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In re Oracle Corp. Derivative Litigation11/24/2004
ich estimated earnings of 12.82 cents per share and License Revenue growth of 33%, it still forecasted results exceeding the Market Estimates.
In keeping with the previous comments about Henley's and Minton's inquiries into the confidence that the sales units had in their projections, the downward revisions in the revenues Best Estimate resulted from input from the sales units about their experience in the quarter to date and their expectations about the rest of the quarter. For example, on January 11, David Winton, the finance director of Oracle's NAS unit sent an e-mail to Jennifer Minton, maintaining that important unit's forecast of $346 million in revenue for 3Q 01 but reducing its best case estimate downwards from $376.8 to $360 million. In his e-mail, Winton attributed the revision to: Pipeline growth that was not "as we had anticipated" and that was "slightly down" from "December end reporting;" a lack of big deals that could drive revenues past $360 million; and a slow down in technology spending by customers. Nonetheless, Winton ended his e-mail by indicating he thought NAS was "still . . . tracking to end Q3 at $354-$355 [million]."
Even with this softening of sales unit expectations, the January 15 Pipeline Report depicted Pipeline growth of 34% 3Q 00, which exceeded the 25% public projection for license revenue growth. The January 15 Pipeline Report also indicated that if Oracle could convert 51% of the Pipeline - the same percentage as in 3Q 00 - into actual revenues, it would achieve sales of more than $200 million in excess of public estimates. A conversion ratio of 51% was not a historical anomaly that had only occurred at Oracle in 3Q 00; Oracle had performed above that level for the 7 previous quarters.
On January 17, the so-called Flash Report for the first month of 3Q 01 came out and was circulated to Ellison, Henley and Minton, among others. The Flash Report summarized the actual results for December, indicating that:
The license revenues growth rate was 35% in USD, 25 points better than the 10% growth we experienced in December FY00 over December FY99. However, excluding the $60 million Covisint license deal, the USD growth rate would have been only 6%. Excluding Covisint, OPI license revenue growth would have been (85%).
The Flash Report highlighted that the Covisint transaction was significant, indicating that meeting the Market Estimates would have been more difficult without the Covisint revenue. In the Flash Report, the recipients were also informed that Oracle's "December license results represent 19% of the total forecast for Q3 FY01. In FY00 and FY99, December represented 16% and 19%, respectively, of the quarter total."
As of mid January, 2001, the record contains evidence of concerns at the sub-EMC level regarding the effect of the dot.com bust and of the economic slowdown on Oracle's likely sales for 3Q 01 - that is, of the same concerns that caused Henley and Minton to ask questions about the sales units' confidence in their numbers. What is lacking altogether, however, is any evidence that Ellison or Henley were informed at the EMC meeting that Oracle was not on track to meet the Market Estimates. Indeed, as of the January 15 Upside Report, Oracle's North American- based sales units (NAS, OPI, and OSI) had not revised their unit-level license revenue forecasts for 3Q 01. Those forecasts were exactly the same as the December 11, 2000 forecasts before the Market Estimates were made. Although Minton had reduced her upside adjustments to the December 11, 2000 OSI and OPI forecasts by this point, her adjustments still resulted in license revenues and earnings above the Market Estimates.
K. Ellis
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