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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C., 20549
FORM 10-K
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/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MAY 31, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-14376
ORACLE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 94-2871189
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
500 ORACLE PARKWAY
REDWOOD CITY, CALIFORNIA 94065
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(415) 506-7000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE $0.01 PER SHARE
PREFERRED STOCK PURCHASE RIGHTS
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of June 30, 1995 was $12,910,928,692. This calculation does not
reflect a determination that persons are affiliates for any other purposes.
Number of shares of common stock outstanding as of June 30, 1995: 433,467,932
DOCUMENTS INCORPORATED BY REFERENCE:
Part III -- Portions of the registrant's definitive proxy statement to be issued
in conjunction with registrant's annual stockholders' meeting to be held on
October 9, 1995.
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ORACLE CORPORATION
1995 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PAGE
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PART I.
Item 1. Business.............................................................. 1
Item 2. Properties............................................................ 10
Item 3. Legal Proceedings..................................................... 10
Item 4. Submission of Matters to a Vote of Security Holders................... 10
Item 4A. Executive Officers of the Registrant.................................. 11
PART II.
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters............................................................... 12
Item 6. Selected Financial Data............................................... 13
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................. 13
Item 8. Financial Statements and Supplementary Data........................... 19
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.................................................. 19
PART III.
Item 10. Directors and Executive Officers of the Registrant.................... 19
Item 11. Executive Compensation................................................ 19
Item 12. Security Ownership of Certain Beneficial Owners and Management........ 19
Item 13. Certain Relationships and Related Transactions........................ 19
PART IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K...... 20
SIGNATURES ...................................................................... 43
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PART I
ITEM 1. BUSINESS
The Company designs, develops, markets, and supports computer software products
with a wide variety of uses, including database management and network products,
applications development productivity tools, and end user applications. The
Company's principal product, the ORACLE7 relational database management system,
is a SQL-based, relational database management system ("DBMS") that runs on a
broad range of computers, including massively parallel, clustered, symmetrical
multi-processing, mainframes, minicomputers, workstations, and personal
computers. The Company also offers consulting, education, support, and systems
integration services in support of its customers' use of its software products.
The Company was incorporated on October 29, 1986 in connection with a
reincorporation of the Company's predecessor in Delaware, which was completed on
March 12, 1987. In May 1995, Oracle Corporation, a California corporation, was
merged into Oracle Systems Corporation, a Delaware corporation, whose name was
changed to Oracle Corporation. Unless the context otherwise requires, the
"Company" or "Oracle" refers to Oracle Corporation, its predecessor and its
subsidiaries. The Company maintains its executive offices and principal
facilities at 500 Oracle Parkway, Redwood City, California 94065. Its telephone
number is (415) 506-7000.
BACKGROUND
Computer software can be classified into two broad categories: system software
and applications software. System software includes (1) operating systems, which
control the computer hardware, (2) compilers and interpreters, which translate
programs into a form that can be executed by a computer, (3) communications
software, which permits computers to send data across a network, and (4)
database management systems, which are used to create, retrieve, and modify data
stored in computers. Applications software automates the performance of specific
business functions such as payroll processing, general ledger accounting, and
inventory control.
Database management systems software permits multiple users and applications to
access data concurrently while protecting the data against user and program
errors and against computer and network failures. Database management systems
are used to support the data access and data management requirements of
transaction processing and decision-support systems.
There are several types of database management systems software: hierarchical,
network, relational, and object oriented. Hierarchical, network, and relational
DBMSs have been widely used to support diverse applications in business,
engineering, manufacturing, government, and other applications domains. Object
oriented DBMS software is an emerging software technology that may permit more
complex data structures to be accessed by applications programs, although such
object oriented systems have not yet been proven in many commercial
environments.
In both hierarchical and network DBMS structures, users must know how and where
their data is stored, navigate through the database system, and access that data
step-by-step according to predefined sequences. Consequently, such DBMSs are not
well suited to answering inquiries that were unanticipated by the programmer
when the applications were created and therefore not specifically predefined in
the database structure. Also, developing and maintaining applications with such
systems is time-consuming because the applications program must be aware of the
data storage structure. Despite these limitations, hierarchical and network
DBMSs, which have been available since the 1960's, have been used for many
large-scale business data processing applications running on large mainframe
computers.
The comparative advantage of a relational DBMS is that users need not know how
or where their data is stored in the computer. To access data, users simply
specify what data they desire, not how to retrieve it. Relational systems
navigate automatically to the data, making database information readily
accessible by users of all experience levels. Regardless of how the data is
actually stored in the computer memory, the results of database queries are
always presented to users in familiar, two-dimensional tables of rows and
columns of data. Relational DBMSs therefore have been widely
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used for management information and decision-support systems which
require flexible access to large quantities of data. Because they facilitate
applications development and maintenance, relational DBMSs also have become
widely used in mid-range and low-end transaction processing environments. As
their performance and reliability have improved, relational DBMSs increasingly
have been chosen to support mission-critical data processing applications.
Object oriented DBMSs are designed to support applications with "advanced" data
management requirements, such as those of certain engineering applications which
historically have not been able to use DBMSs. As compared with relational DBMSs,
object oriented DBMSs permit more complex data structures to be defined and
accessed by applications programs. However, currently available object oriented
systems provide limited capabilities for the ad hoc data access requirements of
decision support systems, and have insufficient performance and reliability for
most business transaction processing applications. Nevertheless, the Company
believes that object oriented techniques can be incorporated into existing
relational DBMSs without sacrificing upward compatibility and the advantages of
existing relational DBMSs. Merging object oriented capabilities with existing
relational DBMSs would further broaden the applicability of relational DBMSs
while providing the reliability, performance and flexibility that have been
lacking in the object oriented DBMSs now available. While the Company plans to
incorporate object oriented technologies into future versions of the ORACLE
relational DBMS, no assurance can be given that the Company will be able to do
so successfully or in a timely fashion as compared to competitive object
oriented DBMSs.
PRODUCT DEVELOPMENT HISTORY
In 1976, International Business Machines Corporation ("IBM") published the
specifications for a simple, English-like command language called SQL
(pronounced "sequel"), with which users define, retrieve, manipulate, and
control data stored in a relational DBMS. In 1977, the Company was formed to
develop a relational DBMS using IBM's published specifications for the SQL
language. Two years later, in June 1979, the Company introduced the ORACLE
relational DBMS, the first commercially available relational DBMS. IBM's first
relational product, SQL/DS, was released in February 1982. In 1985, IBM
announced DB2, its second relational DBMS product, and its second product to
implement SQL. SQL has become the industry standard command language for
relational DBMS products. In October 1986, the American National Standards
Institute ("ANSI") approved a standard definition for the SQL command language,
which was also adopted by the International Standards Organization ("ISO"). The
SQL standard was updated with additional capabilities in 1989, and a second
enhanced standard ("SQL92") was finalized in 1992.
Since 1979, the Company has released several new versions of the ORACLE
relational DBMS, each of which contained performance and functional
enhancements. In 1992, the Company introduced Version 7 of the ORACLE relational
DBMS ("ORACLE7"), which was developed to improve the product's ability to
support large numbers of users and higher rates of transaction processing, to
provide enhanced application development capabilities such as DBMS server
enforced business rules for data integrity, and to permit multiple computers
running DBMSs of ORACLE and other vendors to cooperatively share data with other
computers across a communications network.
In 1994, the Company introduced release 7.1 of ORACLE7. This release includes
significant functional enhancements for managing data in a distributed
environment (especially where network communications are slow, expensive or
unreliable), with advanced capabilities for copying ("replicating") data between
locations. Release 7.1 of ORACLE7 also contains features for processing large
amounts of data in parallel using multiple processors on a variety of computer
hardware architectures, to better support development of and access to the large
databases typically found in data warehouse applications used to support
business decision-making.
In 1994, the Company acquired the Rdb relational DBMS (now known as "ORACLE
Rdb") and associated software products from Digital Equipment Corporation
("DEC"). This product has many of the same attributes as the ORACLE7 relational
DBMS, but it operates only on hardware and operating systems developed by
Digital Equipment Corporation. As part of its acquisition of ORACLE Rdb, the
Company retained the services of nearly all key technical personnel associated
with the product.
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PRODUCTS
The Company's products are contained within three product families: Server
Technology, Application Development and Access Tools, and End User Applications.
Server Technology Products
The Company's Server Technology products consist of an integrated set of
database server and network products. The principal product is the ORACLE
relational DBMS. The ORACLE relational DBMS gives users the ability to define,
retrieve, manipulate, and control data stored on multiple computers, using the
industry standard SQL language. In addition, the ORACLE relational DBMS includes
additional capabilities that allow the DBMS to enforce business policies and
data integrity rules.
The ORACLE7 relational DBMS provides features to support the operational
requirements of on-line transaction processing ("OLTP") and decision support
("DSS" or "data warehouse") environments for high systems availability and
performance. The ORACLE relational DBMS provides optional parallel server
technology that further extends scalability and availability by allowing
multiple, loosely coupled or clustered machines to cooperatively access a
logical database spread across multiple disks. Furthermore, release 7.1 of the
ORACLE7 DBMS provides optional parallel query capabilities that enable fast
searching of large amounts of data for large-scale decision support and data
warehouse applications.
The ORACLE7 relational DBMS also supports a client/server architecture between
applications programs and database servers, and permits transparent data sharing
across a communications network, so that applications programs and users can
access data without knowing or specifying the location of the data within the
network. The ORACLE7 relational DBMS also contains features that automatically
"replicate" or copy data among multiple locations, providing systems architects
and application developers with additional flexibility for managing data
distribution and access throughout an enterprise.
With the introduction of Oracle Media Server, the Company's database technology
has been extended to support the management of unstructured data, such as video,
audio and text.
Applications developed with the ORACLE7 relational DBMS are scalable from the
desktop to the mainframe and are portable to a wide variety of hardware and
operating system environments, and can be redeployed in different environments
with little or no change.
Application Development and Access Tools
The Company provides two primary tools for application development:
Developer/2000 and Designer/2000 (formerly known as Cooperative Development
Environment 2 or CDE2). These products increase programmer productivity and
allow nonprogrammers to design, develop, and maintain their own applications.
Applications built using Developer/2000 and Designer/2000 can access data stored
in the ORACLE relational DBMS as well as certain other competitors' databases.
Moreover, the applications built are portable across different graphical user
interfaces, and can incorporate image, sound and voice multimedia objects. In
addition, the Company's Discoverer/2000 access tools enable end users and
decision support analysts to perform rapid querying and reporting, and
multi-dimensional analysis of data warehouses.
End User Applications Products
The Company's end user applications products are made up of modules for
financial, manufacturing, and human resource applications. The Company's Oracle
Financial products consist of an integrated family of end user accounting
applications products that use the ORACLE7 relational DBMS and Oracle's
development tools to provide full-function end user accounting systems, as well
as a similar family of accounting products for government end users called
Oracle Government Financials. The Company also offers Oracle Manufacturing
products, which provide manufacturing companies with planning and control tools,
and Oracle Human Resources products, which provide users with personnel
management tools. The Oracle end user applications products can be integrated
with a customer's existing accounting systems or other Oracle applications
products.
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PRODUCT FEATURES
The Company believes that the principal competitive strengths of the ORACLE7
relational DBMS are its high performance and availability for OLTP, its
datawarehouse functionality and performance, its advanced distributed processing
capabilities, its declarative and procedural data integrity features, its
ability to support tightly and loosely coupled parallel processing platforms,
its support for multimedia information, its broad portability across different
computer hardware and operating systems, and its compatibility with the SQL
command language.
High Performance and Availability for OLTP Environments
The Company participates in the on-line transaction processing market with the
ORACLE7 relational DBMS, which provides the high performance, high availability
and large database support that customers with OLTP environments demand. The
ORACLE7 relational DBMS has repeatedly established new transaction processing
performance records on industry standard benchmarks conducted on a variety of
hardware platforms.
The ORACLE7 relational DBMS provides high performance for transaction processing
through key features such as row-level locking and effective utilization of the
popular "symmetrical multiprocessor" ("SMP") computer architecture. Row-level
locking controls concurrent user access to data while minimizing overhead and
contention among multiple users. The ORACLE7 relational DBMS has consistently
demonstrated superior proportional performance improvements ("scalability") as
processors are added to an SMP system, providing customers with cost effective
upgrade capability as workloads grow. Features of the ORACLE7 relational DBMS
such as on-line back-up and recovery maximize system availability, and such
routine maintenance operations can be performed without degrading normal OLTP
performance.
Data Warehouse Functionality and Performance
The Company competes in the rapidly-expanding "data warehouse" or "decision
support system" ("DSS") marketplace. Increasingly, organizations of all sizes
are finding a competitive advantage in analyzing their transactional and
operational data for strategic and even tactical decision making. The advent of
open systems technology such as commodity hardware and the emergence of parallel
processing capabilities have made it economically justifiable for many companies
to develop data warehouse applications, which were previously possible only on
expensive, proprietary platforms. The databases used to support these
requirements often grow very large, containing billions of records of
information.
The ORACLE7 relational database is particularly well suited to managing and
accessing such large databases because of its storage management and high
performance data processing capabilities. The parallel query option of the
ORACLE7 relational DBMS provides scalable performance for data loading, indexing
and query in an integrated architecture that exploits symmetrical
multiprocessor, clustered and massively parallel platforms.
Distributed Processing Capabilities
The ORACLE7 relational DBMS works with the Company's SQL*Net product to support
a client/server architecture, connecting applications programs and database
servers across a communications network. The computer running the application
and that running the ORACLE7 relational DBMS can be different models, brands or
architectures of computers, and may run different operating systems and use
different network communications protocols. Using SQL*Net, an application
running on one machine may access remote databases on other machines running the
ORACLE7 relational DBMS anywhere within a communications network. SQL*Net
provides advanced capabilities for secure client/server communications, for
routing of connection requests to servers and for managing the network
configuration.
