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SECURITIES AND EXCHANGE COMMISSION
Washington D.C., 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended May 31, 2000
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)
(650) 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. [_]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of July 31, 2000 was $155,629,695,808. This calculation does not
reflect a determination that persons are affiliates for any other purposes.
Number of shares of common stock outstanding as of July 31, 2000:
2,814,916,653.
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 16, 2000.
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ORACLE CORPORATION
FISCAL YEAR 2000 FORM 10-K ANNUAL REPORT
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TABLE OF CONTENTS
Page
----
PART I.
Item 1. Business..................................................... 1
Item 2. Properties................................................... 7
Item 3. Legal Proceedings............................................ 7
Item 4. Submission of Matters to a Vote of Security Holders.......... 7
Item 4A. Executive Officers of the Registrant......................... 7
PART II.
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters...................................................... 10
Item 6. Selected Financial Data...................................... 10
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 10
Item 7A. Quantitative and Qualitative Disclosures About Market Risk... 23
Item 8. Financial Statements and Supplementary Data.................. 25
Item 9. Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure..................................... 25
PART III.
Item 10. Directors and Executive Officers of the Registrant........... 26
Item 11. Executive Compensation....................................... 26
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................... 26
Item 13. Certain Relationships and Related Transactions............... 26
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K.......................................................... 26
Signatures................................................... 55
i
Forward-Looking Statements
In addition to historical information, this Annual Report contains forward-
looking statements. These forward-looking statements are subject to certain
risks and uncertainties that could cause actual results to differ materially
from those reflected in these 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
Position 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 opinions only as
of the date hereof. The Company undertakes no obligation to revise or publicly
release the results of any revision to these forward-looking statements.
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 fiscal year 2001.
PART I
Item 1. Business
General
Oracle Corporation ("Oracle" or the "Company") is the world's leading supplier
of software for information management. The Company develops, manufactures,
markets and distributes computer software that helps corporations manage and
grow their businesses. The Company's software products can be categorized into
two broad areas: Systems software and Internet business applications software.
Systems software is a complete Internet platform to develop and deploy
applications on the Internet and corporate Intranets, and includes database
management software and development tools that allow users to create, retrieve
and modify the various types of data stored in a computer system. Internet
business applications software allows users to access information or use the
applications through a simple Internet browser on any client computer, and
automates the performance of specific business data processing functions for
financial management, procurement, project management, human resources
management, supply chain management, and customer relationship management. The
Company's software runs on a broad range of computers, including mainframes,
minicomputers, workstations, personal computers, laptop computers and
information appliances (such as hand-held devices and mobile phones) and is
supported on more than 85 different operating systems, including UNIX,
Windows, Windows NT, OS/390 and Linux. In addition to computer software
products, the Company offers a range of consulting, education, and support
services for its customers. Also, for customers who choose not to install
their own applications, Oracle's Business On-Line offers an online service
that hosts and delivers Internet business applications across a network that
can be accessed via any standard web browser.
The Company was incorporated in 1986 as a Delaware corporation and is the
successor to operations originally begun in June 1977. Unless the context
otherwise requires, the "Company" or "Oracle" refers to Oracle Corporation,
its predecessor and its subsidiaries. The Company's principal executive
offices are located in Redwood City, California. The Company's telephone
number is (650) 506-7000. The Company also maintains a worldwide website at
www.oracle.com. The information posted on the Company's website is not
incorporated into this annual report.
Product Development Architecture
Oracle Internet Platform
Oracle's product development platform is based on an Internet computing
architecture. The Internet computing architecture is comprised of data
servers, application servers and client computers or devices running a web
browser. Internet computing centralizes business information and applications,
allowing them to be managed easily and efficiently from a central location.
End-users are provided with ready access to the most current business data and
applications through a standard Internet browser. Database servers manage all
business
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information, while application servers run all business applications. These
servers are managed by professional information technology managers. By
contrast, the traditional, client-server computing architecture requires that
each client computer run and manage its own applications, and also be updated
every time an application changes. The Company believes that the design of its
software for Internet computing improves network performance and data quality,
and helps organizations decrease installation, maintenance and training costs
associated with information technology.
Electronic Business
The Company believes that electronic commerce (the exchange of goods and/or
services electronically over the Internet) is revolutionizing businesses by
providing a relatively low-cost means of distributing products and expanding
markets globally, increasing efficiencies, and providing better, more
personalized customer services. As organizations are changing the way
employees work, communicate, share knowledge and deliver value, the Company
believes that to remain competitive, they need to develop and deploy web-based
business and commerce applications on the Internet.
