Accountants on Accounting and Financial Disclosure		43	55

Item 9A.		Controls and Procedures	55
	43
Item 9B.		Other Information	56

PART III.

Item 10.		Directors and Executive Officers of the Registrant		44	57

Item 11.		Executive Compensation		44	57

Item 12.		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		44	58

Item 13.		Certain Relationships and Related Transactions		45	58

Item 14.		Principal ~~Accounting~~Accountant Fees and Services		45	58

PART IV.

Item 15.		Exhibits and Financial Statement Schedules ~~and Reports on Form 8-K~~	59
	46
		Signatures		78
~~EXHIBIT 21.01~~
~~EXHIBIT 23.01~~
~~EXHIBIT 31.01~~
~~EXHIBIT 31.02~~
~~EXHIBIT 32.01~~105


Name		Office(s)
~~Name~~		~~Office(s)~~
Lawrence J. Ellison		Chief Executive Officer and Director
Jeffrey O. Henley		Chairman of the Board of Directors ~~Executive Vice~~
Safra A. Catz		President, ~~and~~Interim Chief Financial Officer and Director
~~Safra A. Catz~~ Charles E. Phillips, Jr.		President and Director
~~Charles E. Phillips, Jr.~~ Gregory B. Maffei		President and ~~Director~~Prospective Chief Financial Officer
Keith G. Block		Executive Vice President, North America Sales and Consulting
Sergio Giacoletto		Executive Vice President, Europe, Middle East and Africa Sales and Consulting
~~Michael S. Rocha~~ Juergen Rottler		Executive Vice President, ~~Global~~Oracle Support ~~Services~~and Oracle On Demand
Charles A. Rozwat		Executive Vice President, Server Technologies
Derek H. Williams		Executive Vice President, Asia Pacific Sales and Consulting
~~Ronald A. Wohl~~ John Wookey		~~Executive~~Senior Vice President, Applications Development
Daniel Cooperman		Senior Vice President, General Counsel and Secretary
Jennifer L. Minton		Senior Vice President, Finance and Operations


		Low Sale		High Sale
		Price		Price

Fiscal 2004:
	Fourth Quarter	$	11.23	$	13.08
	Third Quarter		12.40		14.89
	Second Quarter		11.25		13.76
	First Quarter		11.29		13.65
Fiscal 2003:
	Fourth Quarter	$	10.68	$	13.26
	Third Quarter		10.53		13.11
	Second Quarter		7.64		12.15
	First Quarter		7.32		11.19


Item 4.	Submission of Matters to a Vote of Security Holders


Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities


	Low Sale Price		High Sale Price
Fiscal 2005:
Fourth Quarter	$	11.52	$	13.62
Third Quarter		12.66		14.63
Second Quarter		9.86		13.39
First Quarter		9.90		11.93
Fiscal 2004:
Fourth Quarter	$	11.23	$	13.08
Third Quarter		12.40		14.89
Second Quarter		11.25		13.76
First Quarter		11.29		13.65


						Total Number of		Approximate Dollar
		Total Number		Average Price		Shares Purchased as		Value of Shares that
		of Shares		Paid Per		Part of Publicly		May Yet Be Purchased
(in millions, except per share amounts)		Purchased		Share		Announced Program		Under the Program

March 1, 2004 - March 31, 2004			13.5	$	11.82		13.5	$	1,563.3
April 1, 2004 - April 30, 2004			15.5		12.28		15.5		1,372.5
May 1, 2004 - May 31, 2004			10.5		11.51		10.5		1,251.9

	Total		39.5	$	11.92		39.5


(in millions, except per share amounts)	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Program	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program
March 1, 2005 - March 31, 2005	—	$	—	—	$	2,157.1
April 1, 2005 - April 30, 2005	20.9		11.89	20.9		1,908.5
May 1, 2005 - May 31, 2005	—		—	—		1,908.5

Total	20.9	$	11.89	20.9



	As of and for the Fiscal Year Ended May 31,

(Dollars in millions, except per share amounts)	2004		2003		2002		2001		2000

Total revenues	$	10,156	$	9,475	$	9,673	$	10,961	$	10,231
Operating income		3,864		3,440		3,571		3,777		3,080
Net income		2,681		2,307		2,224		2,561		6,297	⁽¹⁾
Earnings per share—basic		0.51		0.44		0.40		0.46		1.11
Earnings per share—diluted		0.50		0.43		0.39		0.44		1.05
Basic weighted average common shares outstanding		5,215		5,302		5,518		5,597		5,679
Diluted weighted average common shares outstanding		5,326		5,418		5,689		5,865		5,996
Working capital		7,064		5,069		4,768		5,046		5,021
Total assets		12,763		10,967		10,800		11,030		13,077
Long-term debt, net of current portion		163		175		298		301		301
Stockholders’ equity		7,995		6,320		6,117		6,277		6,461


