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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C., 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MAY 31, 1996
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 [_]
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, 1996 was $20,085,776,623. 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, 1996: 656,388,768
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 14, 1996.
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ORACLE CORPORATION
1996 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PAGE
----
PART I.
Item 1. Business..................................................... 3
Item 2. Properties................................................... 11
Item 3. Legal Proceedings............................................ 11
Item 4. Submission of Matters to a Vote of Security Holders.......... 12
Item 4A. Executive Officers of the Registrant......................... 12
PART II.
Market for Registrant's Common Equity and Related Stockholder
Item 5. Matters...................................................... 13
Item 6. Selected Financial Data...................................... 14
Item 7. Management's Discussion and Analysis of Financial Condition
and Results
of Operations............................................... 14
Item 8. Financial Statements and Supplementary Data.................. 23
Item 9. Changes in and Disagreements with Accountants on Accounting
and
Financial Disclosure........................................ 23
PART III.
Item 10. Directors and Executive Officers of the Registrant........... 23
Item 11. Executive Compensation....................................... 23
Security Ownership of Certain Beneficial Owners and
Item 12. Management................................................... 23
Item 13. Certain Relationships and Related Transactions............... 23
PART IV.
Exhibits, Financial Statement Schedules and Reports on Form
Item 14. 8-K.......................................................... 23
Signatures................................................... 45
2
FORWARD-LOOKING STATEMENTS
In addition to historical information, this Annual Report contains forward-
looking statements. The forward-looking statements contained herein are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those reflected in the forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed in the section entitled "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Factors That May Affect
Future Results and Market Price of Stock." Readers are cautioned not to place
undue reliance on these forward-looking statements, which reflect management's
analysis only as of the date hereof. Oracle Corporation undertakes no
obligation to publicly revise these forward-looking statements, to reflect
events or circumstances that arise after the date hereof. Readers should
carefully review the risk factors described in other documents the Company
files from time to time with the Securities and Exchange Commission, including
the Quarterly Reports on Form 10-Q to be filed by the Company in 1996 and 1997
and any Current Reports on Form 8-K filed by the Company.
PART I
ITEM 1. BUSINESS
Oracle Corporation is the world's leading independent supplier of software for
information management. In 1979, the Company introduced the first commercially
available relational database management system for the storing, manipulating
and sharing of information. The Company's primary information management
products can be categorized in three primary product families: Server
Technologies (distributed database servers, connectivity products and
gateways), Application Development and Business Intelligence Tools
(application design, application development, and data access tools) and
Client Server Business Applications (modules for finance and administration,
manufacturing, distribution and human resources). The Company's principal
product is a multimedia, relational database management system ("DBMS") that
runs on a broad range of computers, including massively parallel, clustered,
symmetrical multi-processing, minicomputers, workstations, personal computers
and laptop computers and over 85 different operating systems, primarily UNIX,
Digital, VAX, Windows NT and Netware. Oracle7 relational DBMS is a key
component of Oracle(R) Universal Server(R), a database server for relational
video, audio, text, messaging, spatial and other types of data. The Company's
Application Development and Business Intelligence Tools and Client Server
Business Applications also run on a broad range of operating systems including
UNIX, Windows and Windows NT. The Company also offers consulting, education,
support and systems integration services in support of its customers' use of
the Company's 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. The Company's primary operating subsidiary, Oracle
Corporation, a California corporation, was incorporated in June 1977. In May
1995, Oracle 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 application 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. Application software automates
the performance of specific business functions such as payroll processing,
general ledger accounting and inventory control.
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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.
The comparative advantage of a relational DBMS over a non-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 presented to users in familiar, two-dimensional tables of
rows and columns of data. Relational DBMSs therefore have been widely used for
management information and decision-support systems which require flexible
access to large quantities of data.
Relational databases are often chosen to support data warehouses. A data
warehouse is designed to store large amounts of historical or reference data
which is typically used to support the decision-making and information needs
of an enterprise. Because they facilitate application 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.
Recently, usage of relational DBMSs has moved toward the management of
multimedia information such as video, audio, text, messaging, spatial and
multi-dimensional data. The Company believes that this is particularly
important as application development becomes more prevalent on the Internet.
Traditionally, web-based systems have been primarily transaction-oriented in
nature. Because internet applications are becoming more information-oriented,
relational DBMSs have become more widely used for web-based systems. As the
information on the Internet becomes more complex and widely used (video,
audio, text, messaging, spatial and multi-dimensional data), the Company
believes the demand for more sophisticated DBMSs will increase.
Object oriented DBMSs and tools 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 and tools 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
will 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
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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 periodically released updated versions of the
Oracle relational DBMS containing performance and functionality enhancements
for distributed computing, on-line transaction processing and decision support
applications. 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, which enable 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 DEC.
In 1995, the Company acquired the Express(R) family of on-line analytical
processing ("OLAP") software products from Information Resources Inc. ("IRI")
in order to enhance its existing data warehousing strategy. The Company
believes that the acquired products and services compliment Oracle's existing
products for the development and maintenance of data warehouses. The acquired
products that have been incorporated into the Company's product line have been
renamed and are now called: the Oracle Express Server(TM), Personal
Express(TM), Oracle Express Analyzer(TM), Oracle Financial Analyzer(TM) and
Oracle Sales Analyzer(TM). These OLAP products enable customers to manage and
perform complex analyses of business data.
In July 1995, the Company introduced Oracle7, Release 7.2, the second
maintenance release of Oracle7. This release includes improved performance,
scalability, and flexibility for data warehousing operations, significant
enhancements of application developer productivity and application
reliability, security, and performance, with improved overall manageability of
the server. Release 7.2 features PL/SQL and the Oracle Programmatic
Interfaces, a family of advanced application development tools and 3GL
languages, and Oracle SQL*Net Version 2.2, a family of network products that
transparently integrate clients, servers and gateways into a unified
information resource.
In February 1996, the Company announced general availability of the latest
version of its primary product, Release 7.3 of Oracle7. This release enables
easier management and better integration of all enterprise data, including
relational data as well as video, audio, text, messaging and spatial
information, and facilitates easy integration of Oracle7-based information
with the World Wide Web. Release 7.3 of Oracle7 also includes significant
improvements in capability and performance for complex queries.
5
PRODUCTS
The Company's product strategy is to deliver to its customers scalable
solutions for personal, workgroup, department and enterprise computing as well
as via the emerging information superhighway. The Company's products span all
of these markets and are contained within three primary product families:
Server Technologies, Application Development and Business Intelligence Tools,
and Client/Server Business Applications. The following chart sets forth the
Company's products and how they generally relate to various computing markets:
[CHART: PRODUCT CATEGORIES BY END USER COMPUTING MARKETS]
SERVER TECHNOLOGIES
Products
The Company's Server Technologies product family consists 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. With the current version, Oracle 7.3, the
Oracle(R) Universal Server(R), additional capabilities have been included that
allow users to more easily manage unstructured information such as video,
audio, text, messaging and spatial data.
In 1994, the Company introduced a new mobile technology product called Oracle
Mobile Agents(TM), which permits users 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 and without a physical connection.
Another component of the Server Technologies product family is the Oracle Open
Gateway products (Oracle Transparent Gateway(TM) and Oracle Procedural
Gateway(TM)). These products 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 and data stored in
older hierarchical DBMSs or file systems.
The Oracle WebSystem consists of WebServer and client products that provide
easy integration with existing corporate data and which enable the development
of web-based client server applications. The WebSystem products will allow
companies to create real-time web applications that can reliably manage high
volumes of on-line dynamic data. The Oracle WebSystem consists of three
products: Oracle WebServer Option, Oracle WebServer and Oracle
PowerBrowser(R).
Key Features
The Oracle7 relational DBMS supports a client server architecture between
application programs and database servers, and permits transparent data
sharing across a communications network, so that application programs and
users can access data without knowing or specifying the location of the data
within the network. The Oracle7 relational DBMS provides features to support
the operational requirements of on-line transaction processing
6
(OLTP), decision support and 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, the
Oracle7 DBMS provides optional parallel query capabilities that enable
expeditious searching of large amounts of data for large-scale decision
support and data warehouse applications. The Oracle7 relational DBMS also
contains replication features that automatically copy data among multiple
locations, providing systems architects and application developers with
additional flexibility for managing data distribution and access throughout an
enterprise.
Applications developed with the Oracle7 relational DBMS are scalable from the
desktop to massively parallel computers and are portable to a wide variety of
hardware and operating system environments with little or no change to the
underlying structure.
APPLICATION DEVELOPMENT AND BUSINESS INTELLIGENCE TOOLS
Products
The Company provides a number of development tools for different types of
applications. For the personal market (single user) and workgroup market (2 to
20 users), Oracle offers Oracle Power Objects, a simple, easy-to-use
development tool for client server and web applications. For the departmental
and enterprise level (20 to thousands of users), Oracle offers two primary
tools for application development which are used in conjunction with Oracle's
latest server technology products: Designer/2000(TM) and Developer/2000(TM).
Designer/2000 is a tool for modeling and designing mission-critical, complex
applications. Developer/2000 is an application development and deployment tool
for developing robust, scalable, second generation client server applications,
including interactive forms, reports and charts. Oracle also provides special
tools for multimedia applications called Oracle Media Objects(R).
The Company also offers products called business intelligence tools that allow
users to query and access information within applications. For client server
applications, users can query applications with Oracle Discoverer/2000(TM) to
perform rapid querying and reporting and can perform multi-dimensional
analysis of data contained within data warehouses via its OLAP tools. Also,
Oracle Power Browser provides users the ability to browse the World Wide Web.
Key Features
Applications built with these products are portable across different hardware
platforms. They support graphical user interfaces and have rich multi-media
functionality incorporating video, audio and text. Oracle's solution is
scalable from personal to enterprise and based on an open systems platform
that allows an efficient use of hardware resources.
CLIENT SERVER BUSINESS APPLICATIONS
Products
Oracle's Application products consist of approximately 30 integrated software
modules for finance and administration, supply chain management,
manufacturing, project management, human resources and market management. The
Company's end user application products combine proven business functionality
with innovative technologies, such as data warehousing and mobile computing,
to build solutions that provide a unique competitive advantage. The Company
anticipates the release of Oracle Applications for the Web and Oracle
Applications Data Warehouse in the second half of calendar 1996. Oracle
Applications for the Web will allow businesses to transform their operations
by providing customers, suppliers and employees with universal, low-cost
access to selected business information. Oracle Applications Data Warehouse
will provide businesses the enterprise-wide view of information required for
informed decision making. All of the application products are designed for
rapid implementation and change.