Research & Development
The Company continually enhances its existing products and develops new
products to meet its customers' changing requirements as well as to expand its
product base. Research and development expenditures were 10% of total revenues
in fiscal 2000, 1999 and 1998. As a percentage of license revenues, research
and development expenditures were 23% in fiscal 2000, 1999 and 1998.
Major Product Families
Systems Software
The Oracle relational database management system ("DBMS"), the key component
of Oracle's Internet platform, enables storing, manipulating and retrieving
relational, object-relational, multi-dimensional, and other types of data.
Oracle Version 8i is a database specifically designed as a foundation for
Internet development and deployment, extending Oracle's technology in the
areas of data management, transaction processing and data warehousing to the
new medium of the Internet. Built directly inside the database, Internet
features such as Java Server (Jserver), Internet File System (iFS), Internet
Directory, Internet Security, and Intermedia, allow companies to build
internet applications that lower costs, enhance customer and supplier
interaction, and provide global information access across different computer
architectures and across the enterprise.
Oracle Lite Version 8i is the Company's mobile database for Internet
computing. The Oracle Lite database management system can be used to run
applications on portable devices and to temporarily store data on these
devices which can be replicated back to Oracle. Oracle Lite is a complete and
comprehensive platform for building, deploying and managing mobile
applications that principally run on laptops and information appliances such
as hand-held devices, cell phones, smart phones, pagers, smart cards and
television set top boxes.
In June 2000, the Company introduced Oracle Internet Application Server
Version 8i which is an open software platform for developing, deploying and
managing distributed Internet software application programs. Oracle Internet
Application Server 8i provides the infrastructure necessary to run Internet
computing applications, and enables customers to build and deploy portals,
transactional applications, and business intelligence facilities with a single
product.
Oracle offers Internet Application Server (IAS) Wireless Edition formerly
Portal-to-Go, which enables information and services to be accessed through
wireless and other devices. These devices include smart phones, wireless
personal digital assistants, standard phones connected to Interactive Voice
Recognition systems, modem equipped personal organizers and television set-top
boxes. Using IAS Wireless Edition, mobile operators, content providers, and
wireless Internet service providers can quickly implement wireless portals
(access hubs offering content formatted for small devices) for providing
personalized services and content through wireless devices.
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Application Development Tools
The Company's Oracle Internet Developer Suite contains application development
tools, enterprise portal tools and business intelligence tools.
The Company's application development tools support different approaches to
software development. For a model-based approach to development, Oracle offers
two products: Oracle Designer and Oracle Developer. Oracle Designer allows
business processes to be visually modeled and enterprise database applications
to be generated. Oracle Developer is a development tool for building database
applications that can be deployed, unchanged, in both Internet and
client/server based environments. For Java programmers, Oracle offers Oracle
JDeveloper, a Java development tool suite for building enterprise applications
for use on the Internet. The Oracle JDeveloper suite provides a complete Java
development environment for developing and deploying applications from Java
and HTML clients to server based business components across the enterprise.
Oracle offers Oracle iPortal to build portal sites which provide access to
database applications. Oracle iPortal features a unique browser-based
interface and allows portal sites to be rapidly assembled from "portlets"--
reusable information components which wrap commonly accessed pieces of
information and application services. Portal sites built with Oracle iPortal
may be personalized by role and customized by end-users.
Oracle's Business Intelligence tools are designed for the Internet and provide
a comprehensive and integrated suite of products that enable companies to
address the full range of user requirements for information publishing, data
exploration, advanced analysis and data mining. Oracle Warehouse Builder is an
extensible data warehouse design and deployment environment that automates the
process of creating a single database for business analysis. Oracle Warehouse
Builder can quickly and easily integrate historical data with the massive,
daily influxes of online data from web sites. After collecting the data,
Oracle Warehouse Builder cleans, transforms and loads the data into an
Oracle8i-based data warehouse.
Internet Business Applications and On Line Business Exchanges
Oracle offers the E-Business Suite Version 11i, a fully integrated and
Internet enabled set of Enterprise Resource Planning ("ERP"), Supply Chain and
Customer Relationship Management ("CRM") software applications for the
enterprise. Oracle is the only company to offer a fully integrated suite of
Internet business applications. This integrated suite, which also is available
on a component basis, provides integrated enterprise information so that
companies can manage their entire business cycle, from initial contact with
customers through planning, production, and delivery, to post-sale service and
support. This allows companies to better align strategic and tactical goals
across the entire organization. Available in approximately 30 languages,
Oracle's Internet business applications allow companies to operate in multiple
currencies and languages, support local business practices and legal
requirements, and handle business-critical operations across borders.