	•	~~Revenue Recognition~~

	•	~~Allowances for Doubtful Accounts and Returns~~

	•	~~Legal Contingencies~~

	•	~~Accounting for Income Taxes~~



		Year Ended May 31,


				Percent Change				Percent Change

(Dollars in millions)		2004		Actual	Constant	2003		Actual		Constant	2002

*Total Revenues by Geography:*
Americas		$	4,983	3%	2%	$	4,844		-8%	-7%	$	5,293
EMEA⁽¹⁾			3,677	13%	1%		3,254		7%	-6%		3,050
Asia Pacific			1,496	9%	1%		1,377		4%	-1%		1,330

	Total revenues		10,156	7%	2%		9,475		-2%	-6%		9,673
*Total Operating Expenses*			6,292	4%	0%		6,035		-1%	-5%		6,102

*Total Operating Margin*		$	3,864	12%	5%	$	3,440		-4%	-9%	$	3,571

*Total Operating Margin %*			38%				36%					37%

*% Revenues by Geography:*
Americas			49%				51%					55%
EMEA			36%				34%					31%
Asia Pacific			15%				15%					14%

*Total Revenues by Business:*
Software		$	8,070	12%	6%	$	7,199		2%	-2%	$	7,053
Services			2,086	-8%	-13%		2,276		-13%	-17%		2,620

	Total revenues	$	10,156	7%	2%	$	9,475		-2%	-6%	$	9,673


*% Revenues by Business:*
Software			79%				76%					73%
Services			21%				24%					27%

⁽¹⁾
~~(1)~~	Comprised of Europe, the Middle East and Africa



	Fiscal 2004 Quarter Ended (Unaudited)

(Dollars in millions, except per share amounts)	August 31		November 30		February 29		May 31

Revenues	$	2,072	$	2,498	$	2,509	$	3,076
Operating income	$	616	$	915	$	927	$	1,404
Net income	$	440	$	617	$	635	$	988
Earnings per share— basic	$	0.08	$	0.12	$	0.12	$	0.19
Earnings per share— diluted	$	0.08	$	0.12	$	0.12	$	0.19


Item 1.	Business


Item 2.	Properties


Item 3.	Legal Proceedings


Item 6.	Selected Financial Data



	Fiscal 2003 Quarter Ended (Unaudited)

(Dollars in millions, except per share amounts)	August 31		November 30		February 28		May 31

Revenues	$	2,028	$	2,309	$	2,307	$	2,832
Operating income	$	580	$	794	$	796	$	1,271
Net income	$	343	$	535	$	571	$	858
Earnings per share— basic	$	0.06	$	0.10	$	0.11	$	0.16
Earnings per share— diluted	$	0.06	$	0.10	$	0.11	$	0.16



		Year Ending May 31,

(in millions)		Total		2005		2006		2007		2008		2009		Thereafter

Balance Sheet Contractual Obligations
Principal payments on senior notes		$	150	$	—	$	—	$	150	$	—	$	—	$	—
Notes payable			15		9		—		6		—		—		—
Long-term deferred tax liabilities⁽¹⁾			59

	Total balance sheet contractual obligations		224		9		—		156		—		—		—
Other Contractual Obligations
Interest payments on senior notes⁽²⁾			15		5		5		5		—		—		—
Operating leases			530		132		96		65		49		42		146
Purchase obligations⁽³⁾			11		9		2		—		—		—		—
Funding commitments⁽¹⁾⁽⁴⁾			27

	Total other contractual obligations		583		146		103		70		49		42		146

	Total contractual obligations	$	807	$	155	$	103	$	226	$	49	$	42	$	146


	Fiscal 2005 Quarter Ended (Unaudited)
(in millions, except per share amounts)	August 31		November 30		February 28		May 31
Revenues	$	2,215	$	2,756	$	2,950	$	3,878
Gross profit	$	1,180	$	1,611	$	1,495	$	2,164
Operating income	$	715	$	1,131	$	770	$	1,407
Net income	$	509	$	815	$	540	$	1,022
Earnings per share—basic	$	0.10	$	0.16	$	0.11	$	0.20
Earnings per share—diluted	$	0.10	$	0.16	$	0.10	$	0.20