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In 1994, the Company introduced a new product called Oracle Mobile Agents, which
permits applications running on disconnected computers, such as laptop personal
computers, to communicate with application servers via digital radio networks.
This new technology allows mobile workers to access corporate information
regardless of their location.
The ORACLE7 relational DBMS supports a distributed database architecture, where
multiple copies of ORACLE7 running on multiple physically separated computers
communicate with one another, permitting applications and users to view multiple
databases as if they were a single database. This distributed architecture is
designed with functionality which makes it suitable for production OLTP
distributed applications. The same non-procedural SQL language commands that are
used to access data in a single database are used to access data in a
distributed database, and the applications and users need not know or specify
the location of the data.
Version 5.1 of the ORACLE relational DBMS, when introduced in 1986, was among
the first commercial relational DBMSs to support queries (retrieval) of data
from a distributed database. ORACLE7 extended this distributed database
architecture with distributed update transactions and basic data replication
facilities. With the introduction of ORACLE7 release 7.1, the Company introduced
optional advanced replication capabilities ("Symmetric Replication"). These
advanced capabilities include an integrated architecture that facilitates
central administration of the distributed environment, propagation of stored
programs as well as data, and support for a variety of data models including
"work flow" and "update anywhere."
The Company's Oracle Open Gateway products (Oracle Transparent Gateways and
Oracle Procedural Gateways) allow non-ORACLE DBMSs to be integrated into a
distributed database environment. Users can employ the SQL language to access
data stored in other relational DBMSs such as IBM's DB2 as well as data stored
in older hierarchical DBMSs or file systems. The ability to access data stored
in non-Oracle databases from applications using the ORACLE7 relational DBMS is
attractive to customers because it preserves an organization's investment in
existing application systems, and also makes it easier to migrate existing
applications and develop new applications using the ORACLE7 relational DBMS.
Declarative and Procedural Data Integrity Features
ORACLE7 provides advanced capabilities for centrally defining business policies
and data integrity rules within a database, and for automatic enforcement of
those policies and rules by the DBMS. Simple data integrity rules, such as a
requirement that data values in one table match values stored in another, can be
specified declaratively (nonprocedurally) using industry standard SQL commands.
More complex business policies can be encapsulated in "stored procedures" and
"database triggers," which are collections of SQL language statements and
procedural logic statements that are stored in a database and executed
implicitly when other database changes occur.
Support for Tightly and Loosely Coupled Parallel Processing Platforms
The Parallel Server configuration of ORACLE7 permits multiple computers using a
common operating system to access a single database stored on shared disk
devices. The ORACLE Parallel Server runs on hardware platforms comprised of a
small number of large processors ("clusters") as well as massively parallel
platforms comprised of hundreds or thousands of small processors, where the
processors do not share access to common main memory. The Company believes that
hardware clusters and massively parallel platforms are attractive alternatives
to traditional mainframe computers, because they can provide exceptionally high
performance at significantly lower cost than mainframe systems. The Company also
believes that the ability of the Oracle Parallel Server configuration of ORACLE7
to exploit hardware clusters and massively parallel platforms for OLTP and
decision support applications gives the Company a significant competitive
strength with respect to other DBMS suppliers.
Support for Multimedia Information
The Oracle New Media product family is an end-to-end software architecture for
delivering interactive multimedia services over any network to any multitude of
client devices, including personal computers, set-top boxes, and personal
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digital assistants. The networks can range from local and wide area networks to
ISDN, internet, broadband and wireless. The product family is comprised of the
Oracle Media Server, Oracle Media Objects, and Oracle Media Net. Oracle Media
Server acts as a comprehensive multimedia library for storing, retrieving and
managing video, audio, and other realtime data. Oracle Media Objects is an
authoring tool for creating high-quality multimedia applications for a variety
of deployment platforms and network configurations. Oracle Media Net
transparently connects Oracle Media Server to any client device, masking the
complexities of the delivery networks.
Portability Across Computer Hardware and Operating Systems
The ORACLE relational DBMS was designed and written to make it adaptable
("portable") to most computer hardware and operating systems, while optimizing
and taking full advantage of the unique functional and performance capabilities
of each platform. All implementations of the ORACLE relational DBMS -- running
on massively parallel platforms, mainframes, minicomputers, workstations, and
personal computers -- are functionally identical. However, the performance, size
of database and complexity of applications may be limited by the capacity of the
computer on which the ORACLE7 relational DBMS is running.
The portability of the ORACLE relational DBMS makes it possible for customers to
use different sizes of computers from different vendors but still use the same
database management software on all of their machines. This portability allows
customers to migrate to the most cost effective hardware platforms and protects
their investment in hardware technology while allowing them to take advantage of
new hardware innovations. The Company has ported the ORACLE relational DBMS to
over 100 distinct computer hardware and operating system environments. In 1994,
ORACLE7 was introduced for a variety of personal computing platforms including
Microsoft Windows, Windows NT, Novell Netware and IBM OS/2 operating systems
environments for IBM-compatible personal computers.
Compatibility with SQL
The ORACLE relational DBMS was the first commercial relational DBMS to use the
SQL command language, which was subsequently used commercially by IBM and other
DBMS vendors. SQL is a non-procedural language, meaning that users specify
database operations in terms of what is to be done, not how to do it. The ORACLE
relational DBMS automatically navigates through the internal storage mechanism
of the computer to locate and then retrieve or modify data as requested. Because
the ORACLE relational DBMS performs the navigation, applications programs
developed with the ORACLE relational DBMS can be written without regard to
database structure. Therefore, applications programs require little or no
modification when the database structure is changed, thus reducing the costs of
software development and maintenance.
The Company believes that the close compatibility of the implementation of SQL
in the ORACLE relational DBMS with both IBM and ANSI/ISO standard SQL is a
significant competitive strength with respect to other DBMS products. The
Company is an active participant in the industry standards development process,
and develops products to comply with such standards where appropriate. While no
assurance can be made that the future versions of the ORACLE relational DBMS
will fully implement all capabilities defined in the SQL92 standard, the Company
follows the SQL92 specification, where applicable, as enhancements are
incorporated in new versions of the ORACLE relational DBMS.
Because the ORACLE7 relational DBMS has been certified by the U.S. Government's
National Institute of Standards and Technology ("NIST") as fully compliant with
the 1989 SQL standard and subsequently with the "Entry" level in the 1992
edition of that standard, it is attractive to government agencies and other
organizations which choose to implement standards-based systems. In addition,
close compatibility with IBM's SQL makes the ORACLE relational DBMS an
attractive choice for minicomputer, workstation, and personal computer users who
have or intend to use IBM's relational DBMS products for their mainframes.
Through the Company's Oracle Open Gateway products, ORACLE relational DBMS users
can access IBM's DB2 and SQL/DS and other mainframe-resident databases.
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CONSULTING, EDUCATION, AND SUPPORT SERVICES
In most of its sales offices around the world, the Company has trained
consulting and education personnel who offer consulting and education services
that help customers realize the potential of the Company's products in meeting
their information management needs. Consultants and instructors supplement the
Company's product offerings by providing services to assist customers in the
implementation of applications based on the Company's products and to ensure
that customers have the necessary training to use the Company's products.
Consulting and education revenues represented approximately 24%, 23%, and 21%,
of total revenues in fiscal 1995, 1994, and 1993, respectively.
The Company's support services are generally priced based on the level of
support services provided, along with the number of users authorized to access
the Company's software products. Support revenues represented approximately 20%
of total revenues in fiscal 1995 and 19% in fiscal 1994 and 1993.
The Company believes that its broad-based service offerings, in conjunction with
its current and planned product offerings, facilitate the transfer of technology
to customers and stimulate demand for the Company's products.
SYSTEMS INTEGRATION
The Company is also in the systems integration business. The Company delivers
complete information systems by combining the ORACLE relational DBMS and other
Oracle products with various non-Oracle hardware, communications technologies
and software, and with various service offerings.
MARKETING AND SALES
Direct Sales Organization
In the United States, the Company markets its products and services primarily
through its own direct sales and service organization, Oracle USA. As of May 31,
1995, Oracle USA consisted of 4,840 sales and service employees. Sales and
service groups are based in the Company's headquarters in Redwood City,
California, and in field offices that, as of May 31, 1995, were located in
approximately 50 United States metropolitan areas.
Outside the United States, the Company markets its products primarily through
the sales and service organizations of approximately 50 subsidiaries. As of May
31, 1995, the international sales and service groups consisted of 7,769
employees. These subsidiaries license and support the Company's products both
within their local countries as well as into a number of other foreign
countries. See Note 8 of Notes to Consolidated Financial Statements for a
summary of operations by geographic region.
The Company faces significant competition in the DBMS marketplace, and
prospective customers often perform a detailed technical evaluation or benchmark
of competitive products as a part of the DBMS selection process. Technical
support is, therefore, a critical element in the Company's sales process.
Consequently, sales representatives typically are teamed with technical support
specialists who can answer technical questions, help customers run benchmarks
against competitive products, and develop prototype databases and ORACLE-based
applications.
Indirect Sales Organization
The Company also markets its products through value-added relicensors, hardware
providers, system integrators and independent software vendors that combine the
ORACLE relational DBMS with computer hardware or software applications packages
for redistribution.
The Company also markets its products through various independent distributors
in international territories not covered by its subsidiaries' direct sales
organizations.
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Additional Customer Information
Revenues from international customers (including end users and resellers)
amounted to approximately 58%, 60%, and 63% of the Company's total revenues in
fiscal 1995, 1994, and 1993, respectively. See Note 8 of Notes to Consolidated
Financial Statements for a summary of operations by geographic region.
Revenues from most of the Company's international subsidiaries are denominated
in local currencies. As a consequence, if the United States dollar strengthens
against any local currency, the Company's reported revenues from such country
will be adversely affected. The Company's international revenues also are
subject to other risks common to export sales, such as governmental regulation,
political and economic disruptions and the imposition of tariffs and other trade
barriers.
PRODUCT DEVELOPMENT
In order to meet its customers' ever-changing requirements and to expand its
product base, the Company must continue to enhance its existing products and
develop new products. This development requires a continued high level of
research and development expenditures, which were 10% of revenues in fiscal 1995
and 12% of total revenues during both fiscal 1994 and fiscal 1993 (in each case
prior to the effect of amounts capitalized in accordance with Statement of
Financial Accounting Standards No. 86).
Significant areas of product development expenditures include the following:
-- enhancing and extending the ORACLE relational DBMS, including
extending its distributed database capability, optimizing its
performance in production applications, adding additional security
features, providing stored procedures and integrity constraints, and
incorporating object oriented extensions which add the ability to
manage large objects, including voice, graphics, text, and more
complex structures of data;
-- developing and enhancing networking software products, including
application development tools for networks and network management
products;
-- developing new and enhanced applications development productivity
tools, CASE products and document automation products;
-- developing and enhancing end-user applications in the Oracle
Financials, Oracle Government Financials, Oracle Manufacturing, and
Oracle Human Resources product families; and
-- porting new versions and releases of the Company's products to the
numerous computer models on which prior versions and releases
operate, as well as extending the Company's products to make
effective use of new hardware technologies.
COMPETITION
The computer software industry is intensely competitive and rapidly evolving.
The Company competes in various markets. The principal independent software
competitors in the enterprise and departmental DBMS marketplace include Informix
Corporation, Sybase Inc., The ASK Group, Inc., which was acquired in June 1994
by Computer Associates International, Inc., Progress Software Corporation and
Software AG. In the workgroup DBMS marketplace, the Company competes with
various desktop software vendors including Microsoft Corporation. In addition,
hardware systems vendors sell or license database software with which the
Company competes, including IBM, in the mainframe and UNIX market. The Company
also competes in the enterprise client/server software market. Competitors
include SAP Aktiengeschellschaft in the financial, manufacturing and human
resources applications markets and Peoplesoft, Inc. in the human resources and
financial applications markets. In the applications development tools market,
the Company primarily competes with Powersoft Corporation, recently acquired by
Sybase, Inc. The Company also completes with system integrators and consulting
organizations in the services marketplace.
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In the enterprise area (massively parallel, clustered, symmetrical
multi-processing, mainframes, minicomputers and workstations), the Company
believes that the most important considerations for end user software customers
are performance, functionality, product reliability, ease of use, quality of
technical support and price. In the workgroup market, the Company believes that
the principal competitive factors are strength in distribution and marketing,
brand name recognition, price/performance characteristics, ease of use, ability
to link with enterprise systems, and product integration. The Company believes
that it competes favorably in each of these areas.
PRODUCT AND SERVICES REVENUES
The Company's standard end user license agreement for the Company's products
provides for an initial fee to use the product in perpetuity on a designated
system and/or for a specified number of users. The Company also enters into
other license agreement types, typically with major end user customers, which
allow for the use of the Company's products, usually restricted by the number of
program copies, the number of users, the number of CPUs, or the license term.
Fees from licenses with standard acceptance periods (15 days for commercial
customers, and 30 days for government and telemarketing customers) are
recognized as revenue upon shipment if there are no, or insignificant,
post-delivery obligations, and payment is due within one year. If the acceptance
period is longer than standard, revenues are not recognized until the end of the
acceptance period. In general, the Company's products are priced based on the
number of users authorized to access the programs.
The Company receives sublicense fees from its Business Alliance Program ("BAP")
members (value-added relicensors, hardware providers, system integrators and
independent software vendors) based on the sublicenses granted by the BAP
member. Sublicense fees are typically based on a percentage of the Company's
list price. Agreements with Hardware Providers may include an initial
non-refundable payment and sublicense fees based on the value of copies of the
Company's products distributed by the reseller. Agreements with Value-added
Relicensors typically include a development license for ORACLE and sublicense
fees based on the value of copies of the Company's products distributed by the
reseller. Revenues from sublicense fees are generally recognized as they are
reported by the reseller.
In general, the Company's support services are priced based on the level of
support services provided, along with the number of users authorized to access
the Company's software products. Most customers renew their support agreements.
Support consists of technical support, including telephone consultation on the
use of the products and problem resolution, and system updates for software
products and user documentation. The Company generally bills support fees at the
beginning of each support period, either on an annual or quarterly basis.