7
Key Features
Oracle is the only application vendor that combines applications with its own
core tools and database technologies. This allows the Company to build
application enhancements within each technology layer for improved
flexibility, scalability and performance. A flexible and open architecture
also allows customers to tailor the applications with minimal programming.
Client server business applications are also easily integrated with third
party and legacy systems. Oracle's unique SmartClient architecture uses
application partitioning to deliver high performance and a graphical user
interface, which enable Oracle applications to be used across multiple
locations to meet the scalability and performance requirements of large
multinational organizations.
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% of total
revenues in fiscal 1996 and 1995, and 23% of total revenues in fiscal 1994.
The Company offers a wide range of support services that include on-site or
telephonic access to support personnel as well as software updates to existing
products. The prices of the Company's support services are generally based on
the level of support services provided and the number of users authorized to
access the Company's software products. Support revenues represented
approximately 21%, 20% and 19% of total revenues in fiscal 1996, 1995 and
1994, respectively.
The Company believes that its broad-based service offerings and its current
and planned product offerings facilitate the transfer of technology to
customers and stimulate demand for the Company's products.
MARKETING AND SALES
Direct and Indirect Sales Organization
In the United States, the Company markets its product and services primarily
through its own direct sales and service organization. Sales and service
groups are based in the Company's headquarters in Redwood City, California,
and in field offices that, as of May 31, 1996, were located in approximately
60 United States metropolitan areas.
Outside the United States, the Company markets its products primarily through
the sales and service organizations of approximately 55 subsidiaries. These
subsidiaries license and support the Company's products both within their
local countries and certain other foreign countries where the Company does not
operate through a direct sales subsidiary. See Note 8 of Notes to Consolidated
Financial Statements for a summary of operations by geographic region.
The Company also markets its products through value-added relicensors,
hardware providers, systems integrators and independent software vendors that
combine the Oracle relational DBMS, application development tools and business
applications with computer hardware or software application packages for
redistribution.
Additionally, the Company markets its products through independent
distributors in international territories not covered by its subsidiaries'
direct sales organizations.
As of May 31, 1996, headcount in the United States consisted of 7,409 sales
and service employees while the international sales and service groups
consisted of 10,322 employees.
Additional Customer Information
Revenues from international customers (including end users and resellers)
amounted to approximately 57%, 58% and 59% of the Company's total revenues in
fiscal 1996, 1995 and 1994, respectively. See Note 8 of Notes to Consolidated
Financial Statements for a summary of operations by geographic region.
8
PRODUCT DEVELOPMENT
The Company must continue to enhance its existing products and develop new
products in order to meet its customers' ever-changing requirements and to
expand its product base. Research and development expenditures were 10% of
total revenues in fiscal 1996 and 1995, and 12% of total revenues in fiscal
1994 (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,
incorporating object oriented extensions to SQL, and adding the ability
to manage large objects, including video, audio, text, and more complex
structures of data;
. Developing and enhancing network software products, including
application development tools for networks and network management
products;
. Developing new and enhanced application development and business
intelligence tools;
. Developing and enhancing client server business applications for finance
and administration, supply chain management, manufacturing, project
management, human resources and market management, including vertical
industry extensions to meet specific industry solutions initiative
("ISI") requirements;
. Developing and enhancing messaging, scheduling, directory services and
linguistic analysis;
. Developing and enhancing Oracle products for data management and storage
on the World Wide Web, web applications development and web end-user
applications;
. Developing reference design specifications for a family of low-cost,
easy-to-use network computing devices and applications, as well as some
applications development for the Network Computer ("NC(TM)") device; 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. 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 and delivery 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.
The principal independent software competitors in the enterprise and
departmental DBMS marketplace include Informix Corporation, Sybase Inc.,
Computer Associates International, Inc., Progress Software Corporation and
Software AG. In the workgroup and personal DBMS marketplace, the Company
competes with several desktop software vendors including Microsoft
Corporation. In addition, hardware systems vendors sell or license database
software with which the Company competes, including International Business
Machines Corporation. In the application development and business intelligence
tools market, the Company competes primarily with Microsoft's Visual Basic
product and Powerbuilder, a product owned by Sybase, Inc. Other competitors
include Forte Software, Business Objects and Cognos, Inc. The Company also
competes in the client server business applications software market. Primary
competitors in this market include SAP Aktiengeschellschaft, Peoplesoft, Inc.,
The Baan Company and Hyperion Software. The Company also completes with
systems integrators and consulting organizations in the services marketplace.
9
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, although
the competition is intense in each area.
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 up to a maximum
number of users on a specified computer. 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 shrink-wrap, government and telemarketing
customers) are recognized as revenue upon shipment if there are no 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 receives sublicense fees from its Business Alliance Program
("BAP") members (value-added relicensors, hardware providers, systems
integrators and independent software vendors) based on the sublicenses granted
by the BAP member. Sublicense fees typically are based on a percentage of the
Company's list price and are generally recognized as they are reported by the
reseller.
In general, the Company prices its support services based on the level of
support services provided and the number of concurrent users authorized to
access the Company's software products. Most customers take support initially
and renew their support agreements. Support usually consists of two parts: (1)
technical support, including telephone consultation on the use of the products
and problem resolution; and (2) system updates for software products and user
documentation. The Company generally bills support fees at the beginning of
each support period. Support revenues are recognized ratably over the contract
period. Revenues related to consulting and education services to be performed
by the Company generally are recognized proportionately over the period during
which the applicable service is to be performed or on a services-performed
basis.
The Company's quarterly revenues and expenses 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 or intellectual property rights laws, license
agreements and technical measures to protect its rights to its software
products. The Company owns several issued patents and has numerous 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 100 foreign countries and has additional registrations pending. The
Company also has registered over 45 other trademarks in the United States for
other product names and also has registrations pending for other product names
in the United States and foreign countries.
10
The Company's products generally are licensed to end users on a "right to use"
basis pursuant to a nontransferable perpetual license that restricts the use
of the products to the customer's internal purposes on 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 enterprise and
departmental products are generally licensed pursuant to signed license
agreements. Consistent with standard industry practice, the Company's
workgroup and personal 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 in all
jurisdictions. 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, copyright, patent, trademark and
other proprietary and intellectual property 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, 1996, the Company employed 23,113 full-time persons, including
16,807 in sales and services, 924 in marketing, 3,125 in research and
development, and 2,257 in general and administrative positions. Of such
employees, 10,911 were located in the United States and 12,202 were employed
in approximately 55 other countries outside the United States.
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's headquarters facilities consist of approximately 1,600,000
square feet of office space in Redwood City, California, of which 1,400,000
square feet is located in six buildings. The Company owns two of the buildings
and has options to acquire the other four buildings, which are currently
leased. As discussed in Note 2 to the Consolidated Financial Statements, the
Company has capitalized leases for three of the four leased buildings. The
Company also owns the land under its six main headquarters buildings and owns
or controls additional land near its headquarters site for potential future
expansion. In addition, the Company has purchased land in the UK and is
constructing a 100,000 square foot facility to be used for its UK subsidiary's
headquarters. The Company also purchased land in New Hampshire where it has
commenced construction on a 70,000 square foot field office site. 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
A shareholder derivative lawsuit was filed in the Superior Court of the State
of California, County of San Mateo on October 23, 1995. The derivative suit
was brought by Company stockholders, allegedly on behalf of the Company,
against all of the Company's present and one former director. The derivative
plaintiffs allege primarily that these officers and directors intentionally or
negligently breached their fiduciary duties to the Company by allegedly
engaging in or acquiescing to certain activities related to nCUBE, a company
in which Oracle's Chief
11
Executive Officer owns a controlling interest. The derivative plaintiffs seek
compensatory and other damages, disgorgement of profits and certain assets,
temporary and permanent injunctions requiring the defendants to relinquish
their directorships, and a voiding of all contracts with nCUBE. Plaintiffs
filed a First Amended Complaint on March 15, 1996. On May 29, 1996 the court
granted the defendants' motion to dismiss the complaint, with leave to amend.
The Company anticipates that plaintiffs will file a Second Amended Complaint.
The Company is subject to various 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are as follows:
NAME OFFICE(S)
---- ---------
Lawrence J. Ellison..... Chief Executive Officer and Chairman of the Board
Raymond J. Lane......... President, Chief Operating Officer and Director
Jeffrey O. Henley....... Executive Vice President, Chief Financial Officer and Director
Dirk A. Kabcenell....... Executive Vice President, Product Division
David J. Roux........... Executive 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, 51, has been 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.
He also served as President of the Company from May 1977 to June 1996. 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, 49, has been President and Chief Operating Officer of the Company
since July 1996. Mr. Lane served as Executive Vice President of the Company
and President of Worldwide Operations from October 1993 to June 1996, 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 Technology Group at Booz-Allen & Hamilton from
July 1986 to May 1992. He served on the Booz-Allen & Hamilton Executive
Committee and its Board of Directors from April 1987 to May 1992. Mr. Lane is
also a member of the Board of Trustees of Carnegie Mellon University.
Mr. Henley, 51, 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, 44, 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 relational DBMS Development. Mr. Kabcenell is also
a member of the Board of Managers of Post N Mail, a Texas limited liability
corporation doing business as E-Stamp.
12
Mr. Roux, 39, has been Executive Vice President of Corporate Development since
March 1996, and Senior Vice President of Corporate Development of the Company
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.
Mr. Ocampo, 43, 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, 44, 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 since the Company's initial public offering in
1986. According to records of the Company's transfer agent, the Company had
approximately 5,461 stockholders of record as of May 31, 1996. 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 1996:
Fourth Quarter............................... $26.49 $36.00
Third Quarter................................ 26.33 36.67
Second Quarter............................... 23.33 32.50
First Quarter................................ 22.67 29.58
Fiscal 1995:
Fourth Quarter............................... $18.67 $25.67
Third Quarter................................ 16.45 21.42
Second Quarter............................... 17.17 20.67
First Quarter................................ 14.95 19.72
On March 14, 1996, the Company effected a three-for-two stock split in the
form of a common stock dividend distributed on April 16, 1996 to stockholders
of record as of April 2, 1996. 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.