	Fiscal 2004 Quarter Ended (Unaudited)
(in millions, except per share amounts)	August 31		November 30		February 29		May 31
Revenues	$	2,072	$	2,498	$	2,509	$	3,076
Gross profit	$	1,045	$	1,375	$	1,400	$	1,881
Operating income	$	616	$	915	$	927	$	1,406
Net income	$	440	$	617	$	635	$	990
Earnings per share—basic	$	0.08	$	0.12	$	0.12	$	0.19
Earnings per share—diluted	$	0.08	$	0.12	$	0.12	$	0.19


	•	~~the relatively long sales cycles for many of our products;~~

	•	~~the tendency of some of our customers to wait until the end of a fiscal quarter or our fiscal year in the hope of obtaining more favorable terms;~~

	•	~~the timing of our or our competitors’ new products or product enhancements or any delays in such introductions;~~

	•	~~delays or deferrals of customer implementations of our products;~~

	•	~~changes in customer budgets that could affect both the timing and size of any transaction;~~

	•	~~delays in recognizing revenue on any transaction;~~

	•	~~changes in the renewal rate for software license updates and product support contracts;~~

	•	~~seasonality of technology purchases;~~

	•	~~changes in local, national and international regulatory requirements;~~

	•	~~changes in general economic, political or market conditions;~~

	•	~~changes in exchange rates;~~

	•	~~changes in the product selection purchasing patterns of our customers between standard edition products and higher premium products; and~~

	•	~~changes in our pricing policies or the policies of our competitors.~~


	•	~~be time-consuming to defend;~~

	•	~~result in costly litigation;~~

	•	~~divert management’s time and attention from developing our business;~~

	•	~~require us to enter into royalty and licensing agreements that we would not normally find acceptable;~~

	•	~~require us to stop selling or to redesign our products;~~

	•	~~require us to pay money as damages; or~~

	•	~~require us to satisfy indemnification obligations that we have with our customers.~~


	•	~~we may not be able to operate this business at an acceptable profit level;~~

	•	~~because we manage critical customer applications we could be exposed to significant damage claims in the event of system failures or inadequate disaster recovery;~~

	•	because Oracle On Demand results in our management of customer data and other confidential information, we have increased exposure to risk of claims around data security and privacy and misappropriation of customer confidential information;

	•	if we are unable to meet application availability requirements, provide adequate disaster recovery and provide agreed upon data security and privacy threshold standards, we may not be able to attract new customers and we could lose existing customers;

	•	the laws and regulations applicable to hosted service providers are unsettled and we could have regulatory exposure in certain areas such as data privacy, data security, export compliance and workforce reduction claims as a result of customers transferring their information technology functions to us; and

	•	~~as our Oracle On Demand business grows, we will need to continue to invest in various aspects of our on demand offering, including data centers, computers, network infrastructure and security.~~


	•	~~quarterly variations in our results of operations or those of our competitors;~~

	•	~~changes in our or our competitors’ prices;~~

	•	~~changes in our revenue and revenue growth rates as a whole or for specific geographic areas, business units, products or product categories;~~

	•	~~announcements of new products or product enhancements by us or our competitors;~~

	•	~~announcements regarding our tender offer for PeopleSoft;~~

	•	~~announcements regarding other acquisitions;~~

	•	~~announcements of advances in technology by us or our competitors;~~

	•	~~changes in management;~~

	•	~~changes in recommendations or earnings estimates by financial analysts;~~

	•	~~speculation in the press or analyst community;~~

	•	~~changes in political, economic and market conditions either generally or specifically to particular industries;~~

	•	~~fluctuations in stock prices generally, particularly with respect to the stock prices for other technology companies;~~

	•	~~changes in interest rates; and~~

	•	~~changes in investors’ beliefs as to the appropriate price-earnings ratio or other valuation measure for our competitors and us.~~


Item 7A.	Quantitative and Qualitative Disclosures About Market Risk


		Amortized
		Principal		Weighted Average
(Dollars in millions)		Amount		Interest Rate

Cash and cash equivalents		$	4,138		1.97	%
Short-term investments (91 days-1 year)			4,449		1.12	%