Support revenues are recognized ratably over the contract period. Revenues
related to consulting and education services to be performed by the Company are
recognized either proportionately over the period during which the applicable
service is to be performed or on a services-performed basis.
The Company's quarterly revenues reflect distinct seasonality. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
PRODUCT PROTECTION
The Company relies on a combination of trade secret, copyright, patent,
trademark, and other proprietary rights laws, license agreements, and technical
measures to protect its rights to its software products. The Company owns
several issued patents, and has a number of patent applications pending before
the United States Patent and Trademark Office.
The Company has registered "ORACLE" as a trademark in the United States and in
over 95 foreign countries and has additional registrations pending. The Company
also has registered over 30 other trademarks in the United States for other
product names and also has registrations pending for various product names in
the United States and foreign countries.
The Company's products generally are licensed to end users on a "right to use"
basis pursuant to a perpetual license that is nontransferable and that restricts
the use of the products to the customer's internal purposes on
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either a single computer or up to a maximum number of users. Although the
Company's license agreements prohibit a customer from disclosing the proprietary
information contained in the Company's products to any other person, it is
technologically possible for competitors of the Company to copy aspects of the
Company's products in violation of the Company's rights. The Company's massively
parallel, mainframe, minicomputer and workstation products are licensed pursuant
to signed license agreements. Consistent with standard industry practice, the
Company's workgroup products generally are licensed pursuant to "shrink-wrap"
licenses that are not signed by the licensee. The enforceability of such
shrink-wrap licenses has not been conclusively determined by the courts. The
Company also distributes certain of its workgroup products through the Internet
pursuant to on-line licenses that are acknowledged by the licensee and whose
enforceability has not yet been determined by the courts. In addition, the laws
of certain foreign countries do not protect the Company's proprietary rights in
its products to the same extent as do the laws of the United States.
The Company believes that its trade secret, trademark, copyright, patent, and
other proprietary rights are important. However, because of the rapid pace of
technological change in the computer software industry, factors such as the
knowledge, ability, and experience of the Company's personnel, brand
recognition, and ongoing product support may be more significant in maintaining
the Company's competitive advantages.
EMPLOYEES
As of May 31, 1995, the Company employed 16,882 full-time persons, including
11,775 in sales and services, 834 in marketing, 2,348 in research and
development, and 1,925 in general and administrative positions. Of such
employees, 7,493 were located in the United States and 9,389 were employed in
approximately 50 other countries.
None of the Company's employees is represented by a labor union. The Company has
experienced no work stoppages and believes that its employee relations are good.
ITEM 2. PROPERTIES
The Company currently leases substantially all of its administrative, marketing,
and research and development facilities under long-term operating leases. The
Company owns the land and two of the buildings at its headquarters site, which
is located in Redwood City, California, and as discussed in Note 2 of Notes to
Consolidated Financial Statements, has capitalized certain of the leases for its
other buildings at its headquarters site. In addition, the Company has purchased
land to be used for its UK subsidiary's headquarters. The Company also leases
office space in numerous locations in the United States and many other
countries.
The Company believes that its facilities are adequate for its current needs and
that suitable additional or substitute space will be available as needed to
accommodate expansion of the Company's operations. See Notes 2 and 5 of Notes to
Consolidated Financial Statements for information regarding the Company's lease
obligations.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to various legal proceedings and claims, either asserted
or unasserted, which arise in the ordinary course of business. While the outcome
of these claims cannot be predicted with certainty, management does not believe
that the outcome of any of these legal matters will have a material adverse
effect on the Company's consolidated results of operations or consolidated
financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are as follows:
NAME OFFICE(S)
- ------------------------------ --------------------------------------------
Lawrence J. Ellison President, Chief Executive Officer and
Chairman of the Board
Raymond J. Lane Executive Vice President, President of
Worldwide Operations and Director
Jeffrey O. Henley Executive Vice President, Chief Financial
Officer and Director
Dirk A. Kabcenell Executive Vice President, Product Division
David J. Roux Senior Vice President, Corporate Development
Raymond L. Ocampo, Jr. Senior Vice President, General Counsel and
Corporate Secretary
Thomas A. Williams Vice President and Corporate Controller
Mr. Ellison, 50, has been President and Chief Executive Officer since he
co-founded the Company in May 1977. Mr. Ellison has been Chairman of the Board
since June 1995, and served as Chairman of the Board from April 1990 until
September 1992. Mr. Ellison is also a director of NeXT Computer, Inc., is
co-chairman of California's Council on Information Technology, and is a member
of President Clinton's Export Council.
Mr. Lane, 48, has been Executive Vice President of the Company and
President of Worldwide Operations since October 1993, and has been a Director
since June 1995. He served as a Senior Vice President of the Company and
President of Oracle USA from June 1992 to September 1993. Before joining
Oracle, Mr. Lane served as Senior Vice President and Managing Partner of the
Worldwide Information Services Group at Booz-Allen & Hamilton from July 1986 to
May 1992. He served on the Booz-Allen & Hamilton Executive Committee from April
1987 to May 1992, and its Board of Directors from April 1991 to May 1992. Mr.
Lane is also a member of the Board of Trustees of Carnegie Mellon University.
Mr. Henley, 50, has been Executive Vice President and Chief Financial Officer of
the Company since March 1991, and has been a Director since June 1995. Prior to
joining Oracle, he served as Executive Vice President and Chief Financial
Officer of Pacific Holding Company, a privately held company with diversified
interests in manufacturing and real estate, from August 1986 to February 1991.
Mr. Henley is also a director of Tricord, Inc., a computer hardware company.
Mr. Kabcenell, 43, has been Executive Vice President of the Product Division
since November 1994. He served as Senior Vice President of Server Technologies
for the Company from September 1993 to October 1994. From December 1992 to
September 1993, he served as a Senior Vice President of the Database and
Languages Division for the Company and from June 1990 to December 1992, he
served as Vice President of RDBMS Development.
Mr. Roux, 38, has been Senior Vice President of Corporate Development since
September 1994. Before joining Oracle, Mr. Roux served as Senior Vice President,
Marketing at Central Point Software from April 1992 to July 1994. From October
1991 to April 1992, he served as Senior Vice President of the Portable Computing
Group at Lotus Development Corporation and from June 1990 to October 1991, he
served as Vice President of Business Development at Lotus Development
Corporation. Mr. Roux is also a director of Voxware, Inc. and the Western NIS
Enterprise Fund.
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Mr. Ocampo, 42, has been Senior Vice President, General Counsel and Corporate
Secretary of the Company since October 1992. He was Vice President, General
Counsel and Corporate Secretary from September 1990 to September 1992. He served
as General Counsel, Legal Operations from July 1989 to August 1990, and as
Associate General Counsel from July 1986 to June 1989.
Mr. Williams, 43, has been a Vice President of the Company since October 1990
and Corporate Controller since May 1989. Prior to joining Oracle, Mr. Williams
held various positions in the Audit Division of Arthur Andersen LLP, an
international public accounting firm, including Partner from September 1987 to
May 1989.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock has been traded in the over-the-counter market and
the NASDAQ National Market System since the Company's initial public offering in
1986. According to records of the Company's transfer agent, the Company had
approximately 3,950 stockholders of record as of May 31, 1995. Because many of
such shares are held by brokers and other institutions on behalf of
stockholders, the Company is unable to estimate the total number of stockholders
represented by these record holders. The following table sets forth the low and
high sale price as of the close of market of the Company's Common Stock in each
of the Company's last eight fiscal quarters.
LOW SALE PRICE HIGH SALE PRICE
-------------- ---------------
Fiscal 1994:
First Quarter......................................... $13.25 $ 18.96
Second Quarter........................................ 15.87 22.00
Third Quarter......................................... 18.17 25.17
Fourth Quarter........................................ 17.50 23.92
Fiscal 1995:
First Quarter......................................... $22.42 $ 29.58
Second Quarter........................................ 25.75 31.00
Third Quarter......................................... 24.67 32.13
Fourth Quarter........................................ 28.00 38.50
On January 24, 1995, the Company effected a three-for-two stock split in the
form of a common stock dividend distributed February 22, 1995, to stockholders
of record as of February 6, 1995. All share and per share data have been
retroactively adjusted to reflect the stock split.
The Company's policy has been to reinvest earnings to fund future growth.
Accordingly, the Company has not paid dividends and does not anticipate
declaring dividends on its Common Stock in the foreseeable future. If the
Company is not in compliance with the financial covenants of its financing
agreement with Nippon Steel Corporation, then the Company is restricted from
making dividend payments by this agreement. The Company is in compliance with
these covenants. See Note 4 of Notes to Consolidated Financial Statements.
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ITEM 6. SELECTED FINANCIAL DATA
YEAR ENDED MAY 31,
----------------------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues..................... $2,966,878 $2,001,147 $1,502,768 $1,178,496 $1,027,949
Operating income............. $ 649,721 $ 419,953 $ 216,979 $ 113,663 $ 17,907
Net income (loss)............ $ 441,518 $ 283,720 $ 98,256 $ 61,510 $ (12,401)
Earnings (loss) per share.... $ 1.00 $ 0.64 $ 0.22 $ 0.14 $ (0.03)
Total assets................. $2,424,517 $1,594,984 $1,184,020 $ 955,572 $ 857,640
Short-term debt.............. $ 9,599 $ 6,898 $ 10,684 $ 16,512 $ 180,065
Long-term debt............... $ 81,721 $ 82,845 $ 86,380 $ 95,935 $ 17,991
Stockholders' equity......... $1,211,358 $ 740,553 $ 528,039 $ 435,034 $ 344,685
Effective June 1, 1992, the Company adopted Statement of Position 91-1,
"Software Revenue Recognition," which addresses the accounting for software
revenues. The cumulative effect, net of tax, of the change in accounting
principle was $43,470,000, and was charged against net income in fiscal 1993.
Fiscal 1993 net income and earnings per share before the change in accounting
principle were $141,726,000 and $0.32, respectively.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
In fiscal 1995, 1994, and 1993, the Company continued to improve its operating
margins over the corresponding prior year periods due to increases in revenue
growth rates, coupled with lower operating expenses as a percentage of revenues.
The Company's revenue growth rate was 48%, 33% and 28% in fiscal 1995, 1994, and
1993, respectively. Sales and marketing expenses continued to represent the
largest category of operating expenses, though decreasing to 37% of revenues in
fiscal years 1995 and 1994 from 43% in fiscal 1993. Cost of services as a
percentage of total revenues increased to approximately 26% of revenues in
fiscal 1995 from 25% in fiscal 1994 and 23% in fiscal 1993, due in part to the
increasing proportion of services revenues to total revenues. The Company's
investment in research and development decreased to 10% of revenues in fiscal
1995 from 12% of revenues in both fiscal 1994 and fiscal 1993, prior to the
impact of capitalized software development costs. General and administrative
expenses as a percentage of revenues were 6%, 7%, and 8% in fiscal 1995, 1994,
and 1993, respectively. Overall, operating income as a percentage of revenues
increased to 22% in fiscal 1995, from 21% in fiscal 1994, and 14% in fiscal
1993.
Domestic revenues increased 54% and 44% in fiscal 1995 and 1994, respectively,
while international revenues increased 44% and 27% in fiscal 1995 and 1994.
International revenues were positively affected in fiscal 1995 and negatively
affected in fiscal 1994, when compared to the corresponding prior year periods,
due to changes in the value of the U.S. dollar against certain major
international currencies. International revenues expressed in local currency
increased by approximately 34% in both fiscal 1995 and 1994. Revenues from
international customers were approximately 58%, 60%, and 63%, of revenues in
fiscal 1995, 1994, and 1993, respectively. Management expects that the Company's
international operations will continue to provide a significant portion of total
revenues. However, international revenues will be adversely affected if the U.S.
dollar strengthens against certain major international currencies.
Quarterly revenues reflect distinct seasonality. This seasonality, combined with
uneven changes in sales and marketing expenses, created marked fluctuations in
quarterly results of operations. Similar fluctuations may be expected in the
future, although they will be somewhat mitigated as service revenues increase as
a percentage of total revenues. See "Quarterly Results of Operations" below.
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REVENUES:
FISCAL YEAR FISCAL YEAR FISCAL YEAR
1995 CHANGE 1994 CHANGE 1993
----------- ------ ----------- ------ -----------
Licenses and Other.......................... $ 1,673,731 44% $ 1,163,808 30% $ 895,711
Percentage of revenues...................... 56.4% 58.2% 59.6%
Services.................................... $ 1,293,147 54% $ 837,339 38% $ 607,057
Percentage of revenues...................... 43.6% 41.8% 40.4%
Total revenues............................ $ 2,966,878 48% $ 2,001,147 33% $ 1,502,768
Licenses and Other Revenues. During the past three fiscal years, the Company's
customer and product base has broadened as the Company has increased both the
number of channels that it uses to market its products, as well as the number of
computers and operating systems on which its relational DBMS operates, and as
additional software tools and applications products have been introduced. During
this period, there has been a continued increase in the percentage of licenses
for computers utilizing the UNIX operating system and desktop operating systems.
License revenues for software used on computers utilizing the UNIX operating
system increased to 73% of license revenues in fiscal 1995 from 71% in fiscal
1994 and 69% in fiscal 1993. Similarly, license revenues for use on desktop
computers increased from 14% in fiscal 1993 to 17% in both fiscal 1994 and 1995.
License revenues from software for use on computers utilizing other proprietary
operating systems, including DEC minicomputers, IBM mainframes, and other
proprietary minicomputers have declined from 17% in fiscal 1993 to 12% of
license revenues in fiscal 1994 and 10% in fiscal 1995.
License revenues represent fees earned for granting customers licenses to use
the Company's software products. License revenues also include revenues from the
Company's systems integration business and other revenues, which include
documentation revenues, certain software development revenues, as well as other
miscellaneous revenues. Excluding the systems integration business, which
continues to be phased down, license and other revenues increased 45% and 37% in
fiscal 1995 and 1994, respectively. The Company believes that the strong revenue
growth rate in both fiscal 1995 and fiscal 1994 is due primarily to an overall
increase in market demand for database and related products, increased market
acceptance of the Company's relational DBMS, and increased penetration in the
financial and manufacturing applications markets.