13
ITEM 6. SELECTED FINANCIAL DATA
YEAR ENDED MAY 31,
------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues................ $4,223,300 $2,966,878 $2,001,147 $1,502,768 $1,178,496
Operating income........ 904,891 649,721 419,953 216,979 113,663
Net income.............. 603,279 441,518 283,720 98,256 61,510
Earnings per share...... 0.90 0.66 0.43 0.15 0.10
Total assets............ 3,357,243 2,424,517 1,594,984 1,184,020 955,572
Short-term debt......... 5,623 9,599 6,898 10,684 16,512
Long-term debt.......... 897 81,721 82,845 86,380 95,935
Stockholders' equity.... 1,870,449 1,211,358 740,553 528,039 435,034
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
In fiscal 1996, 1995 and 1994, the Company continued to improve its operating
margins (prior to the effect of the fiscal 1996 adjustment for acquired in-
process research and development) over the corresponding prior year periods
due to increases in revenue growth, coupled with lower research and
development and general and administrative expenses as a percentage of
revenues. The Company's revenue growth rate was 42%, 48% and 33% in fiscal
1996, 1995 and 1994, respectively. Sales and marketing expenses continued to
represent the largest category of operating expenses, constituting 37% of
revenues in fiscal years 1996, 1995 and 1994. Cost of services as a percentage
of total revenues increased to 26% in fiscal 1996 and 1995 from 25% in fiscal
1994. The Company's investment in research and development decreased to 10% of
revenues in fiscal 1996 and 1995 from 12% of revenues in fiscal 1994, prior to
the impact of capitalized software development costs. General and
administrative expenses as a percentage of revenues decreased to 6% in fiscal
1996 and 1995 from 7% in fiscal 1994. Overall, operating income as a
percentage of revenues was 21% (23% prior to the adjustment for acquired in-
process research and development), 22% and 21% in fiscal 1996, 1995 and 1994,
respectively.
Domestic revenues increased 47% and 52% in fiscal 1996 and 1995, respectively,
while international revenues increased 39% and 46% in fiscal 1996 and 1995,
respectively. International revenues were negatively affected in fiscal 1996
and positively affected in fiscal 1995 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 41% and 34% in fiscal 1996 and 1995,
respectively. Revenues from international customers were approximately 57%,
58% and 59% of revenues in fiscal 1996, 1995 and 1994, respectively.
Management expects that the Company's international operations will continue
to provide a significant portion of total revenues. However, international
revenues will continue to 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.
REVENUES:
FISCAL YEAR 1996 CHANGE FISCAL YEAR 1995 CHANGE FISCAL YEAR 1994
---------------- ------ ---------------- ------ ----------------
Licenses and Other...... $2,296,572 37% $1,673,731 44% $1,163,808
Percentage of revenues.. 54.4% 56.4% 58.2%
Services................ $1,926,728 49% $1,293,147 54% $ 837,339
Percentage of revenues.. 45.6% 43.6% 41.8%
Total Revenues........ $4,223,300 42% $2,966,878 48% $2,001,147
14
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 products have been acquired or introduced. License
revenues for software used on computers utilizing the UNIX operating system
decreased to 70% of license revenues in fiscal 1996 from 73% in fiscal 1995
and 71% in fiscal 1994. License revenues for use on desktop computers
increased from 17% in both fiscal 1994 and 1995 to 19% in fiscal 1996. License
revenues from software for use on computers utilizing other proprietary
operating systems, including DEC, IBM and other proprietary vendors were 11%,
10% and 12% in fiscal 1996, 1995 and 1994, respectively.
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, documentation revenues, certain
software development revenues and other miscellaneous revenues. Excluding the
systems integration business, which continues to represent an increasingly
smaller percentage of total revenues, license and other revenues increased 39%
and 45% in fiscal 1996 and 1995, respectively. The Company believes that the
year over year growth rates were due primarily to an overall increase in
market demand for database and related products, increased market acceptance
of the Company's relational DBMS and applications products, and the addition
of revenues generated from the acquisitions of the Rdb and repository
businesses of Digital Equipment Corporation and the on-line analytical
processing business of Information Resources, Inc. The lower license and other
growth rate experienced in fiscal 1996 was due primarily to a negative
currency impact in fiscal 1996 combined with a positive currency impact in
fiscal 1995.
SERVICES REVENUES. Support, consulting and education services revenues each
increased in fiscal 1996 and 1995 over the corresponding prior year levels.
The Company's support revenues continued to constitute the largest portion of
services revenues, and grew 55% and 53% in fiscal 1996 and 1995, respectively.
This growth reflects the continued increase in the installed base of the
Company's products under support contracts, increased revenue associated with
a broad range of support offerings, and support revenues associated with the
recently acquired Rdb and repository businesses of Digital Equipment
Corporation and the on-line analytical processing business of Information
Resources, Inc. Consulting and education services grew 44% and 56% in fiscal
1996 and 1995, 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.
OPERATING EXPENSES:
FISCAL YEAR 1996 CHANGE FISCAL YEAR 1995 CHANGE FISCAL YEAR 1994
---------------- ------ ---------------- ------ ----------------
Sales and Marketing..... $1,549,231 40% $1,103,345 47% $ 749,796
Percentage of revenues.. 36.7% 37.2% 37.5%
Cost of Services........ $1,096,013 41% $ 779,012 56% $ 499,213
Percentage of revenues.. 26.0% 26.3% 24.9%
Research and Development
(1).................... $ 389,093 49% $ 260,597 32% $ 197,086
Percentage of revenues.. 9.2% 8.8% 9.8%
General and
Administrative......... $ 233,141 34% $ 174,203 29% $ 135,099
Percentage of revenues.. 5.5% 5.9% 6.8%
Acquired In-Process
Research and
Development............ $ 50,931 * -- -- --
Percentage of revenues.. 1.2% -- --
- --------
*Not meaningful
(1) Pursuant to Statement of Financial Accounting Standards No. 86, the
Company capitalized software development costs equal to 1.1%, 1.6% and
1.9% of total revenues during fiscal 1996, 1995 and 1994, respectively.
15
Similar to the trend in international revenues, the Company's international
expense growth rates were positively affected in fiscal 1996 and negatively
affected in fiscal 1995 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 market its products
through indirect and electronic 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 1996 and 1995 when compared to
fiscal 1994, primarily as a result of higher revenue levels. Included in sales
and marketing expenses is the amortization of capitalized software development
costs (see below) which was essentially unchanged between years and thus,
contributed to the decrease in sales and marketing expenses as a percentage of
revenues.
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 57% in fiscal 1996, having decreased
from 60% in both fiscal 1995 and fiscal 1994. The Company's service margins
for fiscal 1996 were positively affected versus the prior years due primarily
to higher margins in the consulting area and a higher percentage of support
revenues which have higher margins than consulting and education revenues.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses would
have been 10% of total revenues in fiscal 1996 and 1995, and 12% of total
revenues in fiscal 1994, 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 42% in fiscal 1996 versus a 31% increase in
fiscal 1995. A portion of this increase was due to research and development
staff hired in connection with the acquisitions of the Rdb and repository
businesses of Digital Equipment Corporation and the on-line analytical
processing business of Information Resources, Inc. The Company capitalized
$48,031,000, $48,187,000 and $38,067,000 of computer software development
costs in fiscal 1996, 1995 and 1994, respectively, which represented 11% of
total expenditures for research and development in fiscal 1996 and 16% in
fiscal 1995 and 1994. Amortization of capitalized software development costs
is charged to sales and marketing expenses and totaled $48,815,000,
$48,662,000 and $39,318,000, in fiscal 1996, 1995 and 1994, respectively. 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.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses as a
percentage of revenues decreased in both fiscal 1996 and 1995 as compared to
their corresponding prior year periods, primarily because of higher revenue
levels.
ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT. Based on the results of a third-
party appraisal, the Company recorded a special charge of $50,931,000 in the
first quarter of fiscal 1996 to expense in-process research and development
costs related to the acquisition of the on-line analytical processing business
of Information Resources, Inc.
OTHER INCOME (EXPENSE):
FISCAL YEAR 1996 CHANGE FISCAL YEAR 1995 CHANGE FISCAL YEAR 1994
---------------- ------ ---------------- ------ ----------------
Other Income (Expense).. $14,619 58% $ 9,261 164% $ 3,510
Percentage of revenues.. 0.3% 0.3% 0.2%
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, the Company realized a gain of
approximately $3,100,000 and $1,800,000 during the first quarter of fiscal
1996 and 1995, respectively, related to the sale of certain marketable
securities.
16
PROVISION FOR INCOME TAXES:
FISCAL YEAR 1996 CHANGE FISCAL YEAR 1995 CHANGE FISCAL YEAR 1994
---------------- ------ ---------------- ------ ----------------
Provision for Income
Taxes.................. $316,231 45% $217,464 56% $139,743
Percentage of revenues.. 7.5% 7.3% 7.0%
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. The effective tax rate was 34.4% in fiscal 1996 and 33%
in fiscal 1995 and 1994. The increase in the tax rate in fiscal 1996 is due to
the expiration of the federal research and development credit and the relative
profitability of legal entities.
NET INCOME AND EARNINGS PER SHARE:
FISCAL YEAR 1996 CHANGE FISCAL YEAR 1995 CHANGE FISCAL YEAR 1994
---------------- ------ ---------------- ------ ----------------
Net Income.............. $603,279 37% $441,518 56% $283,720
Percentage of revenues.. 14.3% 14.9% 14.2%
Earnings Per Share...... $ 0.90 36% $ 0.66 53% $ 0.43
QUARTERLY RESULTS OF OPERATIONS
The Company believes that fourth quarter revenues and expenses are affected by
a number of seasonal factors, including the Company's sales compensation
plans. The Company believes that these seasonal factors are common in the
computer software industry. Such factors historically have resulted in first
quarter revenues in any year being lower than revenues in the immediately
preceding fourth quarter. The Company expects this trend to repeat in the
first quarter of fiscal 1997. In addition, the Company's European operations
generally provide lower revenues in the summer months because of the generally
reduced economic activity in Europe during the summer.