Oracle's ERP applications consist of integrated software modules to automate
business functions such as financial management, supply chain management,
procurement, manufacturing, project systems and human resources applications
for large and mid-sized commercial and public sector organizations throughout
the world. These applications combine business functionality with innovative
technologies, such as workflow and self-service applications, and enables
customers to lower the cost of their business operations by providing their
customers, suppliers and employees with self service access to both
transaction processing and selected business information using the Internet
platform. Self service applications automate a variety of business functions
such as procuring and managing inventories of goods and services, and employee
expense reporting and reimbursement.
Oracle's CRM applications help automate and improve the business processes
associated with managing customer relationships in the areas of sales,
marketing, customer service and support, and call centers. Oracle's CRM
applications allow multi-channel customer interactions over the Internet, such
as through a call center,
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I-store (an internet-based storefront used for selling products and services
directly to customers over the web) and face-to-face, thereby helping to
maximize the use of technology to improve customer relationships. Integrated
with Oracle's ERP applications, Oracle's CRM products also allow enterprises
to coordinate global sales forecasting and lead generation with order capture
capabilities to help increase the overall efficiency of running a business.
OracleExchange.com is an Internet marketplace which allows contract and spot
buying capabilities, online auctioning and reverse auctioning. Branded
exchanges are company specific versions of OracleExchange.com, allowing
businesses to take control of their supply chain. Major corporations in the
same industry are partnering to bring all their suppliers online with the goal
of reducing supply chain costs through increased visibility into demand.
Demand that cannot be fulfilled using their existing supply chain plans can be
auctioned out to exchanges. In addition to the exchange platform, Oracle
provides procurement software to allow businesses to collect demand from
within their organization. Oracle also provides supply chain planning software
so businesses can check and reconfigure their supply chains based on demand.
Services
Consulting
In most of Oracle's sales offices around the world, the Company has trained
consulting personnel who offer consulting services. Consultants supplement the
Company's product offerings by providing services to assist customers in the
implementation of applications based on the Company's products. Consulting
revenues represented approximately 22%, 27% and 25% of total revenues in
fiscal 2000, 1999 and 1998, respectively.
Support
The Company offers a wide range of support services that include on-site,
telephone or Internet access to support personnel, as well as software
updates. Telephone support is provided by local offices, as well as Oracle's
five global support centers located around the world. Support revenues
represented approximately 29%, 27% and 25% of total revenues in fiscal 2000,
1999 and 1998, respectively.
Education
The Company offers both media based and instructor led training to customers
on how to use the Company's products. Education revenues represented
approximately 5%, 5% and 6% of total revenues in fiscal 2000, 1999 and 1998,
respectively.
Marketing and Sales
Key Market Segments
The Company has identified two key market segments where its products are
sold; the enterprise business market and the general business market. The
enterprise business market segment is defined by the Company as those
businesses with total revenues of $500 million and above. In the enterprise
business market segment, the Company believes that the most important
considerations for customers are performance, functionality, product
reliability, ease of use, quality of technical support and total cost of
ownership, including the initial price and deployment costs as well as ongoing
maintenance costs. The general business market segment is defined by the
Company as those businesses with total revenues of less than $500 million. In
the general business market segment, 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 effectively in each of these markets, although the competition is
intense in each market.
4
Sales Distribution Channels
In the United States, the Company markets its products 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, 2000, were located in approximately
90 metropolitan areas within the United States.
Outside the United States, the Company markets its products primarily through
the sales and service organizations of approximately 60 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.
The Company also markets its products through indirect channels, which are
called Oracle Alliance partners. The partners include value-added relicensors,
value-added distributors, hardware providers, systems integrators and
independent software vendors that combine the Oracle relational DBMS,
application development tools and business applications with computer
hardware, software application packages or services for redistribution.
The Company also markets its products through independent distributors in
international territories not covered by its subsidiaries' direct sales
organizations.
As of May 31, 2000, in the United States, the Company employed 12,485 sales,
service and marketing employees, while the international sales, service and
marketing groups consisted of 18,224 employees.