Services Revenues. Support, consulting and education services revenues each
increased in fiscal 1995 and 1994 over the corresponding prior year levels. The
Company's support revenues continued to constitute the largest portion of
services revenues, and grew 53% and 35% in fiscal 1995 and 1994, respectively,
reflecting the continued increase in the installed base of the Company's
products under support contracts, as well as support revenues associated with
the newly acquired Rdb and repository businesses of Digital Equipment
Corporation. Consulting and education services likewise grew 56% and 41% in
fiscal 1995 and 1994, respectively, as the Company continued to expand its
services to assist customers in the use and implementation of applications based
on the Company's products.
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OPERATING EXPENSES:
FISCAL YEAR 1995 CHANGE FISCAL YEAR 1994 CHANGE FISCAL YEAR 1993
---------------- ------ ---------------- ------ ----------------
Sales and Marketing.................. $1,103,345 47% $749,796 16% $646,027
Percentage of revenues............... 37.2% 37.5% 43.0%
Cost of Services..................... $ 779,012 56% $499,213 44% $346,633
Percentage of revenues............... 26.3% 24.9% 23.1%
Research and Development(1).......... $ 260,597 32% $197,086 35% $146,420
Percentage of revenues............... 8.8% 9.8% 9.7%
General and Administrative........... $ 174,203 29% $135,099 10% $122,709
Percentage of revenues............... 5.9% 6.8% 8.2%
Provision for Settlement of
Litigation......................... -- -- -- * $ 24,000
Percentage of revenues............... -- -- 1.6%
- ---------------
* Not meaningful
(1) Pursuant to Statement of Financial Accounting Standards No. 86, the Company
capitalized software development costs equal to 1.6%, 1.9%, and 2.0% of
total revenues during fiscal 1995, 1994, and 1993, respectively.
Similar to the trend in international revenues, the Company's international
expenses were negatively affected in fiscal 1995 and positively affected in
fiscal 1994, when compared to the corresponding prior year periods due to
changes in the value of the U.S. dollar against certain major international
currencies.
Sales and Marketing Expenses. The Company continues to place significant
emphasis, both domestically and internationally, on direct sales through its own
sales force. However, the Company also continues to emphasize marketing its
products through indirect channels in order to increase market share, while
reducing distribution costs. As a percentage of total revenues, sales and
marketing expenses decreased in both fiscal 1995 and 1994 when compared to the
corresponding prior years, primarily as a result of higher revenue levels.
Included in sales and marketing expenses is the amortization of capitalized
software development costs (see below).
Cost of Services. The cost of providing services consists largely of
consulting, education, and support personnel expenses. As a percentage of
services revenues, cost of services were 60% in fiscal 1995 and fiscal 1994,
having increased from 57% in fiscal 1993. In fiscal 1995 and 1994, the Company's
service margins decreased from fiscal 1993 in part due to a higher percentage of
service revenues being comprised of consulting and education revenues, which
have lower margins than the support business, as well as the effect of higher
headcount levels to improve the quality and responsiveness of the Company's
support offerings.
Research and Development Expenses. Research and development expenses would have
been 10% of total revenues in fiscal 1995 and 12% of total revenues in both
fiscal 1994 and fiscal 1993 without the capitalization of software development
costs in accordance with Statement of Financial Accounting Standards No. 86.
Before considering the impact of software capitalization, research and
development expenses increased 31% in fiscal 1995 versus a 33% increase in
fiscal 1994. The Company capitalized approximately $48,187,000, $38,067,000, and
$30,647,000, of computer software development costs in fiscal 1995, 1994, and
1993, respectively, which represented 16%, 16%, and 17%, of total expenditures
for research and development during those respective periods. Amortization of
capitalized software development costs is charged to sales and marketing
expenses and totaled $48,662,000, $39,318,000, and $23,043,000, in fiscal 1995,
1994, and 1993, respectively. The Company expects the amount of amortization of
capitalized software development costs to continue to increase in fiscal 1996
over fiscal 1995, as a result of the introduction of new products and the
commencement of the related amortization. The Company believes that research and
development expenditures are essential to maintaining its competitive position
and expects these costs to continue to constitute a significant percentage of
revenues.
15
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General and Administrative Expenses. General and administrative expenses as a
percentage of revenues decreased in both fiscal 1995 and 1994 as compared to
their corresponding prior year periods, primarily as a result of higher revenue
levels coupled with productivity gains.
Provision for Settlement of Litigation. In the third quarter of fiscal 1993,
the Company entered into agreements to settle pending class action and
derivative lawsuits in exchange for payments totaling $24,000,000. See Note 9 of
Notes to Consolidated Financial Statements for a description of legal
proceedings.
OTHER INCOME (EXPENSE):
FISCAL YEAR 1995 CHANGE FISCAL YEAR 1994 CHANGE FISCAL YEAR 1993
---------------- ------ ---------------- ------ ----------------
Other Income (Expense)............... $9,261 164% $3,510 231% $1,062
Percentage of revenues............... 0.3% 0.2% 0.1%
Changes in other income and non-operating expenses primarily reflect
fluctuations in interest income and expense related to changes in cash and debt
balances and interest rates, as well as foreign exchange and other miscellaneous
items. Additionally, during the first quarter of fiscal 1995, the Company
realized a gain of approximately $1.8 million related to the sale of certain
marketable securities.
PROVISION FOR INCOME TAXES:
FISCAL YEAR 1995 CHANGE FISCAL YEAR 1994 CHANGE FISCAL YEAR 1993
---------------- ------ ---------------- ------ ----------------
Provision for Income Taxes........... $217,464 56% $139,743 83% $ 76,315
Percentage of revenues............... 7.3% 7.0% 5.1%
Effective June 1, 1992, the Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," which requires recognition of
deferred tax liabilities and assets for the expected future tax consequences of
events that have been included in the financial statements or tax returns. Under
this statement, deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax bases of assets and
liabilities, using enacted tax rates in effect for the year in which the
differences are expected to reverse.
The Company's effective tax rates have historically differed from the federal
statutory rate primarily because of tax credits, certain Foreign Sales
Corporation income that is not taxed, state taxes, foreign income taxes provided
at rates greater than the federal statutory rate, as well as foreign losses that
could not be utilized. See Note 7 of Notes to Consolidated Financial Statements.
NET INCOME AND EARNINGS PER SHARE:
FISCAL YEAR 1995 CHANGE FISCAL YEAR 1994 CHANGE FISCAL YEAR 1993
---------------- ------ ---------------- ------ ----------------
Income Before Cumulative Effect of
Change in Accounting Principle..... $441,518 56% $283,720 100% $141,726
Percentage of revenues............... 14.9% 14.2% 9.4%
Net Income......................... $441,518 56% $283,720 189% $ 98,256
Percentage of revenue................ 14.9% 14.2% 6.5%
Earnings Per Share:
Income before Cumulative Effect of
Change in Accounting
Principle....................... $ 1.00 56% $ 0.64 100% $ 0.32
Net Income......................... $ 1.00 56% $ 0.64 182% $ 0.22
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QUARTERLY RESULTS OF OPERATIONS
Historically, the Company's business has been seasonal, with the Company
generally experiencing a decline in revenues in the first quarter of each fiscal
year from the final quarter of the preceding fiscal year. Because the first
fiscal quarter, which ends in August, is typically a period of slow business
activity in both the United States and Europe, the Company anticipates that the
first quarter of each fiscal year will continue to show relatively weak
operating results as compared to each of the other quarters. Operating income
also has fluctuated significantly from quarter to quarter as the result of
quarterly revenue fluctuations, together with uneven changes in sales and
marketing expenses.
The following table sets forth selected unaudited quarterly information for the
Company's last eight fiscal quarters. The Company believes 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 financial statements and related notes
included elsewhere herein.
FISCAL 1995 QUARTER ENDED
--------------------------------------------------------
AUGUST 31 NOVEMBER 30 FEBRUARY 28 MAY 31
--------- ----------- ----------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues.................................... $556,474 $ 670,280 $ 722,245 $1,017,879
Operating income............................ $ 87,543 $ 137,932 $ 154,851 $ 269,395
Net income.................................. $ 61,200 $ 93,866 $ 104,777 $ 181,675
Earnings per share.......................... $ 0.14 $ 0.21 $ 0.24 $ 0.41
Number of common and common equivalent
shares outstanding........................ 443,247 443,433 443,025 444,691
FISCAL 1994 QUARTER ENDED
--------------------------------------------------------
AUGUST 31 NOVEMBER 30 FEBRUARY 28 MAY 31
--------- ----------- ----------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues.................................... $398,054 $ 452,170 $ 482,790 $ 668,133
Operating income............................ $ 54,755 $ 91,921 $ 103,870 $ 169,407
Net income.................................. $ 37,360 $ 62,125 $ 69,748 $ 114,487
Earnings per share.......................... $ 0.08 $ 0.14 $ 0.16 $ 0.26
Number of common and common equivalent
shares outstanding........................ 444,018 443,898 443,655 442,830
LIQUIDITY AND CAPITAL RESOURCES
FISCAL YEAR ENDED MAY 31,
-----------------------------------------------------------
1995 CHANGE 1994 CHANGE 1993
--------- ------ --------- ------ ---------
(IN THOUSANDS)
Working capital....................... $ 562,045 43% $ 393,511 35% $ 290,964
Cash and cash investments............. $ 585,818 26% $ 464,758 30% $ 389,051
Cash provided by operating
activities.......................... $ 568,684 28% $ 443,451 40% $ 317,483
Cash used for investing activities.... $(495,769) 84% $(269,888) 71% $(158,021)
Cash used for financing activities.... $ (16,034) (69)% $ (51,305) 111% $ (24,271)
Working capital increased in both fiscal 1995 and 1994 over the corresponding
prior year periods, primarily due to increased cash flow from operations, which
resulted in higher cash levels. The Company generated higher positive cash flows
from operations in both fiscal 1995 and 1994, primarily due to improved
profitability and strong cash collections.
17
20
Cash used for investing activities increased in fiscal 1995 as compared to the
corresponding prior year period, in part due to the acquisition of the Rdb
database and repository businesses of Digital Equipment Corporation for $108
million in cash. During the first quarter of fiscal 1995, the Company sold land
in the UK for proceeds of approximately $27 million, partially offsetting the
effect of this acquisition. Cash used for investing activities increased in
fiscal 1994 over fiscal 1993 due primarily to the purchase of mortgage notes on
certain buildings the Company occupies. See Note 2 of Notes to Consolidated
Financial Statements. The Company expects to continue to invest in capital
assets and capitalized software development activities to support its growth.
The Company's Board of Directors has approved the repurchase of up to 18 million
shares of Common Stock on the open market to reduce the dilutive effect of the
Company's stock plans. Pursuant to this repurchase program, the Company
purchased 2,801,250 shares of the Company's Common Stock for approximately
$75,859,000 in fiscal 1995, 4,147,500 shares of the Company's Common Stock for
approximately $81,157,000 in fiscal 1994, and 4,810,500 shares of the Company's
Common Stock for approximately $43,626,000 in fiscal 1993. The Company used cash
flow from operations to repurchase the Company's Common Stock, and to invest in
working capital and other assets to support its growth.
During fiscal 1995 and 1994, the Company sold 3,835,000 put warrants that
entitled the holder to sell one share of Common Stock to the Company at prices
between $16.125 and $25.625. On March 24, 1995, 2,335,000 of these put warrants
were canceled. Additionally, the Company purchased 2,397,000 call options that
entitled the Company to buy one share of Common Stock at prices between $20.625
and $31.625. On July 6, 1995, subsequent to the end of the fiscal year, the
Company sold 1,459,500 of the call options and credited the net proceeds of
$17,175,000 to equity. The put and call options remaining after the sale on July
6, 1995, expire in October 1995. At no future stock price will the Company's
combined repurchases of Common Stock from the put and call options exceed
1,500,000 shares at a maximum cost of $38,438,000. In the event that the
Company's stock price is above $31.625, and the Company exercises all of its
remaining call options, the repurchase of 937,500 shares will cost $29,648,438.
As discussed in Note 4 of Notes to Consolidated Financial Statements, in
December 1991, the Company entered into an $80 million subordinated debt
agreement with Nippon Steel Corporation ("NSC"). In connection with this
agreement, the Company also entered into a strategic relationship with NSC to
target major customers and industries in Japan. The subordinated debt agreement
has a maturity date of December 9, 1998. Interest is charged at LIBOR plus
three-quarters of one percent, payable semi-annually in arrears. The Company is
required to maintain certain financial covenants under the agreement. NSC has
committed to purchase from the Company an ownership position of up to
twenty-five percent of Oracle Corporation Japan, a subsidiary of the Company, in
the event that shares in Oracle Corporation Japan are sold to the public as a
part of an initial public offering. The per share price of the stock would be
the same as that offered in the initial public offering. NSC has agreed not to
acquire shares of Oracle Corporation Japan beyond the twenty-five percent
interest, nor any shares of the Company, subject to certain exceptions.
At May 31, 1995, the Company also had outstanding debt of $11,320,000 (in
addition to the NSC subordinated debt) primarily in the form of other notes
payable and capital leases.
On July 27, 1995, the Company completed the acquisition of the on-line
analytical processing business of Information Resources, Inc., including all
related software products and customer support services, for $100 million in
cash. The Company will account for this acquisition as a purchase transaction,
and expects to record a special charge to expense in-process research and
development costs as of the closing of the transaction.
The Company anticipates that current cash balances, as well as anticipated cash
flows from operations, will be sufficient to meet its working capital and
investing activities requirements at least through May 31, 1996.
18
21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is submitted as a separate section of this Form 10-K.
See Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information regarding directors required by Item 10 is incorporated by
reference from the Company's definitive proxy statement for its annual
stockholders' meeting to be held on October 9, 1995.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated by reference from the
Company's definitive proxy statement for its annual stockholders' meeting to be
held on October 9, 1995. The information specified in Item 402 (k) and (l) of
Regulation S-K and set forth in the Company's definitive proxy statement for its
annual stockholders' meeting to be held on October 9, 1995 is not incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated by reference from the
Company's definitive proxy statement for its annual stockholders' meeting to be
held on October 9, 1995.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated by reference from the
Company's definitive proxy statement for its annual stockholders' meeting to be
held on October 9, 1995.
19
22
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS
The following financial statements are filed as a part of this report:
PAGE
----
Report of Independent Public Accountants...................................... 23
Consolidated Financial Statements:
Balance Sheets as of May 31, 1995 and 1994.................................. 24
Statements of Operations for the years ended May 31, 1995, 1994, and 1993... 25
Statements of Stockholders' Equity for the years ended May 31, 1995, 1994,
and 1993................................................................. 26
Statements of Cash Flows for the years ended May 31, 1995, 1994, and 1993... 27
Notes to Consolidated Financial Statements.................................. 28
(a) 2. FINANCIAL STATEMENT SCHEDULES
The following financial statement schedule is filed as a part of this report:
PAGE
----
II. Valuation and Qualifying Accounts.......................................... 42
All other schedules are omitted because they are not required or the required
information is shown in the financial statements or notes thereto.
(a) 3. EXHIBITS
The following exhibits are filed herewith or are incorporated by reference to
exhibits previously filed with the Commission. The Company shall furnish copies
of exhibits for a reasonable fee (covering the expense of furnishing copies)
upon request.
EXHIBIT
NUMBER EXHIBIT TITLE
------- --------------------------------------------------------------------------
2.01(18) Asset Purchase Agreement between Digital Equipment Corporation and Oracle
Corporation Amended and Restated effective as of September 1, 1994.
3.01(1) Registrant's Restated Certificate of Incorporation, as amended to March
11, 1987.
3.02(4) Certificate of Amendment of Certificate of Incorporation, dated June 30,
1989.
3.03(1) Registrant's Bylaws, as adopted October 30, 1986.
3.04(7) Amendment to Registrant's Bylaws, dated January 13, 1989.
3.05(6) Amendment to Registrant's Bylaws, dated December 3, 1990.
3.06(6) Certificate of Designation specifying the terms of the Series A Junior
Participating Preferred Stock of Registrant, filed with the Secretary of
State of Delaware on December 7, 1990.
3.07(6) Rights Agreement between Oracle Systems Corporation and the Bank of
America, N.T. & S.A., dated December 3, 1990.
3.08(1) Specimen Certificate of Registrant's Common Stock.
3.09(15) Certificate of Amendment of Certificate of Incorporation, dated November
4, 1993.
3.10(16) Amendment Number One to Rights Agreement dated December 3, 1990, between
Oracle Systems Corporation and the Bank of America, N.T. & S.A.
3.11(16) Rights Agreement dated August 1, 1991, between Oracle Systems Corporation
and Harris Trust Company of California.
20
23
EXHIBIT
NUMBER EXHIBIT TITLE
------- --------------------------------------------------------------------------
3.12 Certificate of Amendment of Certificate of Incorporation dated January 13,
1995.
4.07(11) Note Purchase Agreement among Nippon Steel Corporation, Nippon Steel
U.S.A., Oracle Systems Corporation, and Oracle Corporation, dated December
9, 1991.
4.08(11) Subordinated Note by and between Oracle Corporation and Nippon Steel
U.S.A., dated December 9, 1991.
4.09(11) Guaranty made by Oracle Systems Corporation in favor of Nippon Steel
Corporation, Nippon Steel U.S.A., and any and all future holders of the
Subordinated Note by and between Oracle Corporation and Nippon Steel
U.S.A., dated December 9, 1991.
4.10(11) Preferred Strategic Relationship Agreement by and among Oracle Systems
Corporation, Oracle Corporation, Oracle Corporation Japan, and Nippon
Steel Corporation, dated December 9, 1991.
4.11(11) Holding Warrant Agreement by and among Oracle Systems Corporation, Oracle
Corporation, Oracle Japan Holding, Inc., Nippon Steel Corporation, and
Nippon Steel Europe B.V., dated December 9, 1991.
4.12(11) Common Stock Warrant Certificate of Oracle Japan Holding, Inc., dated
December 9, 1991.
4.13(11) Certificate of Designations, Preferences and Rights of Series A
Convertible Preferred Stock of Oracle Japan Holding, Inc., dated December
9, 1991.
4.14(11) Oracle Japan Warrant Agreement by and among Oracle Systems Corporation,
Oracle Corporation, Oracle Japan Holding, Inc., Nippon Steel Corporation,
and Nippon Steel Europe B.V., dated December 9, 1991.
4.15(11) Common Stock Warrant Certificate of Oracle Corporation Japan, dated
December 9, 1991.
4.16(11) Product Activities Agreement by and among Oracle Systems Corporation,
Oracle Corporation, and Nippon Steel Corporation, dated December 9, 1991.
4.17(11) Integration Agreement among Oracle Systems Corporation, Oracle
Corporation, Oracle Corporation Japan, Oracle Japan Holding, Inc., Nippon
Steel Corporation, Nippon Steel U.S.A., and Nippon Steel Europe B.V.,
dated December 9, 1991.
4.18(11) Tax Sharing and Payment Agreement by and between Oracle Systems
Corporation, Oracle Corporation, Oracle Japan Holding, Inc., Nippon Steel
Corporation, and Nippon Steel Europe B.V., dated December 9, 1991.
10.01(2)* Registrant's Stock Option Plan (1985), as amended to date, and related
documents.
10.02(2)* Stock Option Agreement with Lawrence J. Ellison for the purchase of
480,000 shares of the Registrant's Common Stock, dated October 2, 1986.
10.03(5)* 1990 Directors' Stock Option Plan as adopted July 30, 1990, and related
documents.
10.04(9)* 1990 Executive Officers' Stock Option Plan as adopted October 15, 1990,
and related documents.
10.05(10)* 1991 Long-Term Equity Incentive Plan, as adopted July 31, 1991.
10.06(12)* Oracle Systems Corporation Employee Stock Purchase Plan (1992), as adopted
August 24, 1992.
10.07(13)* 1993 Directors' Stock Option Plan as adopted May 24, 1993.
10.08(17)* Amendment to 1993 Directors' Stock Option Plan as adopted May 31, 1994.
10.09(4) Lease Agreement for 500 Centrum Plaza Drive by and between Oracle
Corporation and Centrum V Associates dated May 10, 1989.
21
24
EXHIBIT
NUMBER EXHIBIT TITLE
------- --------------------------------------------------------------------------
10.10(4) Lease Agreement for 400 Centrum Plaza Drive by and between Oracle
Corporation and Centrum V Associates dated May 10, 1989.
10.11(5) Lease Agreement for 300 Centrum Plaza Drive by and between Oracle
Corporation and Centrum V Associates dated December 11, 1989.
10.12(5) Lease Agreement for 100 Square by and between Oracle Corporation UK
Limited, Oracle Systems Corporation and Guidefront Limited dated June 8,
1989.
10.13(12)* Letter, dated July 9, 1992, from Oracle Corporation to James A.
Abrahamson, and amendment, dated January 6, 1993.
10.14(14) Loan purchase and sale agreement among Oracle Corporation and Connecticut
General Life Insurance Company, dated August 19, 1993, the related notes
and related documents.
10.15(15)* 1993 Oracle Corporation Deferred Compensation Plan.
10.16* Summary of arrangement with James A. Abrahamson.
21.01 Subsidiaries of the Registrant.
23.01 Consent of Arthur Andersen LLP.
27.1 Financial Data Schedule.
- ---------------
* Indicates management contract or compensatory plan or arrangement.
(1) Incorporated by reference to the Form S-1 Registration Statement filed
March 27, 1987, File No. 33-12941.
(2) Incorporated by reference to the Form S-8 Registration Statement filed
February 24, 1986, File No. 33-3536, as amended.
(3) Incorporated by reference to the Form S-8 Registration Statement filed
September 15, 1987, File No. 33-16749.
(4) Incorporated by reference to the Form 10-K filed August 25, 1989.
(5) Incorporated by reference to the Form 10-K filed on August 27, 1990.
(6) Incorporated by reference to the Form 8-K filed on December 10, 1990.
(7) Incorporated by reference to the Form 10-Q filed on January 11, 1991.
(8) Incorporated by reference to the Form 10-Q filed on April 12, 1991.
(9) Incorporated by reference to the Form 10-K filed on August 28, 1991.
(10) Incorporated by reference to the Form S-8 Registration Statement filed
December 23, 1991, File No. 33-44702.
(11) Incorporated by reference to the Form 10-Q filed on January 13, 1992.
(12) Incorporated by reference to the Form 10-Q filed on January 7, 1993.
(13) Incorporated by reference to the Form 10-K filed on July 22, 1993.
(14) Incorporated by reference to the Form 10-Q filed on September 23, 1993.
(15) Incorporated by reference to the Form 10-Q filed on January 11, 1994.
(16) Incorporated by reference to the Form 8-A filed on February 28, 1994.
(17) Incorporated by reference to the Form 10-K filed on July 27, 1994.
(18) Incorporated by reference to the Form 10-Q filed on October 14, 1994.
(B) REPORTS ON FORM 8-K
None.
22
25
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Oracle Corporation:
We have audited the accompanying consolidated balance sheets of Oracle
Corporation, formerly Oracle Systems Corporation, (a Delaware corporation) and
subsidiaries as of May 31, 1995 and 1994, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended May 31, 1995. These financial statements and the
schedule referred to below are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Oracle Corporation and
subsidiaries as of May 31, 1995 and 1994, and the results of their operations
and their cash flows for each of the three years in the period ended May 31,
1995, in conformity with generally accepted accounting principles.
As explained in Note 1 to the consolidated financial statements, effective June
1, 1992, the Company changed its method of accounting for software revenues to
comply with the provisions of Statement of Position 91-1, "Software Revenue
Recognition."
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed under Item 14(a)2. is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not a part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in our audits of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
San Jose, California
June 20, 1995
23
26
ORACLE CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF MAY 31, 1995 AND 1994
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
MAY 31,
-------------------------
1995 1994
---------- ----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................................... $ 480,158 $ 404,810
Short-term cash investments....................................... 105,660 59,948
Trade receivables, net of allowance for doubtful accounts of
$67,728 in 1995 and $39,777 in 1994............................ 764,734 455,884
Other receivables................................................. 81,608 59,785
Prepaid and refundable income taxes............................... 135,491 53,765
Prepaid expenses and supplies..................................... 49,543 41,420
---------- ----------
Total current assets...................................... 1,617,194 1,075,612
PROPERTY, net....................................................... 535,034 378,483
COMPUTER SOFTWARE DEVELOPMENT COSTS, net of accumulated amortization
of $70,515 in 1995 and $107,087 in 1994........................... 99,855 100,329
OTHER ASSETS........................................................ 172,434 40,560
---------- ----------
Total assets.............................................. $2,424,517 $1,594,984
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable to banks............................................ $ 6,221 $ 551
Current maturities of long-term debt.............................. 3,378 6,347
Accounts payable.................................................. 124,773 95,799
Income taxes...................................................... 134,121 62,591
Accrued compensation and related benefits......................... 211,643 136,488
Customer advances and unearned revenues........................... 316,273 227,118
Value added tax and sales tax payable............................. 67,449 44,781
Other accrued liabilities......................................... 191,291 108,426
---------- ----------
Total current liabilities................................. 1,055,149 682,101
LONG-TERM DEBT...................................................... 81,721 82,845
OTHER LONG-TERM LIABILITIES......................................... 10,361 12,139
DEFERRED INCOME TAXES............................................... 27,490 38,916
PUT WARRANTS........................................................ 38,438 38,430
COMMITMENTS (Note 5)................................................ -- --
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value -- authorized, 1,000,000 shares;
outstanding: none.............................................. -- --
Common stock, $.01 par value, and additional paid in
capital -- authorized, 800,000,000 shares; outstanding:
433,357,088 shares in 1995 and 429,541,175 shares in 1994...... 338,986 254,500
Retained earnings................................................. 854,138 488,595
Accumulated foreign currency translation adjustments.............. 18,234 (2,542)
---------- ----------
Total stockholders' equity................................ 1,211,358 740,553
---------- ----------
Total liabilities and stockholders' equity................ $2,424,517 $1,594,984
========== ==========
See notes to consolidated financial statements.
24
27
ORACLE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MAY 31, 1995, 1994, AND 1993
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED MAY 31,
----------------------------------------
1995 1994 1993
---------- ---------- ----------
REVENUES:
Licenses and other................................... $1,673,731 $1,163,808 $ 895,711
Services............................................. 1,293,147 837,339 607,057
---------- ---------- ----------
Total revenues.................................... 2,966,878 2,001,147 1,502,768
---------- ---------- ----------
OPERATING EXPENSES:
Sales and marketing.................................. 1,103,345 749,796 646,027
Cost of services..................................... 779,012 499,213 346,633
Research and development............................. 260,597 197,086 146,420
General and administrative........................... 174,203 135,099 122,709
Provision for settlement of litigation............... -- -- 24,000
---------- ---------- ----------
Total operating expenses.......................... 2,317,157 1,581,194 1,285,789
---------- ---------- ----------
OPERATING INCOME....................................... 649,721 419,953 216,979
---------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest income...................................... 21,095 17,943 13,801
Interest expense..................................... (6,970) (6,871) (8,961)
Other................................................ (4,864) (7,562) (3,778)
---------- ---------- ----------
Total other income (expense)...................... 9,261 3,510 1,062
---------- ---------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE............. 658,982 423,463 218,041
Provision for income taxes........................... 217,464 139,743 76,315
---------- ---------- ----------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE............................................ 441,518 283,720 141,726
Cumulative effect on prior years of change in
software revenue recognition method, net of
related income tax effect (See Note 1)............ -- -- (43,470)
---------- ---------- ----------
NET INCOME............................................. $ 441,518 $ 283,720 $ 98,256
========== ========== ==========
EARNINGS PER SHARE:
Income before cumulative effect of change in
accounting principle.............................. $ 1.00 $ 0.64 $ 0.32
Cumulative effect of change in accounting
principle......................................... -- -- (0.10)
---------- ---------- ----------
Net income........................................... $ 1.00 $ 0.64 $ 0.22
========== ========== ==========
COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING........ 443,599 443,601 439,428
========== ========== ==========
See notes to consolidated financial statements.