	Total cash, cash equivalents and investments	$	8,587		1.53	%


(Dollars in millions)	Amortized Principal Amount		Weighted Average Interest Rate
Cash and cash equivalents	$	3,894	2.32%
Marketable securities (within 1 year)		908	0.77%
Marketable securities (1–2 years)		12	3.53%

Total cash, cash equivalents and marketable securities	$	4,814	2.03%


		Amortized
		Principal
		Amount at
(in millions)		May 31, 2004

Euro		$	961
Japanese Yen			823
British Pound			180
Chinese Renminbi			158
South African Rand			82
Australian Dollar			72
Canadian Dollar			68
Other currencies			729

	Total cash, cash equivalents and short-term investments denominated in foreign currencies	$	3,073


(in millions)	Amortized Principal Amount at May 31, 2005
Japanese Yen	$	807
Euro		416
UK Pound		214
Chinese Renminbi		189
Canadian Dollar		180
Australian Dollar		94
South African Rand		88
Other currencies		861

Total cash, cash equivalents and marketable securities denominated in foreign currencies	$	2,849


			Exchange		Exchange
			Foreign Currency		U.S. Dollars for		Notional
			for U.S. Dollars		Foreign Currency		Weighted Average
(Dollars in millions)			(Notional Amount)		(Notional Amount)		Exchange Rate

Functional Currency:
	Australian Dollar		$	11	$	—		0.70
	Chinese Renminbi			88		—		8.28
	Euro			45		—		1.21
	Indian Rupee			71		—		45.80
	Israeli Shekel			16		—		4.58
	Japanese Yen			77		1		111.49
	Korean Won			31		—		1,179.50
	New Zealand Dollar			6		—		0.61
	Peruvian New Sol			1		—		3.50
	Philippine Peso			15		—		56.65
	Saudi Arabian Riyal			28		—		3.75
	Slovakian Koruna			4		—		33.29
	South African Rand			39		—		6.65
	Taiwan Dollar			8		11		33.40
	Thai Baht			7		—		40.77

		Total	$	447	$	12


(Dollars in millions)	Exchange Foreign Currency for U.S. Dollars (Notional Amount)		Exchange U.S. Dollars for Foreign Currency (Notional Amount)		Notional Weighted Average Exchange Rate
Functional Currency:
Australian Dollar	$	9.1	$	—	0.76
Chinese Renminbi		122.6		—	8.25
Columbian Peso		2.9		—	2345.00
Euro		25.3		—	1.25
Indian Rupee		52.6		—	43.67
Israeli Shekel		15.2		—	4.40
Japanese Yen		72.7		2.2	107.90
Korean Won		20.5		—	1003.00
New Zealand Dollar		5.6		—	0.71
Philippine Peso		17.3		—	54.57
Saudi Arabian Riyal		29.2		—	3.75
Singapore Dollar		2.5		—	1.66
Swedish Krona		1.5		—	7.34
South African Rand		4.0		—	6.63
Taiwan Dollar		6.0		—	31.34
Thai Baht		5.9		1.0	40.37

Total	$	392.9	$	3.2


(Euros in millions)	Exchange Foreign Currency Euros (Notional Amount)		Exchange Euros for Foreign Currency (Notional Amount)		Notional Weighted Average Exchange Rate
Functional Currency:
Swiss Franc	€	8.2	€	—	1.55
Danish Krone		3.1		—	7.44
British Pound		38.5		—	0.69
Israeli Shekel		3.4		—	5.51
Norwegian Kroner		3.6		—	7.99
Swedish Krona		6.0		—	9.20
United States Dollar		2.4		—	1.25
South African Rand		10.4		—	8.32

Total	€	75.6	€	—


Item 9.	Changes inIn and Disagreements with Accountants on Accounting and Financial Disclosure


Item 10.	Directors and Executive Officers of the Registrant


Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters


	May 31, 2005
	Number of Shares to be Issued Upon Exercise of Outstanding Options, Warrants and Rights	Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights		Number of Shares Remaining Available for Future Issuance Under Equity Compensation Plans⁽¹⁾
Equity compensation plans approved by stockholders	407,919,937	$	11.85	528,187,763	⁽²⁾
Equity compensation plans not approved by stockholders⁽³⁾	6,750	$	1.26	—
Equity compensation plans not approved by stockholders⁽⁴⁾	61,047,282	$	12.40	—

Total	468,973,969			528,187,763