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 1996 QUARTER ENDED
---------------------------------------------
AUGUST 31 NOVEMBER 30 FEBRUARY 29 MAY 31
---------- ----------- ----------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues...................... $ 771,803 $ 967,184 $1,020,239 $1,464,074
Operating income.............. $ 74,191 $ 204,612 $ 219,942 $ 406,146
Net income.................... $ 53,763 $ 136,901 $ 146,290 $ 266,325
Earnings per share (1)........ $ 0.08 $ 0.20 $ 0.22 $ 0.40
Number of common and common
equivalent shares
outstanding.................. 669,776 670,710 670,479 671,667
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............ $ 0.09 $ 0.14 $ 0.16 $ 0.27
Number of common and common
equivalent shares
outstanding.................. 664,871 665,150 664,538 667,037
- --------
(1) Earnings per share before the effect of the adjustment for acquired in-
process research and development was $0.13 per share in the quarter ended
August 31, 1995.
17
LIQUIDITY AND CAPITAL RESOURCES
FISCAL YEAR ENDED MAY 31,
-----------------------------------------
1996 CHANGE 1995 CHANGE 1994
-------- ------ -------- ------ --------
(IN THOUSANDS)
Working capital.................... $829,501 48% $562,045 43% $393,511
Cash and cash investments.......... 882,871 51% 585,818 26% 464,758
Cash provided by operating
activities........................ 889,157 56% 568,684 28% 443,451
Cash used for investing activities. 551,488 11% 495,769 84% 269,888
Cash used for financing activities. 88,291 451% 16,034 (69%) 51,305
Working capital increased in both fiscal 1996 and 1995 over the corresponding
prior year periods, due primarily to increased cash flow from operations,
which resulted in higher cash levels.
The Company generated higher positive cash flows from operations in both
fiscal 1996 and 1995, due primarily to improved profitability and strong cash
collections.
Cash used for investing activities increased in fiscal 1996 as compared to the
corresponding prior year period due primarily to higher capital expenditures.
Additionally, in fiscal 1996, the Company completed the acquisition of the on-
line analytical processing business of Information Resources, Inc., including
all related software products, for approximately $100,000,000 in cash on July
27, 1995. Cash used for investing activities increased in fiscal 1995 over
1994 due in part to the acquisition of the Rdb database and repository
businesses of Digital Equipment Corporation for approximately $108,000,000 in
cash. 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
27,000,000 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 4,478,134 shares of the Company's Common Stock for
approximately $113,087,000 in fiscal 1996, 4,201,875 shares of the Company's
Common Stock for approximately $75,859,000 in fiscal 1995, 6,221,250 shares of
the Company's Common Stock for approximately $81,157,000 in fiscal 1994 and
7,215,750 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 5,752,500 put warrants. On March
24, 1995, 3,502,500 of these put warrants were canceled at minimal cost and
the remaining options expired without being exercised. Additionally, the
Company purchased 3,595,500 call options in fiscal 1995 and 1994. On July 6,
1995, the Company sold 2,189,250 of the call options and credited the net
proceeds of $17,175,000 to equity. The remaining 1,406,250 call options were
exercised in October 1995 at $21.08 per share for a total of $29,648,000. The
remaining put warrants expired in October 1995 without exercise.
In December 1991, the Company entered into an $80 million subordinated note
purchase agreement with Nippon Steel Corporation ("NSC") which was terminated
on March 1, 1996 upon the redemption in full of the subordinated note by the
Company. In connection with this agreement, the Company also entered into a
strategic relationship with NSC to target major customers and industries in
Japan; this relationship continues even though the subordinated note was
redeemed. NSC has committed to purchase from the Company an ownership position
of up to twenty-five percent of Oracle Corporation Japan, an indirect wholly
owned subsidiary of the Company, if 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 and has agreed not to acquire any
shares of the Company, subject to certain exceptions.
18
At May 31, 1996, the Company had outstanding debt of $6,520,000 primarily in
the form of other notes payable and capital leases.
The Company anticipates that current cash balances, as well as anticipated
cash flows from operations, will be sufficient to meet its working capital and
capital expenditure needs at least through May 31, 1997.
FACTORS THAT MAY AFFECT FUTURE RESULTS AND MARKET PRICE OF STOCK
The Company operates in a rapidly changing environment that involves numerous
risks, some of which are beyond the Company's control. The following
discussion highlights some of the risks the Company faces.
UNEVEN PATTERNS OF QUARTERLY OPERATING RESULTS. The Company's revenues in
general, and in particular its license revenues, are relatively difficult to
forecast and vary from quarter to quarter due to various factors, including
(i) the relatively long sales cycles for the Company's products, (ii) the size
and timing of individual license transactions, (iii) the timing of the
introduction of new products or product enhancements by the Company or its
competitors, (iv) the potential for delay or deferral of customer
implementations of the Company's software, (v) changes in customer budgets,
and (vi) seasonality of technology purchases and other general economic
conditions. Accordingly, the Company's quarterly results are difficult to
predict until the end of the quarter, and delays in product delivery or
closing of sales near the end of a quarter can cause quarterly revenues and
net income to fall significantly short of anticipated levels.
The Company operates with little or no license backlog and, as a result,
license revenues in any quarter are substantially dependent on orders booked
and shipped in that quarter. Because the Company's operating expenses are
based on anticipated revenue levels and because a high percentage of the
Company's expenses are relatively fixed, a delay in the recognition of revenue
from even a limited number of license transactions could cause significant
variations in operating results from quarter to quarter and could cause net
income to fall significantly short of anticipated levels. Further, any other
unexpected decline in the growth rate of revenues without a corresponding and
timely slowdown in expense growth could have a material adverse effect on the
Company's business, results of operations or financial condition.
The Company believes that fourth quarter revenues and expenses are affected by
a number of seasonal factors, including the Company's sales compensation
plans. The Company believes that these seasonal factors are common in the
computer software industry. Such factors historically have resulted in first
quarter revenues in any year being lower than revenues in the immediately
preceding fourth quarter. The Company expects this trend to repeat in the
first quarter of fiscal 1997. In addition, the Company's European operations
generally provide lower revenues in the summer months because of the generally
reduced economic activity in Europe during the summer. This seasonal factor
could also adversely affect first quarter revenues.
MANAGEMENT OF GROWTH. The Company has a history of rapid growth. The Company's
future operating results will depend on management's ability to manage growth,
continuously hire and retain significant numbers of qualified employees,
forecast revenues and control expenses. An unexpected decline in the growth
rate of revenues without a corresponding and timely slowdown in expense growth
could have a material adverse effect on the Company's business, results of
operations or financial condition.
COMPETITIVE ENVIRONMENT. The computer software industry is an intensely
competitive industry with several large vendors that develop and market
databases, applications, development tools or decision support products.
Certain of these vendors have significantly more financial and technical
resources than the Company. If any such vendor introduces new products into
one or more of the Company's various markets, the Company's business could be
adversely affected. In addition, new distribution methods (e.g. electronic
channels) and opportunities presented by the Internet have removed many of the
barriers to entry historically faced by small and start-up companies in the
software industry. The Company expects to face increasing competition from
such companies in the various markets in which it competes, particularly in
the current economy in which a significant amount of financing is available to
start-up companies.
19
HIRING AND RETENTION OF EMPLOYEES. The Company's continued growth and success
depends to a significant extent on the continued service of senior management
and other key employees and the hiring of new qualified employees. Competition
for highly-skilled business, product development, technical and other
personnel is intense, particularly in the strong economic cycle currently
prevailing for high technology companies. There can be no assurances that the
Company will be successful in continuously recruiting new personnel and in
retaining existing personnel. None of the Company's employees is subject to a
long-term employment or a noncompetition agreement although stock options are
issued to many employees as part of the Company's employee retention program.
The loss of one or more key employees or the Company's inability to attract
additional qualified employees or retain other employees could have a material
adverse effect on the Company's business, results of operations or financial
condition. In addition, the Company may experience increased compensation
costs in order to compete for skilled employees.
PRICING. Intense competition in the various markets in which the Company
competes may put pressure on the Company to reduce prices on certain products,
particularly in the enterprise and departmental database marketplace where
certain vendors offer deep discounts in an effort to recapture or gain
marketshare. In addition, the bundling of software products for promotional
purposes or as a long-term pricing strategy by certain of the Company's
competitors could have the effect over time of significantly reducing the
prices that the Company can charge for its products. Any such price reductions
could adversely affect the Company's business, results of operations or
financial condition if the Company cannot offset these price reductions with a
corresponding increase in sales volumes.
SHIFTING POPULARITY OF OPERATING SYSTEMS. Microsoft's Windows and Windows NT
operating systems are becoming an established alternative to the UNIX
operating system in certain market segments. The Company derives significant
revenues from sales of its products that run on UNIX. At present, Oracle7 and
certain other Company products run on both UNIX and NT. However, if Microsoft
denies the Company early access to new versions of NT, or the Company's
ability to port to or run on the NT operating system is otherwise inhibited,
or the Company fails to successfully position and/or price its products in the
market, it could have a material adverse effect on the Company's ability to
compete effectively in the NT market.
NEW PRODUCTS. The markets for the Company's products are characterized by
rapid technological advances in hardware and software development, evolving
standards in computer hardware and software technology, and frequent new
product introductions and enhancements. Product introductions and short
product life cycles necessitate high levels of expenditure for research and
development. To maintain its competitive position, the Company must enhance
and improve existing products and continue to introduce new products and new
versions of existing products that keep pace with technological developments,
satisfy increasingly sophisticated customer requirements and achieve market
acceptance.
Significant undetected errors or delays in new products or new versions of a
product may affect market acceptance of the Company's products and adversely
affect operating results. If the Company were to experience delays in the
commercialization and introduction of new or enhanced products, if customers
were to experience significant problems with the implementation and
installation of products or if customers were dissatisfied with product
functionality or performance, the Company's business, results of operations or
financial condition could be materially adversely affected.
There can be no assurance that the Company's new products will achieve
significant market acceptance or will generate significant revenue. Additional
products that the Company plans to market in the future are in various stages
of development. Some of these products, such as NC and OLAP products, are in
business areas that are new to the Company's product development and sales and
product marketing personnel. See "New Business Areas."