25
28
ORACLE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MAY 31, 1995, 1994, AND 1993
(DOLLARS IN THOUSANDS)
COMMON STOCK AND
ADDITIONAL PAID-IN ACCUMULATED
CAPITAL FOREIGN
------------------------ CURRENCY
NUMBER RETAINED TRANSLATION
OF SHARES AMOUNT EARNINGS ADJUSTMENTS TOTAL
----------- -------- -------- ----------- ----------
BALANCES, May 31, 1992......... 419,689,740 $163,930 $265,812 $ 5,292 $ 435,034
Common stock issued under stock
option plans, net............ 7,279,893 11,032 -- -- 11,032
Common stock issued under stock
purchase plan................ 4,524,564 20,666 -- -- 20,666
Repurchase of common stock..... (4,810,500) (1,987) (41,639) -- (43,626)
Tax benefits from stock
plans........................ -- 9,272 -- -- 9,272
Foreign currency translation
adjustments ................. -- -- -- (2,595) (2,595)
Net income..................... -- -- 98,256 -- 98,256
------------ -------- -------- ------- ----------
BALANCES, May 31, 1993......... 426,683,697 202,913 322,429 2,697 528,039
Common stock issued under stock
option plans, net............ 4,898,042 10,868 -- -- 10,868
Common stock issued under stock
purchase plan................ 2,106,936 27,844 -- -- 27,844
Reclassification of put warrant
obligations.................. -- (1,381) (37,049) -- (38,430)
Repurchase of common stock..... (4,147,500) (2,078) (79,079) -- (81,157)
Effect of common stock
dividend..................... -- 1,426 (1,426) -- --
Tax benefits from stock
plans........................ -- 14,908 -- -- 14,908
Foreign currency translation
adjustments.................. -- -- -- (5,239) (5,239)
Net income .................... -- -- 283,720 -- 283,720
------------ -------- -------- ------- ----------
BALANCES, May 31, 1994......... 429,541,175 254,500 488,595 (2,542) 740,553
Common stock issued under stock
option plans, net............ 4,672,918 19,679 -- -- 19,679
Common stock issued under stock
purchase plan................ 1,944,245 40,968 -- -- 40,968
Reclassification of put warrant
obligations.................. -- 328 (336) -- (8)
Repurchase of common stock..... (2,801,250) (2,187) (73,672) -- (75,859)
Effect of common stock
dividend..................... -- 1,967 (1,967) -- --
Tax benefits from stock
plans........................ -- 23,731 -- -- 23,731
Foreign currency translation
adjustments ................. -- -- -- 20,776 20,776
Net income..................... -- -- 441,518 -- 441,518
------------ -------- -------- ------- ----------
BALANCES, May 31, 1995......... 433,357,088 $338,986 $854,138 $18,234 $1,211,358
============ ======== ======== ======= ==========
See notes to consolidated financial statements.
26
29
ORACLE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MAY 31, 1995, 1994, AND 1993
(IN THOUSANDS)
YEAR ENDED MAY 31,
-------------------------------------
1995 1994 1993
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................ $ 441,518 $ 283,720 $ 98,256
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of change in accounting
principle........................................ -- -- 43,470
Depreciation and amortization...................... 147,772 104,563 79,204
Provision for doubtful accounts.................... 53,784 33,830 26,059
Provision for settlement of litigation............. -- -- 24,000
Increase in trade receivables...................... (347,311) (147,502) (39,186)
(Increase) decrease in prepaid and refundable
income taxes..................................... (80,183) (4,608) 11,553
(Increase) decrease in prepaid expenses and
supplies......................................... (5,464) (11,887) 8,652
Increase in accounts payable....................... 24,113 23,465 11,339
Increase in income taxes........................... 90,713 30,334 18,539
Increase in other accrued liabilities.............. 181,638 65,632 37,145
Increase (decrease) in customer advances and
unearned revenues................................ 77,223 35,049 (3,460)
Increase (decrease) in deferred income taxes....... (13,341) 28,752 401
Increase (decrease) in other non-current
liabilities...................................... (1,778) 2,103 1,511
--------- --------- ---------
Net cash provided by operating activities............. 568,684 443,451 317,483
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term cash investments........... (176,536) -- --
Proceeds from maturities of short-term cash
investments...................................... 130,824 -- --
(Increase) decrease in cash investments............ -- 44,543 (81,273)
Capital expenditures............................... (262,046) (250,650) (41,313)
Capitalization of computer software development
costs............................................ (48,187) (38,067) (30,647)
Increase in other assets........................... (139,824) (25,714) (4,788)
--------- --------- ---------
Net cash used for investing activities................ (495,769) (269,888) (158,021)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) under notes payable and
long-term debt................................... 5,346 (987) (1,518)
Payments of capital leases......................... (6,168) (7,873) (10,825)
Proceeds from common stock issued.................. 60,647 38,712 31,698
Repurchase of common stock......................... (75,859) (81,157) (43,626)
--------- --------- ---------
Net cash used for financing activities................ (16,034) (51,305) (24,271)
--------- --------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH................. 18,467 (2,008) (3,914)
--------- --------- ---------
Net increase in cash and cash equivalents............. 75,348 120,250 131,277
CASH AND CASH EQUIVALENTS:
Beginning of year.................................. 404,810 284,560 153,283
--------- --------- ---------
End of year........................................ $ 480,158 $ 404,810 $ 284,560
========= ========= =========
See notes to consolidated financial statements.
27
30
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
Oracle Corporation designs, develops, markets, and supports computer software
products with a wide variety of uses, including database management and network
products, applications development productivity tools, and end user
applications. The Company also offers consulting, education, support and systems
integration services in support of its customers' use of its software products.
Basis of Financial Statements
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All intercompany transactions and balances between the
companies have been eliminated.
Foreign Currency Translation
In general, the functional currency of a foreign operation is deemed to be the
local country's currency. Consequently, assets and liabilities of operations
outside the United States are translated into United States dollars using
current exchange rates, and the effects of foreign currency translation
adjustments are included as a component of stockholders' equity.
The Company hedges certain portions of its exposure to foreign currency
fluctuations through a variety of strategies and financial instruments,
including the use of forward foreign exchange contracts. At May 31, 1995, the
Company had approximately $101,278,000 of forward foreign exchange contracts
outstanding used to hedge intercompany accounts of certain of its international
subsidiaries, and $82,867,000 of equity hedges outstanding used to hedge the net
assets of certain of its international subsidiaries. Gains and losses associated
with currency rate changes on forward foreign exchange contracts used to hedge
intercompany accounts are recorded currently in income, as they offset
corresponding gains and losses on the foreign currency-denominated assets and
liabilities being hedged. The fair value of foreign currency contracts is
estimated based on the spot rate of the various hedged currencies as of the end
of the period. Net foreign exchange transaction losses and expenses were
$3,732,000, $6,589,000, and $826,000 in fiscal 1995, 1994, and 1993,
respectively, and are included in other income and expense. Net losses on equity
hedges were $10,213,000 and $2,239,000 in fiscal 1995 and 1994, respectively,
and net gains on equity hedges were $2,875,000 in fiscal 1993. These net gains
and losses on equity hedges were recorded as a component of accumulated foreign
currency translation adjustments in stockholders' equity.
As of May 31, 1995, the fair value (and carrying amount) of these foreign
forward exchange contracts were as follows:
CONTRACT
AMOUNT FAIR VALUE
------------ ------------
Intercompany Account Hedges..................... $101,278,000 $101,300,000
Equity Hedges................................... $ 82,867,000 $ 75,514,000
At May 31, 1995, maturities of the Company's forward foreign exchange and equity
hedge contracts were six months or less in term.
Statements of Cash Flows
The Company paid income taxes in the amount of $223,725,000, $69,267,000, and
$32,130,000, and interest expense of $6,087,000, $6,887,000, and $9,161,000
during the fiscal years ended 1995, 1994, and 1993, respectively. In fiscal
1995, 1994, and 1993, the Company received income tax refunds in the amount of
28
31
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
$809,000, $467,000 and $2,378,000, respectively. The Company purchased equipment
under capital leases in the amount of $1,438,000, $1,702,000, and $1,102,000 in
fiscal 1995, 1994, and 1993, respectively.
Substantially all of the Company's cash and cash equivalents at May 31, 1995
consisted of highly liquid investments in time deposits of major world banks,
commercial paper, money market mutual funds, and tax-free municipal securities
with original maturities or puts of 90 days or less. The Company considers such
investments to be cash equivalents for purposes of the statements of cash flows.
Short-term cash investments at May 31, 1995 consisted of tax-exempt municipal
securities, commercial paper and U.S. Government Agency Paper with original
maturities or puts of 91 days or more. No individual investment security equaled
or exceeded 2% of total assets.
Statement of Financial Accounting Standards No. 115
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." The Company adopted the provisions
of this statement on a prospective basis in the first quarter of fiscal year
1995, and the effect on its financial statements was not significant. In
accordance with SFAS No. 115, the Company has classified all marketable debt
securities and long-term debt investments as held-to-maturity, and has accounted
for these investments at amortized cost. Accordingly, no adjustment for
unrealized holding gains or losses has been reflected in the Company's financial
statements.
At May 31, 1995, the amortized cost basis, aggregate fair value and gross
unrealized holding gains and losses by major security type were as follows:
AMORTIZED AGGREGATE UNREALIZED
COST FAIR VALUE GAINS/(LOSSES)
--------- ---------- --------------
(IN THOUSANDS)
Debt securities issued by the U.S. Treasury and
other U.S. government corporations and
agencies...................................... $ 9,884 $ 9,950 $ 66
Debt securities issued by states of the United
States and political subdivisions of the
states........................................ 37,338 37,254 (84)
Corporate debt securities....................... 58,438 58,804 366
-------- -------- ----
Total short-term cash investments..... $ 105,660 $ 106,008 $348
======== ======== ====
Concentration of Credit Risk
Financial instruments which potentially subject the Company to concentrations of
credit risk consist primarily of cash investments and trade receivables. The
Company has cash investment policies that limit investments to short term
investment grade securities. The Company performs ongoing credit evaluations of
its customer's financial condition and the risk with respect to trade
receivables is further mitigated by the fact that the Company's customer base is
highly diversified.
Property
Property is stated at cost. Capital leases are recorded at the present value of
the future minimum lease payments at the date of acquisition. Depreciation is
computed using the straight-line method based on estimated useful lives of the
assets which range from three to forty years. Capital leases and leasehold
improvements are amortized over the estimated useful lives or lease terms, as
appropriate.
29
32
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In fiscal 1995 and 1994, the Company purchased approximately $1 million and $2
million, respectively, in computer equipment and maintenance services from nCUBE
Corporation, the principal shareholder of which is Lawrence J. Ellison,
President and Chief Executive Officer of the Company, for use for a variety of
internal development and production purposes.
Software Development Costs
The Company capitalizes internally generated software development costs in
compliance with Statement of Financial Accounting Standards No. 86, "Accounting
for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed."
Capitalization of computer software development costs begins upon the
establishment of technological feasibility for the product. Capitalized software
development costs amounted to $48,187,000, $38,067,000, and $30,647,000 in
fiscal 1995, 1994, and 1993, respectively.
Amortization of capitalized computer software development costs begins when the
products are available for general release to customers, and is computed on a
product-by-product basis as the greater of: (a) the ratio of current gross
revenues for a product to the total of current and anticipated future gross
revenues for the product; or (b) the straight-line method over the remaining
estimated economic life of the product (generally two to three years).
Amortization amounted to $48,662,000, $39,318,000, and $23,043,000 for the
fiscal years ended May 31, 1995, 1994, and 1993, respectively, and is included
in sales and marketing expenses.
Long Term Debt
Based on the borrowing rates currently available to the Company for loans
similar in terms and average maturities, the stated value of long term debt
approximated market value at May 31, 1995.
Revenue Recognition
The Company generates several types of revenue including the following:
License and Sublicense Fees. The Company's standard end user license agreement
for the Company's products provides for an initial fee to use the product in
perpetuity on a specified computer. The Company currently offers either CPU
based or user based pricing for most products, depending on the platform. The
Company also enters into other license agreement types, typically with major end
user customers, which allow for the use of the Company's products, usually
restricted by the number of program copies, the number of users, the number of
CPUs, or the license term. Fees from licenses with standard acceptance periods
(15 days for commercial customers, and 30 days for government and telemarketing
customers) are recognized as revenue upon shipment if there are no, or
insignificant, post-delivery obligations, and payment is due within one year. If
the acceptance period is longer than standard, revenues are not recognized until
the end of the acceptance period. The Company provides for sales returns based
on historical rates of return.
The Company generally receives sublicense fees from resellers based on the
revenues generated by the reseller. Sublicense fees from resellers are typically
based on a percentage of the Company's list price. Reseller agreements may
include an initial non-refundable payment (in the form of an initial fee plus
advance sublicense fees, some or all of which is payable upon the signing of the
contract) and sublicense fees based on the value of copies of the Company's
products distributed by the reseller. Guaranteed sublicense fees from resellers
are recognized as revenue upon shipment if there are no, or insignificant,
post-delivery obligations, and if the terms of the agreement are such that the
payment obligation is noncancellable and nonrefundable, and due within one year.
Non-guaranteed per-copy sublicense fees from resellers are recognized as revenue
when they are reported by the reseller.