Revenues from international customers (including end users and resellers)
amounted to approximately 48%, 49% and 50% of the Company's total revenues in
fiscal 2000, 1999 and 1998, respectively. See Note 11 of Notes to Consolidated
Financial Statements for a summary of the Company's operating segments and
geographic information.
Oracle Partner Program
The Oracle Partner Program allows Oracle to pursue new business opportunities
with partners as well as direct customers. The types of partners in the Oracle
Partner Program are consultants, education providers, Internet service
providers, network integrators, resellers, independent software vendors and
system integrators. Partners can join the the Oracle Technology Network (OTN),
a program specifically designed for the Internet developer community. Oracle
provides the technology, education, and technical support that enable a
partner to effectively integrate Oracle products into its business. The
combination of Oracle technology and a partner's expertise broadens the
Company's exposure in new markets, such as the Internet.
Hosted Online Services
Oracle offers Oracle Business OnLine, a service that delivers enterprise
applications and technology across a network from a server that is hosted in a
professionally managed environment at a remote data center. With a simple
browser and network connections, companies can access Oracle's Internet
business applications at costs significantly lower than a traditional
deployment. While the customer owns the applications, Oracle owns the
hardware, manages the application and server architecture, maintains and
upgrades the software and provides technical support for the customer's
operations.
Competition
The computer software industry is intensely competitive and rapidly evolving.
Historically, the Company has competed in various markets including the
database, application development tools, business applications and services
sectors. The principal software competitors in the enterprise DBMS marketplace
are International Business Machines Corporation, Sybase, Inc. and Informix
Corporation. In the workgroup and personal DBMS marketplace, the Company
competes with several desktop software vendors, including Microsoft
Corporation. In
5
the data warehousing market, the Company's On-Line Analytical Processing
("OLAP") products compete with those of Business Objects, S.A., Cognos, Inc.
and Hyperion Solutions. In the application server market, competitors include
International Business Machines Corporation and BEA Systems Inc. In the
business applications software market, competitors include J.D. Edwards,
Peoplesoft Inc., and SAP Aktiengeschellschaft. The Company continues to
compete in these traditional markets as well as in some new, rapidly expanding
markets like the CRM, procurement and supply chain marketplaces where the
competition includes Siebel Systems, Ariba, Inc., Commerce One and I2
Technologies.
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 power units (processing power of the computers in the customer's
network) or a maximum number of named users. The Company also enters into
other license agreement types, which allow for the use of the Company's
products, usually restricted by the number of employees or the license term.
Fees from licenses are recognized as revenue upon shipment, provided fees are
fixed and determinable and collection is probable. Fees from licenses sold
together with consulting services are generally recognized upon shipment
provided that the above criteria have been met, payment of the license fees is
not dependent upon the performance of the consulting services and the
consulting services are not essential to the functionality of the licensed
software. In instances where the aforementioned criteria have not been met,
both the license and consulting fees are recognized under the percentage of
completion method of contract accounting.
The Company receives sublicense fees from its Oracle Alliance partners (value-
added relicensors, value-added distributors, hardware providers, systems
integrators and independent software vendors) based on the sublicenses granted
by the Oracle Alliance partner. Sublicense fees are typically based on a
percentage of the Company's list price and are generally recognized as they
are reported by the reseller.
Support revenues consist of two components: (1) updates for software products
and end user documentation; and (2) technical product support services that
include on-site, telephone or Internet access to support personnel. The
Company prices technical product support services as a percentage of the
license price, while on-site support services are based on the level of
support services provided. Software subscription update rights are also priced
as a percentage of the license price, and can be purchased separately from
technical product support. Most customers purchase support initially and renew
their support agreements annually. 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 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 Position and Results of
Operations."
Employees
As of May 31, 2000, the Company employed 41,320 full-time persons, including
29,564 in sales and services, 1,145 in marketing, 6,650 in research and
development and 3,961 in general and administrative positions. Of these
employees, 19,771 were located in the United States and 21,549 were employed
in approximately 60 other countries.
None of the Company's employees are represented by a labor union. The Company
has experienced no work stoppages and believes that its employee relations are
good.
6
Item 2. Properties
Oracle's properties consist primarily of owned and leased office facilities
for sales, research and development, consulting and administrative personnel.
The Company's headquarters facilities consist of approximately 2.3 million
square feet in Redwood City, California. The Company also owns or leases
office facilities in various locations in the United States and abroad.
