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In re Oracle Corp. Derivative Litigation11/24/2004
dence on third month revenues, over 50% of Oracle's total revenues came in within the third month of a quarter during FY 01, as the following chart shows:
Average Percentage of Oracle Quarterly Revenue by Business Unit and Month (FY01)
| Month 1
| Month 2
| Month 3
| 15%
| 16%
| 69%
| 32%
| 31%
| 37%
| 33%
| 27%
| 40%
| 24%
| 24%
| 52%
|
This depiction is not atypical and reflects the continuation and deepening of a pattern that had persisted at Oracle for several years.
License revenue was typically even more compressed, with most coming in within the last week of the quarter, not just the last month, as this chart addressing FY 01 shows:
Percentage of Quarterly License Sales by Week for OSI, NAS and OPI (FY 01)
| Percentage of Quarterly Sales
| Cumulative Percentage of Quarterly Sales
| 6%
| 6%
| 6%
| 12%
| 4%
| 16%
| 9%
| 25%
| 3%
| 28%
| 6%
| 34%
| 12%
| 46%
| 54%
| 100%
|
In part as a result of its dependence on last month, and even last week revenues, Oracle's public disclosures as of FY 00 and 01 warned investors that "the Company's quarterly results are difficult to predict until the end of the quarter, and delays in product delivery or closing of sales near the end of a quarter have historically caused and could cause quarterly revenues and net income to fall significantly short of anticipated levels."
E. Oracle's Internal Forecasting System
Like most major American corporations, Oracle had in place systems designed to help its top management both project future performance and keep track of how well the company was doing in meeting those projections. During the time period relevant to this case, it is fair to say that the American equity markets were quite sensitive to the quarter to quarter performance of corporations, and tended to react negatively if a corporation generated quarterly results markedly out of line with the expectations the market harbored. Whether or not this was economically productive for our nation is not a question I must answer, but the existence of this incentive scheme is a reality that it is relevant to acknowledge.
Like other companies, Oracle was sensitive to the incentive to meet analyst expectations and to avoid unpleasantly surprising them. Therefore, it developed processes to develop earnings and revenue projections and monitor progress towards meeting them. Within Oracle, many executives had responsibilities for elements of those processes. But two executives were of paramount importance. One was defendant Henley, who as CFO, had the key say in exactly what estimates Oracle would provide to analysts about the upcoming quarter. The other was Oracle's Controller, Jennifer Minton, who worked within Oracle's Financial Planning and Analysis Group.
Although Oracle assembles data about its financial performance in a number of ways, it has one "primary internal forecasting document." That document is the so-called "Upside Report"
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