30
33
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Support Agreements. Support agreements generally call for the Company to
provide technical support and certain software updates to customers. Revenue on
support and software update rights is recognized ratably over the term of the
support agreement, and is included in services revenue in the accompanying
statement of operations.
Consulting and Education Services. The Company provides consulting and
education services to its customers; revenue from such services is generally
recognized as the services are performed.
Effective June 1, 1992, the Company adopted Statement of Position 91-1,
"Software Revenue Recognition," which addresses the accounting for software
revenues. The Company recorded the cumulative effect of the change in accounting
principle, in the amount of $43,470,000, which is net of an income tax benefit
of $24,452,000, as a non-cash charge in its statement of operations in the first
quarter of fiscal 1993.
Income Taxes
Effective June 1, 1992, the Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," ("SFAS 109") which requires
recognition of deferred tax liabilities and assets for the expected future tax
consequences of events that have been included in the financial statements or
tax returns. Under this statement, deferred tax liabilities and assets are
determined based on the difference between the financial statement and tax bases
of assets and liabilities, using enacted tax rates in effect for the year in
which the differences are expected to reverse. The cumulative effect of adopting
SFAS 109 as of June 1, 1992 was not material.
Deferred income taxes are provided for timing differences in recognizing certain
income, expense, and credit items for financial reporting purposes and tax
reporting purposes. Such deferred income taxes primarily relate to the methods
of accounting for capitalized software development costs, the timing of
recognition of certain revenue items, and the timing of the deductibility of
certain reserves and accruals for income tax purposes. Tax credits reduce the
provision for income taxes when considered to be realizable.
Earnings Per Share
On January 24, 1995, the Company effected a three-for-two stock split in the
form of a common stock dividend distributed February 22, 1995 to stockholders of
record as of February 6, 1995. All per share data and numbers of common shares,
where appropriate, have been retroactively adjusted to reflect the stock split.
Earnings per share was computed based on the weighted average number of common
and common equivalent shares outstanding during the period. Common equivalent
shares are calculated using the treasury stock method, and represent incremental
shares issuable upon the exercise of outstanding stock options.
Acquisition
On November 30, 1994, the Company completed the acquisition of the Rdb database
and repository businesses of Digital Equipment Corporation, including all
related software products and customer support services, for $108 million in
cash. Intangible assets, with an assigned value of approximately $107 million,
have been included in Other Assets in the accompanying consolidated balance
sheet. These intangible assets, which relate to the value assigned to the Rdb
database and repository businesses installed base, as well as the related
technologies, are being amortized over a seven year period. Amortization expense
of approximately $8 million was charged to cost of services in the accompanying
consolidated statement of operations in fiscal 1995.
31
34
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. PROPERTY
Property consists of:
YEAR ENDED MAY 31,
-----------------------
1995 1994
--------- ---------
(IN THOUSANDS)
Computer equipment........................... $ 372,013 $ 235,237
Furniture and fixtures....................... 133,817 85,772
Automobiles.................................. 5,636 8,202
Buildings and improvements................... 270,027 191,048
Land......................................... 76,952 93,757
--------- ---------
Total.............................. 858,445 614,016
Accumulated depreciation and amortization.... (323,411) (235,533)
--------- ---------
Property, net...................... $ 535,034 $ 378,483
========= =========
During the third quarter of fiscal 1994, the Company purchased land to be used
for its UK subsidiary's headquarters for approximately $31 million. During the
first quarter of fiscal 1995, the Company sold a significant portion of this
land for approximately $27 million. After consideration of the cost of the land,
including certain required improvements, and expense provisions related to other
UK facilities, the net gain realized on the sale of the land was not
significant. The Company believes that the remaining land is sufficient to meet
the requirements for its UK subsidiary's headquarters.
During fiscal 1994, the Company purchased $85.1 million in mortgage notes. These
notes are the obligations of IV Centrum Associates, a real estate limited
partnership, which owns two buildings leased by the Company at its headquarters
site. The Company also became a 74% limited partner in IV Centrum Associates by
making a capital contribution of approximately $4 million. The Company has the
right to leave the partnership in 1996 and take full title to both buildings
without making further capital contributions. As a result of the note purchases
and capital contribution, the Company has capitalized the two building leases,
and the $89.1 million in payments have been classified as buildings and
improvements.
Additionally, during fiscal 1994, the Company entered into an arrangement
whereby it leased an office building adjacent to its headquarters site and
concurrently acquired the land under the building and all outstanding mortgage
notes for a total of $22.1 million. The Company has various options to extend
the lease and to purchase the building at various times during the lease term.
As a result of the land and note purchases, the Company has capitalized the
building lease, and the $22.1 million in payments have been classified as land
and buildings and improvements.
Leased equipment under capital leases included in property at May 31, 1995 and
1994 was $38,837,000 and $43,581,000, respectively. Accumulated amortization of
leased equipment at such dates was $31,256,000 and $32,898,000, respectively.
32
35
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
As of May 31, 1995, future minimum annual lease payments under capital leases
together with their present value were:
YEAR ENDED MAY 31, (IN THOUSANDS)
-------------------------------------------------------
1996................................................... $3,684
1997................................................... 1,309
1998................................................... 388
1999................................................... 27
------
Total minimum lease payments................. 5,408
Amounts representing interest.......................... (453)
------
Present value of minimum lease payments...... $4,955
======
3. NOTES PAYABLE
At May 31, 1995 and 1994, the Company had unsecured short-term borrowings from
banks which were payable on demand in the amounts of $6,221,000 and $551,000,
respectively. Interest on the borrowings outstanding at May 31, 1995 ranged from
4% to 19%.
4. LONG-TERM DEBT
Long-term debt consists of:
YEAR ENDED
MAY 31,
-------------------
1995 1994
------- -------
(IN THOUSANDS)
Subordinated debt................................ $80,000 $80,000
Other............................................ 144 144
Capital lease obligations (See Note 2)........... 4,955 9,048
------- -------
Total.................................. 85,099 89,192
Current maturities............................... (3,378) (6,347)
------- -------
Long-term debt................................... $81,721 $82,845
======= =======
In December 1991, the Company entered into an $80 million subordinated debt
agreement with Nippon Steel Corporation ("NSC"). In connection with this
agreement, the Company also entered into a strategic relationship with NSC to
target major customers and industries in Japan. The subordinated debt agreement
has a maturity date of December 9, 1998. Interest is charged at LIBOR plus
three-quarters of one percent, payable semi-annually in arrears. The Company is
required to maintain certain financial covenants under the agreement and is
restricted from making dividend payments if these covenants are not met. As of
May 31, 1995, the Company was in compliance with these covenants. NSC has
committed to purchase from the Company an ownership position of up to
twenty-five percent of Oracle Corporation Japan, a subsidiary of the Company, in
the event that shares in Oracle Corporation Japan are sold to the public as a
part of an initial public offering. The per share price of the stock would be
the same as that offered in the initial public offering. NSC has agreed not to
acquire shares of Oracle Corporation Japan beyond the twenty-five percent
interest, nor any shares of the Company, subject to certain exceptions.
33
36
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
As of May 31, 1995, maturities of long-term debt (excluding capital lease
obligations -- see Note 2) are:
YEAR ENDED MAY 31, (IN THOUSANDS)
---------------------------------------------------------------
1996........................................................... $ 31
1997........................................................... 34
1998........................................................... 38
1999........................................................... 80,041
-------
Total..................................................... $80,144
=======
5. COMMITMENTS
Facilities and certain furniture and equipment are leased under operating
leases. The Company has pledged land, having an original cost of approximately
$16,000,000, as security for the mortgage loans covering one of the buildings at
the Company's headquarters site.
As of May 31, 1995, future minimum annual lease payments (excluding the lease
payments related to capitalized facilities discussed in Note 2) are as follows:
YEAR ENDED MAY 31, (IN THOUSANDS)
---------------------------------------------------------------
1996........................................................... $ 94,222
1997........................................................... 74,474
1998........................................................... 56,807
1999........................................................... 44,819
2000........................................................... 35,617
Thereafter..................................................... 72,154
--------
Total..................................................... $ 378,093
========
Rent expense was $132,647,000, $105,041,000, and $104,796,000, for fiscal years
1995, 1994, and 1993, respectively. Rent expense in fiscal 1995, 1994, and 1993
is net of sublease income of approximately $2,076,000, $2,366,000, and
$2,693,000, respectively.
6. STOCKHOLDERS' EQUITY
Stock Option Plans
The Company's 1985 Stock Option Plan provided for the issuance of incentive
stock options to employees of the Company and non-qualified options to
employees, directors, consultants and independent contractors of the Company.
Under the terms of this plan, options were generally granted at not less than
fair market value, become exercisable as established by the Board (generally
ratably over four to five years), and generally expire ten years from the date
of grant. As of May 31, 1995, options to purchase 3,525,533 shares were
outstanding, of which 3,511,283 shares were vested. As of May 31, 1995, there
were no options for shares of Common Stock available for future grant under this
plan.
34
37
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In fiscal 1991, the Company adopted both the 1990 Directors Stock Option Plan
and the 1990 Executive Officers Stock Option Plan which provide for the issuance
of non-qualified stock options to directors and non-qualified or incentive stock
options to executive officers of the Company, respectively. Under the terms of
these plans, options to purchase up to 6,420,000 shares of Common Stock were
reserved for issuance, generally are granted at not less than fair market value,
become exercisable as established by the Board (generally ratably over four
years), and generally expire ten years from the date of grant. As of May 31,
1995, options to purchase 1,898,850 shares of Common Stock were outstanding, of
which 856,050 shares were vested. Options for 1,444,193 shares were available
for future grant under these plans at May 31, 1995.
In fiscal 1992, the Company adopted the Long-term Equity Incentive Plan which
provides for the issuance of non-qualified stock options and incentive stock
options, as well as stock purchase rights, stock appreciation rights (in
connection with options), and long-term performance awards to eligible
employees, officers, directors who are also employees or consultants, and
advisors of the Company. Under the terms of this plan, options to purchase
15,000,000 shares of Common Stock were reserved for issuance, generally are
granted at not less than fair market value, become exercisable as established by
the Board (generally ratably over four years), and generally expire ten years
from the date of grant. An additional 12,000,000 shares of Common Stock were
reserved for issuance under the plan in fiscal 1994. As of May 31, 1995, options
to purchase 19,092,138 shares of Common Stock were outstanding, of which
6,129,712 shares were vested. Options for 4,917,291 shares were available for
future grant under the plan at May 31, 1995. To date, the Company has not issued
any stock purchase rights, stock appreciation rights or long-term performance
awards under this plan.
In fiscal 1993, the Company's Board of Directors adopted the 1993 Directors
Stock Option Plan (the "1993 Directors Plan") which provides for the issuance of
non-qualified stock options to outside directors. Under the terms of this plan,
options to purchase 1,500,000 shares of Common Stock were reserved for issuance,
are granted at not less than fair market value, become exercisable over four
years, and expire ten years from the date of grant. Under the terms of the 1993
Directors Plan, all grants of options to purchase shares of the Company's Common
Stock are automatic and nondiscretionary. The plan provides for initial stock
option grants of 15,000 shares to each individual who was an outside director on
May 24, 1993. In addition, the Chairman of the Executive Committee of the
Company's Board of Directors was automatically granted options to purchase
120,000 shares of the Company's Common Stock. Each individual who becomes an
outside director after May 24, 1993 shall automatically be granted options to
purchase 37,500 shares. The 1993 Directors Plan also provides for subsequent
stock option grants. On May 31 of each year beginning on May 31, 1994, each
outside director will be granted options to purchase 11,250 shares of the
Company's Common Stock, provided that on such date the outside director has
served on the Company's Board of Directors for at least six months. In addition,
each outside director who has served as a Chairman of the Executive or Finance
and Audit Committee of the Company's Board of Directors will be granted options
to purchase 26,250 shares of Common Stock on May 31 of each year beginning on
May 31, 1994, provided that the outside director has served as a Chairman of any
such committee for at least one year. As of May 31, 1995, options to purchase
350,000 shares of common stock were outstanding, of which 85,626 were vested.
Options for 1,128,750 shares were available for future grant under this plan at
May 31, 1995.
The Company, at its discretion, may accelerate the exercisability of an option.
In such cases, the Company has the right to repurchase shares issued upon the
exercise of options that were not exercisable under the original schedule at the
exercise price paid by the stockholder should the stockholder leave the Company
prior to the scheduled vesting date. As of May 31, 1995, there were no shares of
outstanding Common Stock subject to such repurchase rights.
35
38
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes stock option plan activity:
SHARES UNDER
OPTION OPTION PRICES
------------ ---------------
Balance, May 31, 1992.......................... 26,933,727 $ 0.05 - $ 8.21
Granted...................................... 7,684,950 3.04 - 14.55
Exercised.................................... (7,246,350) 0.05 - 8.21
Canceled..................................... (1,613,349) 0.16 - 11.58
-----------
Balance, May 31, 1993.......................... 25,758,978 $ 0.10 - $14.55
Granted...................................... 7,004,400 13.71 - 24.08
Exercised.................................... (4,898,042) 0.10 - 13.13
Canceled..................................... (2,859,727) 0.16 - 22.92
-----------
Balance, May 31, 1994.......................... 25,005,609 $ 0.16 - $24.08
Granted...................................... 5,583,350 23.04 - 37.00
Exercised.................................... (4,245,418) 23.25 - 37.00
Canceled..................................... (1,477,020) 1.92 - 32.00
-----------
Balance, May 31, 1995.......................... 24,866,521 $ 0.16 - $37.00
===========
Non-Plan Options
In addition to the above option plans, non-qualified stock options to purchase
52,500 common shares were outstanding and vested as of May 31, 1995 at an
exercise price of $0.65.
As of May 31, 1995, the Company had reserved 32,409,255 shares of Common Stock
for the exercise of options.