The Company believes that its facilities are adequate for its current needs
and that suitable additional or substitute space will be available as needed
to accommodate expansion of the Company's operations. See Notes 2 and 5 of
Notes to Consolidated Financial Statements for information regarding the
Company's lease obligations.
Item 3. Legal Proceedings
The material set forth in Footnote 12 of Item 14(a)(1) of this Form 10-K is
incorporated herein by reference.
Item 4. Submission of Matters to a Vote of Security Holders
On May 10, 2000, the Company held a Special Meeting of Stockholders. At the
meeting, the stockholders approved an amendment to the Company's Certificate
of Incorporation increasing the number of authorized shares of the Company's
Common Stock from 4,000,000,000 to 11,000,000,000 (with 2,139,505,227
affirmative votes, 332,952,992 negative votes, 2,750,800 votes withheld and
1,253,929 broker non-votes).
Item 4A. Executive Officers of the Registrant
The executive officers of the Company are as follows:
Name Office(s)
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Lawrence J. Ellison..... Chief Executive Officer and Chairman of the Board
Jeffrey O. Henley....... Executive Vice President, Chief Financial Officer and Director
Gary L. Bloom........... Executive Vice President
Safra A. Catz........... Executive Vice President
Sergio Giacoletto....... Executive Vice President, Europe, Middle East and Africa
Jay H. Nussbaum......... Executive Vice President, Oracle Services Industries
George J. Roberts....... Executive Vice President, North America Sales
Charles A. Rozwat....... Executive Vice President, Database Server
Edward J. Sanderson..... Executive Vice President, Consulting and Latin America Division
Frank A. Varasano....... Executive Vice President, Oracle Products Industries
Ronald A. Wohl.......... Executive Vice President, Applications Development
Daniel Cooperman........ Senior Vice President, General Counsel and Secretary
Jennifer L. Minton...... Senior Vice President and Corporate Controller
Mr. Ellison, 54, 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 co-chairman of California's Council on Information Technology. He
is also a director of Apple Computer, Inc., a computer company.
Mr. Henley, 55, 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. Bloom, 39, has been Executive Vice President (currently responsible for
server development, platform technologies, marketing, education, customer
support, and corporate development) of the Company since May
7
1999 and the Executive Vice President of the System Products Division from
March 1998 to May 1999. He has held various positions, including Senior Vice
President of the System Products Division from November 1997 to March 1998,
Senior Vice President of the Worldwide Alliances and Technologies Division
from May 1997 to October 1997, Senior Vice President of the Product and
Platform Technologies Division from May 1996 to May 1997, and Vice President
of the Mainframe and Integration Technology Division and Vice President of the
Massively Parallel Computing Division from May 1992 to May 1996. Prior to
joining Oracle, Mr. Bloom worked at International Business Machines
Corporation and at Chevron Corporation where he held various technical
positions in their mainframe system areas.
Ms. Catz, 38, has been Executive Vice President (currently responsible for
global business practices) of the Company since November 1999 and was a Senior
Vice President between April 1999 and October 1999. Prior to joining Oracle,
Ms. Catz was at Donaldson, Lufkin & Jenrette, a global investment bank, where
she was a Managing Director from February 1997 to March 1999 and a Senior Vice
President from January 1994 until February 1997 and had previously held
various investment banking positions since 1986.
Mr. Giacoletto, 50, has been Executive Vice President for Europe, Middle East
and Africa, since June 2000, and Senior Vice President, Business Solutions,
since November 1998. He was Vice President, Alliances and Technology of the
Company from March 1997 to November 1998. Before joining Oracle, he was
President, AT&T Solutions for Europe, since August 1994. Previously, he spent
20 years with Digital Equipment, Inc. in various positions in marketing and
services at the European level.
Mr. Nussbaum, 56, has been Executive Vice President, Oracle Service Industries
since October 1998, and Senior Vice President and General Manager of the
Company's Federal group since 1992. Prior to joining Oracle, Mr. Nussbaum
worked at Xerox Corporation where he held various management roles during his
twenty-four-year tenure, including President of Integrated Systems Operations.
Mr. Nussbaum has served on several key advisory boards for George Mason
University, James Madison University and the University of Maryland.
Mr. Roberts, 43, has been Executive Vice President, North America Sales since
June 1999 and served as Senior Vice President, North American Sales from June
1998 to May 1999. Mr. Roberts served as Senior Vice President, Business Online
from March 1998 to June 1998. He took a leave of absence from July 1997 to
March 1998. Mr. Roberts joined Oracle in March 1990 and from June 1990 to June
of 1997, served as Group Vice President, Central Commercial Sales.