20
RELATIVE PRODUCT PROFITABILITY. Certain of the Company's revenues are derived
from products which, as a percentage of revenues, currently require a higher
level of development, distribution and support expenditures compared to
certain of its other core products. To the extent that revenues generated from
such products become a greater percentage of the Company's total revenues, the
Company's operating margins may be adversely affected, unless the expenses
associated with such products decline as a percentage of revenues.
ALTERNATE DISTRIBUTION CHANNELS. The Company historically has relied heavily
on its direct sales force. However, the Company is moving increasingly toward
indirect, electronic and other alternate distribution channels to meet
competitive demands. There can be no assurances that the Company will be
successful in shifting to these alternate distribution channels. If the
Company is not successful, the Company may miss significant sales
opportunities.
UNCERTAINTY OF EMERGING AREAS. The impact on the Company of emerging areas
such as the Internet, on-line services and electronic commerce is uncertain.
There can be no assurances that the Company will be able to provide a product
offering that will satisfy new customer demands in these areas. In addition,
standards for network protocols, as well as other industry adopted and de
facto standards for the Internet, are evolving rapidly. There can be no
assurances that standards chosen by the Company will position its products to
compete effectively for business opportunities as they arise on the Internet
and other emerging areas.
NEW BUSINESS AREAS. The Company has in recent years diversified into a number
of new business areas including Internet and interactive media applications
and data warehousing. It also has begun to develop hardware reference
specifications and to promote the use of network computers. These areas are
new to the Company's product development and sales and marketing personnel.
There is no assurance that the Company will compete effectively or will
generate significant revenues in these new areas. The Company's success with
its network computer product, NC, and network computers generally is difficult
to predict because network computers represent a method of computing that is
new to the entire computer industry because the software resides on a network
as opposed to the desktop. Network computers are not yet commercially
available. Their successful introduction to the market will depend in large
measure on the commitment by hardware vendors to manufacture, promote and
distribute network computers. There can be no assurances that sufficient
numbers of hardware vendors will undertake this commitment, that the market
will accept network computers or that they will generate significant revenues
to the Company. See "New Products."
INTERNATIONAL SALES. A substantial portion of the Company's revenues is
derived from international sales and is therefore subject to the risks
attendant thereto, including the general economic conditions in each country,
the overlap of different tax structures, the difficulty of managing an
organization spread over various countries, changes in regulatory
requirements, compliance with a variety of foreign laws and regulations, and
longer payment cycles in certain countries. Other risks associated with
international operations include import and export licensing requirements,
trade restrictions and changes in tariff rates.
A significant portion of the Company's business is conducted in currencies
other than the U.S. dollar. Changes in the value of major foreign currencies
relative to the value of the U.S. dollar therefore could adversely affect
future revenues and operating results. Foreign currency transaction gains and
losses are primarily related to sublicense fee agreements between the Company
and selling distributors and subsidiaries. These gains and losses are charged
against earnings in the period incurred.
The Company has reduced its transaction and translation gains and losses
associated with converting foreign currencies into U.S. dollars by using
forward foreign exchange contracts to hedge transaction and translation
exposures in certain currencies. Such contracts meet the criteria established
in SFAS 52 for hedge accounting treatment. The Company finds it impractical to
hedge all foreign currencies in which it conducts business. As a result, the
Company will continue to experience foreign currency gains and losses.
RISKS ASSOCIATED WITH FUTURE ACQUISITIONS. As part of its business strategy,
the Company expects to make acquisitions of, or significant investments in,
businesses that offer complementary products, services and technologies. Any
such future acquisitions or investments would be accompanied by the risks
commonly
21
encountered in acquisitions of businesses. Such risks include, among other
things, the difficulty of assimilating the operations and personnel of the
acquired businesses, the potential disruption of the Company's ongoing
business, the inability of management to maximize the financial and strategic
position of the Company through the successful incorporation of acquired
personnel and clients, the maintenance of uniform standards, controls,
procedures and policies and the impairment of relationships with employees and
clients as a result of any integration of new management personnel. These
factors could have a material adverse effect on the Company's business,
results of operations or financial condition. The Company expects that the
consideration paid for future acquisitions, if any, could be in the form of
cash, stock, rights to purchase stock or a combination thereof. Dilution to
existing stockholders and to earnings per share may result to the extent that
shares of stock or other rights to purchase stock are issued in connection
with any such future acquisitions.
ENFORCEMENT OF THE COMPANY'S INTELLECTUAL PROPERTY RIGHTS. The Company relies
on a combination of the protections provided under applicable patent,
copyright, trademark and trade secret laws. It also relies on confidentiality
procedures and licensing arrangements to establish and protect its rights in
its products. Despite the Company's efforts to protect these rights, it may be
possible for unauthorized third parties to copy certain portions of the
Company's products or to reverse engineer or obtain and use technology or
other information that the Company regards as proprietary. In addition, the
laws of certain countries do not protect the Company's proprietary rights to
the same extent as do the laws of the United States. Accordingly, there can be
no assurance that the Company will be able to protect its proprietary
technology against unauthorized third party copying or use, which could
adversely affect the Company's competitive position.
The Company from time to time receives notices from third parties claiming
infringement by the Company's products of third party proprietary rights. The
Company expects that software products will increasingly be subject to such
claims as the number of products and competitors in the Company's industry
segments grows and the functionality of products overlap. Regardless of its
merit, any such claim could be time-consuming, result in costly litigation and
require the Company to enter into royalty and licensing agreements. Such
royalty or licensing agreements may not be offered or may not be available on
terms acceptable to the Company. If a successful claim is made against the
Company and the Company fails to develop or license a substitute technology,
the Company's business, results of operations or financial condition could be
materially adversely affected.
POSSIBLE VOLATILITY OF STOCK PRICE. The market price of the Company's Common
Stock has experienced significant fluctuations and may continue to fluctuate
significantly. The market price of the Common Stock may be significantly
affected by factors such as the announcement of new products or product
enhancements by the Company or its competitors, technological innovation by
the Company or its competitors, quarterly variations in the Company's results
of operations, changes in prices of the Company's or its competitors' products
and services, changes in the Company's revenue and revenue growth rates for
the Company as a whole or for specific geographic areas, business units,
products or product categories, changes in earnings estimates by market
analysts, speculation in the press or analyst community and general market
conditions or market conditions specific to particular industries. The stock
prices for many companies in the technology sector have experienced wide
fluctuations which often have been unrelated to their operating performance.
Such fluctuations may adversely affect the market price of the Company's
Common Stock.
LONG-TERM INVESTMENT CYCLE. Developing and localizing software is expensive
and the investment in product development often involves a long payback cycle.
The Company's plans for its fiscal year ended May 31, 1997 include significant
investments in software research and development and related product
opportunities from which significant revenues are not anticipated for several
years.
INDUSTRY GROWTH AND ECONOMIC CONDITIONS. The strength and profitability of the
Company's business depends on the overall demand for computer software and
growth in the computer industry. Because the Company's sales are primarily to
major corporate, government, education and other business customers, the
Company's business also partly depends on general economic and business
conditions. A softening of demand for computer software, caused by a weakening
of the economy or otherwise, may result in decreased revenues (or declining
revenue growth rates) for the Company.
22
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 14, 1996.
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 14, 1996. 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 14, 1996 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 14, 1996.
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 14, 1996.
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............................. 26
Consolidated Financial Statements:
Balance Sheets as of May 31, 1996 and 1995.......................... 27
Statements of Operations for the years ended May 31, 1996, 1995 and
1994............................................................... 28
Statements of Stockholders' Equity for the years ended May 31, 1996,
1995 and 1994...................................................... 29
Statements of Cash Flows for the years ended May 31, 1996, 1995 and
1994............................................................... 30
Notes to Consolidated Financial Statements.......................... 31
(A)2.FINANCIAL STATEMENT SCHEDULES
The following financial statement schedule is filed as a part of this
report:
PAGE
----
II Valuation and Qualifying Accounts......................................... 44
All other schedules are omitted because they are not required or the
required information is shown in the financial statements or notes
thereto.
23
(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
- ------- -------------
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.
3.12(18) Certificate of Amendment of Certificate of Incorporation dated January 13, 1995.
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 720,000
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.
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(18)* Summary of arrangement with James A. Abrahamson.
10.17(11) Preferred Strategic Relationship Agreement by and among Oracle
Systems Corporation, Oracle Corporation, Oracle Corporation Japan,
and Nippon Steel Corporation, dated December 9, 1991.
24
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -------------
10.18(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.
10.19(11) Common Stock Warrant Certificate of Oracle Japan Holding, Inc., dated December 9,
1991.
10.20(11) Certificate of Designations, Preferences and Rights of Series A Convertible
Preferred Stock of Oracle Japan Holding, Inc., dated December 9, 1991.
10.21(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.
10.22(11) Common Stock Warrant Certificate of Oracle Corporation Japan, dated December 9,
1991.
10.23(11) Product Activities Agreement by and among Oracle Systems Corporation, Oracle
Corporation, and Nippon Steel Corporation, dated December 9, 1991.
10.24(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.
10.25(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.
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-K filed on August 25, 1995.
(B)REPORTS ON FORM 8-K
None.
25
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Oracle Corporation:
We have audited the accompanying consolidated balance sheets of Oracle
Corporation, a Delaware corporation, and subsidiaries as of May 31, 1996 and
1995, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended May 31,
1996. 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, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended May 31,
1996, in conformity with generally accepted accounting principles.