Stock Purchase Plan
In October 1987, the Company adopted an Employee Stock Purchase Plan (the "1987
Purchase Plan"), and reserved 24,000,000 shares of Common Stock for issuance
thereunder. In September 1992, the plan was amended to reserve an additional
750,000 shares of Common Stock for the purpose of ensuring that sufficient
shares remained available for a full allocation of shares to all participants in
the offering period ended September 30, 1992. The 1987 Purchase Plan was
terminated on September 30, 1992, and the remaining shares became available for
issuance under the 1992 Purchase Plan.
In August 1992, the Company adopted the Employee Stock Purchase Plan (1992) (the
"1992 Purchase Plan"), and reserved 6,000,000 shares of Common Stock for
issuance thereunder. An additional 6,000,000 shares of Common Stock were
reserved for issuance under the plan in fiscal 1994. Under the stock purchase
plan, the Company's employees may purchase shares of Common Stock at a price per
share that is 85% of the lesser of the fair market value as of the beginning or
the end of the semi-annual option period. Through May 31, 1995, 5,887,008 shares
had been issued and 6,388,527 shares are reserved for future issuances under
this plan.
Shareholder Rights Plan
On December 3, 1990, the Board adopted a Shareholder Rights Plan. Pursuant to
the Plan, the Company distributed Preferred Stock Purchase Rights as a dividend
at the rate of one-third Right for each share of the Company's Common Stock held
by stockholders of record as of December 31, 1990. The Board also authorized the
issuance of Rights for each share of Common Stock issued after the record date,
until the occurrence of certain specified events. The Shareholder Rights Plan
was adopted to provide protection to stockholders in the event of an unsolicited
attempt to acquire the Company.
36
39
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Rights are not exercisable until the earlier of (i) ten days following an
announcement that a person or group has acquired beneficial ownership of 20% of
the Company's Common Stock or (ii) ten business days (or such later date as may
be determined by the Board) following the announcement of a tender offer which
would result in a person or group obtaining beneficial ownership of 20% or more
of the Company's outstanding Common Stock, subject to certain exceptions (the
earlier of such dates being called the "Distribution Date"). The Rights are
initially exercisable for one-three thousandth of a share of the Company's
Series A Junior Participating Preferred Stock at a price of $83.33 per one-three
thousandth share, subject to adjustment. However, if (i) after the Distribution
Date the Company is acquired in certain types of transactions, or (ii) any
person or group (with certain exceptions) acquires beneficial ownership of 20%
of the Company's Common Stock, then holders of Rights (other than the 20%
holder) will be entitled to receive upon exercise of the Right, Common Stock of
the Company (or in the case of acquisition of the Company, Common Stock of the
acquiror) having a market value of two times the exercise price of the Right.
The Company is entitled to redeem the Rights, for $.00033 per Right, at the
discretion of the Board of Directors, until certain specified times. The rights
are not exercisable until the Company's period for redemption has passed. The
Company may also require the exchange of rights, at a rate of one share of
Common Stock, or one-three thousandth share of Series A Junior Participating
Preferred Stock, for each Right, under certain circumstances. The Company also
has the ability to amend the Rights, subject to certain limitations.
Put Warrants
During fiscal 1995 and 1994, the Company sold 3,835,000 put warrants that
entitle the holder to sell one share of Common Stock to the Company at prices
between $16.125 and $25.625. On March 24, 1995, 2,335,000 of these put warrants
were canceled. Additionally, the Company purchased 2,397,000 call options that
entitle the Company to buy one share of Common Stock at prices between $20.625
and $31.625. At no future stock price will the Company's combined repurchases of
Common Stock from the put and call options exceed 1,500,000 shares at a maximum
cost of $38,438,000.
7. INCOME TAXES
The following is a geographical breakdown of the Company's income before taxes
and before cumulative effect of change in accounting principle:
YEAR ENDED MAY 31,
----------------------------------
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
Domestic................................... $526,815 $306,426 $135,029
Foreign.................................... 132,167 117,037 83,012
-------- -------- --------
Total.................................... $658,982 $423,463 $218,041
======== ======== ========
37
40
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The provision for income taxes, excluding the tax effect of the cumulative
effect of change in accounting principle in fiscal 1993, consists of the
following:
YEAR ENDED MAY 31,
----------------------------------
1995 1994 1993
--------- -------- -------
(IN THOUSANDS)
Current Payable:
Federal.................................. $ 189,012 $ 50,282 $27,420
State.................................... 31,831 11,423 3,915
Foreign.................................. 108,695 50,620 43,142
--------- -------- -------
Total current......................... 329,538 112,325 74,477
--------- -------- -------
Deferred Payable (Prepaid):
Federal.................................. (63,398) 30,971 525
State.................................... (4,282) 97 1,673
Foreign.................................. (44,394) (3,650) (360)
--------- -------- -------
Total deferred........................ (112,074) 27,418 1,838
--------- -------- -------
Total.................................... $ 217,464 $139,743 $76,315
========= ======== =======
The provision for income taxes differs from the amount computed by applying the
federal statutory rate to the Company's income before taxes and before the
cumulative effect of change in accounting principle as follows:
YEAR ENDED MAY 31,
---------------------------------
1995 1994 1993
-------- -------- -------
(IN THOUSANDS)
Tax provision at statutory rate............. $230,643 $148,212 $74,134
Tax credits................................. (4,600) (5,219) (5,365)
Tax benefit of exempt FSC income............ (16,368) (12,666) (9,533)
State tax, net of federal benefit........... 17,308 7,488 3,688
Foreign taxes provided at rates other than
the U.S. statutory rate................... (8,575) 284 (7,538)
Foreign losses not tax benefited............ 4,104 1,347 4,788
Other....................................... (5,048) 297 16,141
-------- -------- -------
Provision for income taxes.................. $217,464 $139,743 $76,315
======== ======== =======
38
41
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The components of the deferred tax assets and liabilities, as reflected on the
balance sheet, consist of the following:
YEAR ENDED MAY 31,
----------------------------------
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
Deferred Tax Liabilities:
Capitalized software development costs........... $(33,681) $(28,170) $(30,026)
State taxes...................................... (10,351) (6,364) (2,917)
Depreciation and amortization.................... -- -- (2,490)
Other tax liabilities............................ (17,099) (19,042) (22,952)
-------- -------- --------
Total deferred tax liabilities................ (61,131) (53,576) (58,385)
Deferred Tax Assets:
Reserves and accruals............................ 45,990 31,302 28,618
Tax credit carry forwards........................ -- -- 30,601
Differences in timing of revenue recognition..... 47,698 24,651 34,148
Foreign earnings deemed repatriated.............. 22,938 11,169 3,052
Net operating loss carryovers.................... 19,516 6,119 10,347
Depreciation and amortization.................... 6,294 526 --
Other tax assets................................. 30,939 10,537 --
-------- -------- --------
Total deferred tax assets..................... 173,375 84,304 106,766
Valuation allowance.............................. (4,243) (15,879) (7,447)
-------- -------- --------
Net........................................... $108,001 $ 14,849 $ 40,934
-------- -------- --------
Recorded as:
Prepaid and refundable income taxes.............. $135,491 $ 53,765 $ 49,157
Deferred income taxes............................ (27,490) (38,916) (8,223)
-------- -------- --------
$108,001 $ 14,849 $ 40,934
======== ======== ========
The Company provides United States income taxes on the earnings of foreign
subsidiaries unless they are considered permanently invested outside the United
States. As of May 31, 1995, the cumulative amount of earnings upon which United
States income taxes have not been provided are approximately $14,332,000. At May
31, 1995, the unrecognized deferred tax liability for these earnings is
approximately $3,583,000.
Certain foreign subsidiaries of the Company have net operating loss
carryforwards at May 31, 1995, totaling approximately $56,130,000, which may be
used to offset future taxable income. The carryforwards expire at various dates;
$19,309,000 in 1996, $1,732,000 in 1998, $13,672,000 in 2000, $2,636,000 in
2002, and the remaining balance has no expiration. As of May 31, 1995, the
Company has recorded a gross deferred tax asset related to the loss
carryforwards of $19,516,000, and a related valuation allowance of $4,243,000.
At May 31, 1994 and 1993, the deferred assets were $6,119,000 and $10,347,000,
respectively, and the related valuation allowance attributed to loss
carryforwards were $1,119,000 and $7,447,000, respectively.
As of May 31, 1993, the Company had, for tax purposes, tax credit carryforwards
totaling $30,601,000. At May 31, 1995 and 1994 there were no credit
carryforwards.
39
42
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. SEGMENT INFORMATION
The Company operates in one industry segment: the development and marketing of
computer software and related services. The Company's products are marketed
internationally through the Company's subsidiaries, with the principal
subsidiaries located in continental Europe, the United Kingdom, Canada,
Australia, Asia, the Middle East and Latin America, and through distributors.
Intercompany revenues are generally based on a sublicense fee, representing a
percentage of license and support revenues generated by non-U.S. operations from
their unaffiliated customers.
The following table presents a summary of operations by geographic region:
YEAR ENDED MAY 31,
----------------------------------------
1995 1994 1993
---------- ---------- ----------
(IN THOUSANDS)
Revenues from Unaffiliated Customers:
Domestic operations.......................... $1,252,732 $ 814,920 $ 574,853
---------- ---------- ----------
International operations:
European operations....................... 1,125,259 800,373 676,021
Other international operations............ 588,887 385,854 251,894
---------- ---------- ----------
Total international operations.......... 1,714,146 1,186,227 927,915
---------- ---------- ----------
Consolidated.............................. $2,966,878 $2,001,147 $1,502,768
========== ========== ==========
Intercompany revenues:
Domestic operations.......................... $ 365,807 $ 255,132 $ 183,714
========== ========== ==========
Operating Income:
Domestic operations.......................... $ 523,115 $ 309,362 $ 142,238
European operations.......................... 72,527 76,053 58,687
Other international operations............... 54,079 34,538 16,054
---------- ---------- ----------
Consolidated.............................. $ 649,721 $ 419,953 $ 216,979
========== ========== ==========
Identifiable Assets:
Domestic operations.......................... $1,451,720 $ 893,563 $ 695,325
European operations.......................... 655,324 514,459 359,043
Other international operations............... 317,473 186,962 129,652
---------- ---------- ----------
Consolidated.............................. $2,424,517 $1,594,984 $1,184,020
========== ========== ==========
Domestic revenues from unaffiliated customers include certain export sales. The
following table presents a summary of total revenues generated by geographic
region after adjustments to include such export sales based on the location of
the customer:
YEAR ENDED MAY 31,
----------------------------------------
1995 1994 1993
---------- ---------- ----------
(IN THOUSANDS)
Domestic revenues.............................. $1,234,339 $ 799,654 $ 553,480
European revenues.............................. 1,125,550 803,703 686,569
Other international revenues................... 606,989 397,790 262,719
---------- ---------- ----------
Total revenues............................... $2,966,878 $2,001,147 $1,502,768
========== ========== ==========
40
43
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. LITIGATION
Certain class action and derivative lawsuits were filed against the Company and
certain present and former officers and directors in 1990. In February 1993, the
suits were settled for an aggregate amount of approximately $24 million. In July
1994, the United States District Court, Northern District of California,
dismissed the class and derivative actions and entered final judgment in both
actions.
The Company is also subject to other legal proceedings and claims, either
asserted or unasserted, which arise in the ordinary course of business. While
the outcome of these claims cannot be predicted with certainty, management does
not believe that the outcome of any of these legal matters will have a material
adverse effect on the Company's consolidated results of operations or
consolidated financial position.
41
44
SCHEDULE II
ORACLE CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
BALANCE AT ADDITIONS BALANCE
BEGINNING CHARGED TRANSLATION AT END
CLASSIFICATION OF PERIOD TO OPERATIONS WRITEOFFS ADJUSTMENTS OF PERIOD
- ------------------------ ----------- ------------- ------------ ----------- -----------
Allowance for Doubtful
Accounts
Year Ended:
May 31, 1993....... $45,282,000 $ 26,059,000 $(36,161,000) $ (546,000) $34,634,000
=========== =========== ============ ========== ===========
May 31, 1994....... $34,634,000 $ 33,830,000 $(28,400,000) $ (287,000) $39,777,000
=========== =========== ============ ========== ===========
May 31, 1995....... $39,777,000 $ 53,784,000 $(28,011,000) $ 2,178,000 $67,728,000
=========== =========== ============ ========== ===========
42
45
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on August 25, 1995.
ORACLE CORPORATION
By: Lawrence J. Ellison
------------------------------------
Lawrence J. Ellison, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Registrant and in the
capacities and on the date indicated.
NAME TITLE DATE
- ------------------------------------------ ------------------------------- ----------------
Lawrence J. Ellison President, Chief Executive August 25, 1995
- ------------------------------------------ Officer and Chairman of the
Lawrence J. Ellison Board of Directors
Jeffrey O. Henley Executive Vice President, Chief August 25, 1995
- ------------------------------------------ Financial Officer and Director
Jeffrey O. Henley
Raymond J. Lane Executive Vice President, August 25, 1995
- ------------------------------------------ President of Worldwide
Raymond J. Lane Operations and Director
Thomas A. Williams Vice President and Corporate August 25, 1995
- ------------------------------------------ Controller
Thomas A. Williams
James A. Abrahamson Director August 25, 1995
- ------------------------------------------
James A. Abrahamson
Michael J. Boskin Director August 25, 1995
- ------------------------------------------
Michael J. Boskin
Jack Kemp Director August 25, 1995
- ------------------------------------------
Jack Kemp
Donald L. Lucas Director August 25, 1995
- ------------------------------------------
Donald L. Lucas
Delbert W. Yocam Director August 25, 1995
- ------------------------------------------
Delbert W. Yocam
43
46
ORACLE CORPORATION
INDEX OF EXHIBITS
EXHIBIT # EXHIBIT TITLES PAGE
- --------- ------------------------------------------------------------------------- ----
3.12 Certificate of Amendment of Certificate of Incorporation................. 45
10.16 Summary of Arrangement with James A. Abrahamson.......................... 46
21.01 Subsidiaries of the Registrant........................................... 47
23.01 Consent of Arthur Andersen LLP........................................... 49
27.1 Financial Data Schedule.................................................. 50
44