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 19, 1996
26
ORACLE CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF MAY 31, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
MAY 31,
---------------------
1996 1995
---------- ----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents...................... $ 715,742 $ 480,158
Short-term cash investments.................... 125,166 105,660
Trade receivables, net of allowance for doubt-
ful accounts of $105,711 in 1996 and $67,728
in 1995....................................... 1,084,858 764,734
Other receivables.............................. 119,118 81,608
Prepaid and refundable income taxes............ 171,560 135,491
Prepaid expenses and other current assets...... 68,021 49,543
---------- ----------
Total current assets.......................... 2,284,465 1,617,194
LONG-TERM CASH INVESTMENTS...................... 41,963 --
PROPERTY, net................................... 685,754 535,034
COMPUTER SOFTWARE DEVELOPMENT COSTS, net of ac-
cumulated amortization of $78,025 in 1996 and
$70,515 in 1995................................ 99,072 99,855
OTHER ASSETS.................................... 245,989 172,434
---------- ----------
Total assets.................................. $3,357,243 $2,424,517
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable to banks......................... $ 4,377 $ 6,221
Current maturities of long-term debt........... 1,246 3,378
Accounts payable............................... 169,895 124,773
Income taxes................................... 181,999 134,121
Accrued compensation and related benefits...... 295,048 211,643
Customer advances and unearned revenues........ 434,435 316,273
Value added tax and sales tax payable.......... 99,409 67,449
Other accrued liabilities...................... 268,555 191,291
---------- ----------
Total current liabilities..................... 1,454,964 1,055,149
LONG-TERM DEBT.................................. 897 81,721
OTHER LONG-TERM LIABILITIES..................... 21,726 10,361
DEFERRED INCOME TAXES........................... 9,207 27,490
PUT WARRANTS.................................... -- 38,438
COMMITMENTS (Note 5)............................ -- --
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value--authorized,
1,000,000 shares; outstanding: none........... -- --
Common stock, $0.01 par value, and additional
paid in capital--authorized, 1,000,000,000
shares; outstanding: 655,825,902 shares in
1996 and 650,035,632 shares in 1995........... 475,833 338,986
Retained earnings.............................. 1,382,203 854,138
Accumulated foreign currency translation ad-
justments and unrealized gain on equity secu-
rities........................................ 12,413 18,234
---------- ----------
Total stockholders' equity.................... 1,870,449 1,211,358
---------- ----------
Total liabilities and stockholders' equity.... $3,357,243 $2,424,517
========== ==========
See notes to consolidated financial statements.
27
ORACLE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MAY 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED MAY 31,
----------------------------------
1996 1995 1994
---------- ---------- ----------
REVENUES:
Licenses and other........................ $2,296,572 $1,673,731 $1,163,808
Services.................................. 1,926,728 1,293,147 837,339
---------- ---------- ----------
Total revenues........................... 4,223,300 2,966,878 2,001,147
---------- ---------- ----------
OPERATING EXPENSES:
Sales and marketing....................... 1,549,231 1,103,345 749,796
Cost of services.......................... 1,096,013 779,012 499,213
Research and development.................. 389,093 260,597 197,086
General and administrative................ 233,141 174,203 135,099
Acquired in-process research and develop-
ment..................................... 50,931 -- --
---------- ---------- ----------
Total operating expenses................. 3,318,409 2,317,157 1,581,194
---------- ---------- ----------
OPERATING INCOME........................... 904,891 649,721 419,953
---------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest income........................... 30,235 21,095 17,943
Interest expense.......................... (6,632) (6,970) (6,871)
Other..................................... (8,984) (4,864) (7,562)
---------- ---------- ----------
Total other income (expense)............. 14,619 9,261 3,510
---------- ---------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES... 919,510 658,982 423,463
Provision for income taxes................ 316,231 217,464 139,743
---------- ---------- ----------
NET INCOME................................. $ 603,279 $ 441,518 $ 283,720
========== ========== ==========
EARNINGS PER SHARE......................... $ 0.90 $ 0.66 $ 0.43
========== ========== ==========
COMMON AND COMMON EQUIVALENT SHARES
OUTSTANDING............................... 670,658 665,399 665,402
========== ========== ==========
See notes to consolidated financial statements.
28
ORACLE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MAY 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
COMMON STOCK AND ACCUMULATED FOREIGN
ADDITIONAL PAID- CURRENCY TRANSLATION
IN CAPITAL ADJUSTMENTS
--------------------- AND UNREALIZED
NUMBER RETAINED GAIN ON EQUITY
OF SHARES AMOUNT EARNINGS SECURITIES TOTAL
----------- -------- ---------- -------------------- ----------
BALANCES, May 31, 1993.. 640,025,546 $202,913 $ 322,429 $ 2,697 $ 528,039
Common stock issued
under stock option
plans, net............. 7,347,063 10,868 -- -- 10,868
Common stock issued
under stock purchase
plan................... 3,160,404 27,844 -- -- 27,844
Reclassification of put
warrant obligations.... -- (1,381) (37,049) -- (38,430)
Repurchase of common
stock.................. (6,221,250) (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.. 644,311,763 254,500 488,595 (2,542) 740,553
Common stock issued
under stock option
plans, net............. 7,009,377 19,679 -- -- 19,679
Common stock issued
under stock purchase
plan................... 2,916,367 40,968 -- -- 40,968
Reclassification of put
warrant obligations.... -- 328 (336) -- (8)
Repurchase of common
stock.................. (4,201,875) (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.. 650,035,632 338,986 854,138 18,234 1,211,358
Common stock issued
under stock option
plans, net............. 7,145,391 31,720 -- -- 31,720
Common stock issued
under stock purchase
plan................... 3,123,013 61,071 -- -- 61,071
Reclassification of put
warrant obligations.... -- 1,053 37,385 -- 38,438
Proceeds from call
options exercised...... -- 17,175 -- -- 17,175
Repurchase of common
stock.................. (4,478,134) (2,676) (110,411) -- (113,087)
Effect of common stock
dividend............... -- 2,188 (2,188) -- --
Tax benefits from stock
plans.................. -- 26,316 -- -- 26,316
Foreign currency
translation
adjustments............ -- -- -- (12,147) (12,147)
Unrealized gain on
equity securities...... -- -- -- 6,326 6,326
Net income.............. -- -- 603,279 -- 603,279
----------- -------- ---------- ------- ----------
BALANCES, May 31, 1996.. 655,825,902 $475,833 $1,382,203 $12,413 $1,870,449
=========== ======== ========== ======= ==========
See notes to consolidated financial statements.
29
ORACLE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MAY 31, 1996, 1995 AND 1994
(IN THOUSANDS)
YEAR ENDED MAY 31,
----------------------------
1996 1995 1994
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................................... $603,279 $441,518 $283,720
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................. 219,494 147,772 104,563
Write-off of acquired in-process research and
development................................... 50,931 -- --
Provision for doubtful accounts................ 64,412 53,784 33,830
Increase in trade receivables.................. (449,780) (347,311) (147,502)
Increase in prepaid and refundable income tax-
es............................................ (20,377) (80,183) (4,608)
Increase in prepaid expenses and other current
assets........................................ (37,685) (5,464) (11,887)
Increase in accounts payable................... 48,392 24,113 23,465
Increase in income taxes....................... 86,367 90,713 30,334
Increase in other accrued liabilities.......... 210,984 181,638 65,632
Increase in customer advances and unearned rev-
enues......................................... 127,126 77,223 35,049
Increase (decrease) in deferred income taxes... (25,351) (13,341) 28,752
Increase (decrease) in other non-current lia-
bilities...................................... 11,365 (1,778) 2,103
-------- -------- --------
Net cash provided by operating activities....... 889,157 568,684 443,451
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of cash investments.................. (238,960) (176,536) (71,728)
Proceeds from maturities of cash investments... 177,491 130,824 116,271
Capital expenditures........................... (308,392) (262,046) (250,650)
Capitalization of computer software development
costs......................................... (48,031) (48,187) (38,067)
Increase in other assets....................... (133,596) (139,824) (25,714)
-------- -------- --------
Net cash used for investing activities.......... (551,488) (495,769) (269,888)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) under notes payable
and long-term debt............................ (81,624) 5,346 (987)
Payments of capital leases..................... (3,546) (6,168) (7,873)
Proceeds from common stock issued.............. 92,791 60,647 38,712
Proceeds from sales of call options............ 17,175 -- --
Repurchase of common stock..................... (113,087) (75,859) (81,157)
-------- -------- --------
Net cash used for financing activities.......... (88,291) (16,034) (51,305)
-------- -------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH.......... (13,794) 18,467 (2,008)
-------- -------- --------
Net increase in cash and cash equivalents....... 235,584 75,348 120,250
CASH AND CASH EQUIVALENTS:
Beginning of year............................... 480,158 404,810 284,560
-------- -------- --------
End of year..................................... $715,742 $480,158 $404,810
======== ======== ========
See notes to consolidated financial statements.
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, application development and business intelligence
productivity tools, and client server business applications. The Company also
offers consulting, education and support 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.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
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. At May 31,
1996 and 1995, accumulated foreign translation balances were $6,087,000 and
$18,234,000, respectively.
The Company hedges certain portions of its exposure to foreign currency
fluctuations through a variety of strategies and financial instruments. The
primary hedging instruments are forward foreign exchange contracts. At May 31,
1996, the Company had approximately $149,415,000 of forward foreign exchange
contracts outstanding used to hedge intercompany accounts of certain of its
international subsidiaries, and $98,058,000 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 intercompany balances
primarily reflect sub-license fees owed to Oracle Corporation or intercompany
loans. 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 $4,232,000, $3,732,000
and $6,589,000 in fiscal 1996, 1995 and 1994, respectively, and are included
in other income and expense. Net gains on equity hedges were $9,051,000 in
fiscal 1996, net losses on equity hedges were $10,213,000 and $2,239,000 in
fiscal 1995 and 1994, respectively. These net gains and losses on equity
hedges were recorded as a component of accumulated foreign currency
translation adjustments in stockholders' equity.
31
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
As of May 31, 1996, the fair value (and carrying amount) of these foreign
forward exchange contracts were as follows:
CONTRACT
AMOUNT FAIR VALUE
------------ ------------
Intercompany account hedges....................... $149,415,000 $149,359,000
Equity hedges..................................... $ 98,058,000 $103,424,000
At May 31, 1996, maturities of the Company's forward foreign exchange and
equity hedge contracts were twelve months or less in term.
Statements of Cash Flows
The Company paid income taxes in the amount of $438,791,000, $223,725,000 and
$69,267,000, and interest expense of $8,616,000, $6,087,000 and $6,887,000,
during the fiscal years ended 1996, 1995 and 1994, respectively. In fiscal
1996, 1995 and 1994, the Company received income tax refunds in the amount of
$6,201,000, $809,000 and $467,000, respectively. The Company purchased
equipment under capital leases in the amount of $803,000, $1,438,000 and
$1,702,000 in fiscal 1996, 1995 and 1994, respectively.
Non-cash transactions in fiscal 1996 included the expiration of $38,438,000 of
put warrants which were reclassified from liabilities to stockholders' equity.
Substantially all of the Company's cash and cash equivalents at May 31, 1996
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. Cash investments at May 31, 1996 primarily 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.
Investments in Debt and Equity Securities
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 and based on the Company's intentions regarding
these instruments, 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. The Company has classified its marketable
equity securities as available for sale (included in "Other Assets" in the
accompanying consolidated balance sheets) and has recorded a net unrealized
holding gain in equity of $6,326,000 which is included in "Unrealized gain on
equity securities" in the accompanying consolidated balance sheets.
At May 31, 1996, 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 states of the
United States and political
subdivisions of the states............. $131,119 $130,625 $(494)
Corporate debt securities............... 36,010 36,101 91
-------- -------- -----
Total cash investments................ $167,129 $166,726 $(403)
======== ======== =====
32
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
All of the Company's long-term investments mature within 18 months.
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 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.
In fiscal 1996 and 1995, the Company purchased approximately $300,000 and
$1,000,000, respectively, in computer equipment and maintenance services from
nCUBE Corporation, the principal shareholder of which is Lawrence J. Ellison,
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 $48,031,000, $48,187,000 and
$38,067,000, in fiscal 1996, 1995 and 1994, 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 $48,815,000, $48,662,000 and $39,318,000, for
the fiscal years ended May 31, 1996, 1995 and 1994, respectively, and is
included in sales and marketing expenses.
Acquisitions
On July 27, 1995, the Company completed the acquisition of the on-line
analytical processing business of Information Resources, Inc. for
approximately $100,000,000 in cash. The Company received an appraisal of
certain intangible assets which indicated that $50,931,000 of the acquired
intangible assets consisted of in-process research and development. In the
opinion of management and the appraiser, the acquired in-process research and
development had not yet reached technological feasibility and had no
alternative future uses. Accordingly, the Company recorded a special charge of
$50,931,000 in the accompanying consolidated statement of operations in fiscal
1996. Additionally, intangible assets with an assigned value of approximately
$30,000,000 were included in "Other Assets" in the accompanying consolidated
balance sheet and are being amortized over a five year period. Amortization
expense of approximately $5,000,000 was charged to general and administrative
expenses in the accompanying consolidated statement of operations in fiscal
1996.
33
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 approximately
$108,000,000 in cash. Intangible assets, with an assigned value of
approximately $105,000,000, were included in "Other Assets" in the
accompanying consolidated balance sheets and are being amortized over a seven
year period. Amortization expense of approximately $15,000,000 and $8,000,000
was charged to cost of services in the accompanying consolidated statements of
operations in fiscal 1996 and 1995, respectively.
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, 1996.
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 up to a maximum number of users on a specified computer. 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 shrink-wrap, government and
telemarketing customers) are recognized as revenue upon shipment if there are
no significant, 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 receives sublicense fees from its Business Alliance Program
("BAP") members (value-added relicensors, hardware providers, systems
integrators and independent software vendors) based on the sublicenses granted
by the BAP member. Sublicense fees typically are based on a percentage of the
Company's list price and are generally recognized as they are reported by the
reseller.
Support Agreements. Support agreements generally call for the Company to
provide technical support and certain software updates to customers. Revenue
on technical 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.
Accounting for Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" which will be effective for the Company in fiscal year 1997.
SFAS No. 123 allows companies which have stock-based compensation arrangements
with employees to adopt a new fair-value basis of accounting for stock options
and other equity instruments, or to continue to apply the existing accounting
rules under Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees" but with additional financial statement
disclosure. The Company plans to adopt the disclosure provisions of this
statement and, therefore, does not anticipate that SFAS No. 123 will have a
material impact on its financial position, results of operations or cash
flows.
34
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Income Taxes
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, the timing of the deductibility of
certain reserves and accruals for income tax purposes and the timing of
recognition of dividends from subsidiaries.
Earnings Per Share
On March 14, 1996, the Company effected a three-for-two stock split in the
form of a common stock dividend distributed April 16, 1996 to stockholders of
record as of April 2, 1996. 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.
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of
During March 1995, the Financial Accounting Standards Board issued Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed Of," which requires the Company to review for
impairment of long-lived assets, certain identifiable intangibles, and
goodwill related to those assets whenever events or changes in circumstances
indicate that the carrying amount of an asset might not be recoverable. In
certain situations, an impairment loss would be recognized. SFAS No. 121 will
become effective for the Company's year ending May 31, 1997. The Company has
studied the implications of SFAS No. 121 and, based on its initial evaluation,
does not expect it to have a material impact on the Company's financial
condition or results of operations.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current
year presentation.
2.PROPERTY
Property consists of:
YEAR ENDED MAY 31,
-------------------
1996 1995
--------- --------
(IN THOUSANDS)
Computer equipment................................... $ 523,991 $372,013
Furniture and fixtures............................... 172,355 133,817
Automobiles.......................................... 4,764 5,636
Buildings and improvements........................... 344,071 270,027
Land................................................. 83,413 76,952
--------- --------
Total............................................... 1,128,594 858,445
Accumulated depreciation and amortization............ (442,840) (323,411)
--------- --------
Property, net....................................... $ 685,754 $535,034
========= ========
35
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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, 1996 and
1995 was $30,428,000 and $38,837,000, respectively. Accumulated amortization
of leased equipment at such dates was $27,650,000 and $31,256,000,
respectively.
As of May 31, 1996, future minimum annual lease payments under capital leases
together with their present value were:
YEAR ENDED MAY 31,
------------------ (IN THOUSANDS)
1997....................................................... $1,451
1998....................................................... 675
1999....................................................... 193
2000....................................................... 35
2001....................................................... 1
------
Total minimum lease payments.............................. 2,355
Amounts representing interest.............................. (312)
------
Present value of minimum lease payments................... $2,043
======
3.NOTES PAYABLE
At May 31, 1996 and 1995, the Company had unsecured short-term borrowings from
banks which were payable on demand in the amounts of $4,377,000 and
$6,221,000, respectively. Interest on the borrowings outstanding at May 31,
1996 ranged from 3% to 16%.
4.LONG-TERM DEBT
Long-term debt consists of:
YEAR ENDED MAY 31,
-------------------
1996 1995
--------- ---------
(IN THOUSANDS)
Subordinated debt.................................... $ -- $ 80,000
Other................................................ 100 144
Capital lease obligations (See Note 2)............... 2,043 4,955
-------- ---------
Total............................................... 2,143 85,099
Current maturities................................... (1,246) (3,378)
-------- ---------
Long-term debt....................................... $ 897 $ 81,721
======== =========
36
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In December 1991, the Company entered into an $80 million subordinated note
purchase agreement with Nippon Steel Corporation ("NSC") which was terminated
on March 1, 1996 upon the redemption in full of the subordinated note by the
Company. In connection with this agreement, the Company also entered into a
strategic relationship with NSC to target major customers and industries in
Japan; this relationship continues even though the subordinated note was
redeemed. 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, if 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 and has agreed not to acquire any shares of the Company, subject to
certain exceptions.
As of May 31, 1996, maturities of long-term debt (excluding capital lease
obligations--see Note 2) are:
YEAR ENDED MAY 31,
------------------ (IN THOUSANDS)
1997....................................................... $ 30
1998....................................................... 33
1999....................................................... 37
----
Total..................................................... $100
====
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, 1996, 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)
1997....................................................... $113,457
1998....................................................... 90,974
1999....................................................... 69,519
2000....................................................... 53,449
2001....................................................... 36,923
Thereafter................................................. 175,992
--------
Total.................................................... $540,314
========
Rent expense was $179,227,000, $132,647,000 and $105,041,000 for fiscal years
1996, 1995 and 1994, respectively. Rent expense in fiscal 1996, 1995 and 1994
is net of sublease income of approximately $2,020,000, $2,076,000 and
$2,366,000, 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, became 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, 1996, options to purchase 2,850,728 shares were
outstanding and vested. As of May 31, 1996, there were no options for shares
of Common Stock available for future grant under this plan.
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 9,630,000 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, 1996, options to purchase 1,866,266 shares of
Common Stock were outstanding, of which 929,478 shares were vested. Options
for 2,166,290 shares were available for future grant under these plans at May
31, 1996.
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
22,500,000 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 18,000,000 shares of Common Stock
were reserved for issuance under the plan in fiscal 1994. In fiscal 1996, an
additional 18,000,000 shares of Common Stock were reserved for issuance under
the plan. As of May 31, 1996, options to purchase 35,035,619 shares of Common
Stock were outstanding, of which 12,683,958 shares were vested. Options for
15,325,333 shares were available for future grant under the plan at May 31,
1996. 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 2,250,000 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 22,500 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 180,000 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 56,250 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 16,875 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 39,375 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, 1996, options to purchase 465,313 shares of common
stock were outstanding, of which 154,683 were vested. Options for 1,653,906
shares were available for future grant under this plan at May 31, 1996.
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, 1993............... 38,638,467 $ 0.07 - $ 9.70
Granted........................... 10,506,600 9.14 - 16.06
Exercised......................... (7,347,063) 0.07 - 8.75
Canceled.......................... (4,289,590) 0.10 - 15.28
----------
Balance, May 31, 1994............... 37,508,414 $ 0.10 - $16.06
Granted........................... 8,375,025 15.36 - 24.67
Exercised......................... (6,368,127) 15.50 - 24.67
Canceled.......................... (2,215,530) 1.28 - 21.33
----------
Balance, May 31, 1995............... 37,299,782 $ 0.10 - $24.67
Granted........................... 12,457,219 23.75 - 36.08
Exercised......................... (7,066,368) 0.10 - 21.83
Canceled.......................... (2,472,707) 0.18 - 36.08
----------
Balance, May 31, 1996............... 40,217,926 $ 0.38 - $36.08
==========
As of May 31, 1996, the Company had reserved 59,363,455 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 36,000,000 shares of Common Stock for
issuance thereunder. In September 1992, the plan was amended to reserve an
additional 1,125,000 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 9,000,000 shares of Common Stock for
issuance thereunder. An additional 9,000,000 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, 1996,
11,941,231 shares had been issued and 6,472,071 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 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.
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
39
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Common Stock, subject to certain exceptions (the earlier of such dates being
called the "Distribution Date"). The Rights are initially exercisable for one
forty-five hundredth of a share of the Company's Series A Junior Participating
Preferred Stock at a price of $55.56 per one forty-five hundredth 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 $0.00022 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 forty-five hundredth 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 5,752,500 put warrants. On March
24, 1995, 3,502,500 of these put warrants were canceled at minimal cost and
the remaining options expired without being exercised. Additionally, the
Company purchased 3,595,500 call options in fiscal 1995 and 1994. On July 6,
1995, the Company sold 2,189,250 of the call options and credited the net
proceeds of $17,175,000 to equity. The remaining 1,406,250 call options were
exercised in October 1995 at $21.08 per share for a total of $29,648,000. The
remaining put warrants expired in October 1995 without exercise.
7.INCOME TAXES
The following is a geographical breakdown of the Company's income before
taxes:
YEAR ENDED MAY 31,
--------------------------
1996 1995 1994
-------- -------- --------
(IN THOUSANDS)
Domestic....................................... $680,172 $526,815 $306,426
Foreign........................................ 239,338 132,167 117,037
-------- -------- --------
Total........................................ $919,510 $658,982 $423,463
======== ======== ========
The provision for income taxes consists of the following:
YEAR ENDED MAY 31,
----------------------------
1996 1995 1994
-------- -------- --------
(IN THOUSANDS)
Current Payable:
Federal.................................... $253,514 $189,012 $ 50,282
State...................................... 42,738 31,831 11,423
Foreign.................................... 109,712 108,695 50,620
-------- -------- --------
Total current............................. 405,964 329,538 112,325
-------- -------- --------
Deferred Payable (Prepaid):
Federal.................................... (67,865) (63,398) 30,971
State...................................... (8,129) (4,282) 97
Foreign.................................... (13,739) (44,394) (3,650)
-------- -------- --------
Total deferred............................ (89,733) (112,074) 27,418
-------- -------- --------
Total...................................... $316,231 $217,464 $139,743
======== ======== ========
40
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The provision for income taxes differs from the amount computed by applying
the federal statutory rate to the Company's income before taxes as follows:
YEAR ENDED MAY 31,
----------------------------
1996 1995 1994
-------- -------- --------
(IN THOUSANDS)
Tax provision at statutory rate............ $321,829 $230,643 $148,212
Tax credits................................ (692) (4,600) (5,219)
Tax benefit of exempt FSC income........... (20,831) (16,368) (12,666)
State tax, net of federal benefit.......... 22,800 17,308 7,488
Foreign taxes provided at rates other than
the U.S. statutory rate................... (10,373) (8,575) 284
Foreign losses not tax benefited........... 8,396 4,104 1,347
Other...................................... (4,898) (5,048) 297
-------- -------- --------
Provision for income taxes................. $316,231 $217,464 $139,743
======== ======== ========
The components of the deferred tax assets and liabilities, as reflected on the
balance sheet, consist of the following:
YEAR ENDED MAY 31,
----------------------------
1996 1995 1994
-------- -------- --------
(IN THOUSANDS)
Deferred Tax Liabilities:
Capitalized software development costs.... $(34,858) $(33,681) $(28,170)
State taxes............................... (13,060) (10,351) (6,364)
Other tax liabilities..................... (3,259) (17,099) (19,042)
-------- -------- --------
Total deferred tax liabilities........... (51,177) (61,131) (53,576)
Deferred Tax Assets:
Reserves and accruals..................... 74,802 45,990 31,302
Differences in timing of revenue recogni-
tion..................................... 51,366 47,698 24,651
Foreign earnings deemed repatriated....... 49,325 22,938 11,169
Net operating loss carryovers............. 16,417 19,516 6,119
Depreciation and amortization............. 29,670 6,294 526
Other tax assets.......................... 40,381 30,939 10,537
-------- -------- --------
Total deferred tax assets................ 261,961 173,375 84,304
Valuation allowance....................... (7,815) (4,243) (15,879)
-------- -------- --------
Net...................................... $202,969 $108,001 $ 14,849
-------- -------- --------
Recorded as:
Prepaid and refundable income taxes....... $171,560 $135,491 $ 53,765
Deferred income taxes..................... (9,207) (27,490) (38,916)
Other assets.............................. 40,616 -- --
-------- -------- --------
$202,969 $108,001 $ 14,849
======== ======== ========
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, 1996, the cumulative amount of earnings upon
which United States income taxes have not been provided are approximately
$23,136,000. At May 31, 1996, the unrecognized deferred tax liability for
these earnings is approximately $6,678,000.
41
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Certain foreign subsidiaries of the Company have net operating loss
carryforwards at May 31, 1996, totaling approximately $49,725,000, which may
be used to offset future taxable income. The carryforwards expire at various
dates; $9,172,000 in 1997, $9,592,000 in 1998, $171,000 in 2000, $8,761,000 in
2001, $2,635,000 in 2002, $5,277,000 in 2003, and the remaining balance has no
expiration. As of May 31, 1996, the Company has recorded a gross deferred tax
asset related to the loss carryforwards of $16,417,000, and a related
valuation allowance of $7,815,000. At May 31, 1995 and 1994, the deferred
assets were $19,516,000 and $6,119,000, respectively, and the related
valuation allowance attributed to loss carryforwards were $4,243,000 and
$1,119,000, respectively.
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 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,
--------------------------------
1996 1995 1994
---------- ---------- ----------
(IN THOUSANDS)
Revenues from Unaffiliated Customers:
Domestic operations................... $1,815,725 $1,234,330 $ 812,868
---------- ---------- ----------
International operations:
Europe/Middle East/Africa operations. 1,541,308 1,165,181 820,158
Asia Pacific operations.............. 605,244 385,787 226,032
Other Americas operations............ 261,023 181,580 142,089
---------- ---------- ----------
Total international operations...... 2,407,575 1,732,548 1,188,279
---------- ---------- ----------
Consolidated........................... $4,223,300 $2,966,878 $2,001,147
========== ========== ==========
Intercompany revenues:
Domestic operations................... $ 508,201 $ 365,814 $ 255,699
========== ========== ==========
Operating Income (Excluding Acquired
In-Process Research and Development):
Domestic operations................... $ 714,208 $ 509,716 $ 307,994
Europe/Middle East/Africa operations.. 113,956 86,477 79,292
Asia Pacific operations............... 81,844 49,851 23,244
Other Americas operations............. 45,814 3,677 9,423
---------- ---------- ----------
Consolidated........................ $ 955,822 $ 649,721 $ 419,953
========== ========== ==========
Identifiable Assets:
Domestic operations................... $1,976,487 $1,451,720 $ 893,072
Europe/Middle East/Africa operations.. 942,816 667,765 523,614
Asia Pacific operations............... 336,640 230,694 103,672
Other Americas operations............. 101,300 74,338 74,626
---------- ---------- ----------
Consolidated........................ $3,357,243 $2,424,517 $1,594,984
========== ========== ==========
42
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9.LITIGATION
A shareholder derivative lawsuit was filed in the Superior Court of the State
of California, County of San Mateo on October 23, 1995. The derivative suit
was brought by Company stockholders, allegedly on behalf of the Company,
against all of the Company's present and one former director. The derivative
plaintiffs allege primarily that these officers and directors intentionally or
negligently breached their fiduciary duties to the Company by allegedly
engaging in or acquiescing to certain activities related to nCUBE, a company
in which Oracle's Chief Executive Officer owns a controlling interest. The
derivative plaintiffs seek compensatory and other damages, disgorgement of
profits and certain assets, temporary and permanent injunctions requiring the
defendants to relinquish their directorships, and a voiding of all contracts
with nCUBE. Plaintiffs filed a First Amended Complaint on March 15, 1996. On
May 29, 1996 the court granted the defendants' motion to dismiss the
complaint, with leave to amend. The Company anticipates that plaintiffs will
file a Second Amended Complaint.
The Company is subject to various 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.
43
SCHEDULE II
ORACLE CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
BALANCE AT ADDITIONS BALANCE
BEGINNING CHARGED TRANSLATION AT END
CLASSIFICATION OF PERIOD TO OPERATIONS WRITE-OFFS ADJUSTMENTS OF PERIOD
- -------------- ----------- ------------- ------------ ----------- ------------
Allowance for Doubtful
Accounts
Year Ended:
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
=========== =========== ============ =========== ============
May 31, 1996.......... $67,728,000 $64,412,000 $(23,229,000) $(3,200,000) $105,711,000
=========== =========== ============ =========== ============
44
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 July 25, 1996.
ORACLE CORPORATION
By: LAWRENCE J. ELLISON
----------------------------
Lawrence J. Ellison, Chief
Executive Officer
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 Chief Executive Officer July 25, 1996
- -------------------------------- and Chairman
Lawrence J. Ellison of the Board of Directors
JEFFREY O. HENLEY Executive Vice President, July 25, 1996
- -------------------------------- Chief Financial Officer
Jeffrey O. Henley and Director
RAYMOND J. LANE President, Chief July 25, 1996
- -------------------------------- Operating Officer and
Raymond J. Lane Director
THOMAS A. WILLIAMS Vice President and July 25, 1996
- -------------------------------- Corporate Controller
Thomas A. Williams
JAMES A. ABRAHAMSON Director July 25, 1996
- --------------------------------
James A. Abrahamson
MICHAEL J. BOSKIN Director July 25, 1996
- --------------------------------
Michael J. Boskin
JACK KEMP Director July 25, 1996
- --------------------------------
Jack Kemp
DONALD L. LUCAS Director July 25, 1996
- --------------------------------
Donald L. Lucas
DELBERT W. YOCAM Director July 25, 1996
- --------------------------------
Delbert W. Yocam
45
ORACLE CORPORATION
INDEX OF EXHIBITS
EXHIBIT # EXHIBIT TITLES PAGE
- --------- -------------- ----
21.01 Subsidiaries of the Registrant............................................ 47
23.01 Consent of Arthur Andersen LLP............................................ 49
27.1 Financial Data Schedule................................................... 50
46
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