Mr. Rozwat, 52, has been Executive Vice President, Database Server, since
November 1999 and served as Senior Vice President, Database Server from
December 1996 to October 1999. Mr. Rozwat served as Vice President of
Development from May 1995 to November 1996.
Mr. Sanderson, 51, has been Executive Vice President, Consulting and Latin
American Division since June 1999, and Senior Vice President of Consulting and
the Latin American Division of the Company from July 1998 to May 1999. He
served as Senior Vice President of Americas Consulting for the Company from
July 1995 to July 1998. Before joining Oracle, Mr. Sanderson served as
President of Worldwide Information Services for Unisys Corporation from
February 1994 to June 1995. Prior to Unisys, he spent 18 years in the
consulting industry at McKinsey & Company and Andersen Consulting.
Mr. Varasano, 54, has been Executive Vice President, Oracle Product Industries
since October 1999. Before joining Oracle, Mr. Varasano was a Senior Partner
at Booz Allen & Hamilton from October 1998 to September 1999. Mr. Varasano
held several positions at Booz Allen & Hamilton, including Managing Officer
United States, Global Managing Officer Engineering and Manufacturing
Industries and Managing Officer, New York office. He also served on Booz Allen
& Hamilton's Executive Committee and Board of Directors.
Mr. Wohl, 39, has been Executive Vice President, Applications Development,
since November 1999 and served as Senior Vice President, Applications
Development, from December 1992 to October 1999. From September 1989 until
December 1992, Mr. Wohl was Vice President and Assistant General Manager of
the Systems Product Division.
8
Mr. Cooperman, 49, has been Senior Vice President, General Counsel and
Secretary of the Company since February 1997. Prior to joining Oracle, Mr.
Cooperman had been associated with the law firm of McCutchen, Doyle, Brown &
Enersen since October 1977, and had served there as a partner since June 1983.
From September 1995 until February 1997, Mr. Cooperman was Chair of the law
firm's Business & Transactions Group, and from April 1989 through September
1995, he served as the Managing Partner of the law firm's San Jose Office.
Ms. Minton, 39, has been Senior Vice President and Corporate Controller of the
Company since April 2000, and Vice President and Corporate Controller since
November 1998. From May 1989 to November 1998, Ms. Minton held various
positions in Oracle's finance organization including Assistant Corporate
Controller, and was a Vice President of the Company since August 1995. Prior
to joining Oracle, Ms. Minton held various positions in the Audit Division of
Arthur Andersen LLP, an international public accounting firm since December
1983.
9
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 18,873 stockholders of record as of May 31, 2000. However, the
majority of shares are held by brokers and other institutions on behalf of
stockholders in approximately 1.4 million accounts. The number of total
stockholders is less than 1.4 million due to stockholders with accounts at
more than one brokerage. The following table sets forth the low and high sale
price of the Company's Common Stock, based on the last sale, in each of the
Company's last eight fiscal quarters.
Low Sale Price High Sale Price
-------------- ---------------
Fiscal 2000:
Fourth Quarter............................ $62.50 $88.44
Third Quarter............................. 35.34 74.25
Second Quarter............................ 18.84 38.72
First Quarter............................. 12.56 19.88
Fiscal 1999:
Fourth Quarter............................ $10.72 $19.38
Third Quarter............................. 11.64 20.25
Second Quarter............................ 6.36 12.29
First Quarter............................. 6.64 9.25
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.
On January 18, 2000, the Company effected a two-for-one stock split in the
form of a Common Stock dividend distributed to stockholders of record as of
December 30, 1999. All per share data and numbers of Common shares, where
appropriate, have been retroactively adjusted to reflect the stock split.
Item 6. Selected Financial Data
Year Ended May 31,
-------------------------------------------------------
(in thousands, except 2000 1999 1998 1997 1996
per share data) ----------- ---------- ---------- ---------- ----------
Revenues................ $10,130,128 $8,827,252 $7,143,866 $5,684,336 $4,223,300
Operating income........ 3,080, 160 1,872,881 1,244,200 1,262,985 904,891
Net income.............. 6,296,803 1,289,758 813,695 821,457 603,279
Earnings per share--
basic.................. 2.22 0.45 0.28 0.28 0.21
Earnings per share--
diluted................ 2.10 0.43 0.27 0.27 0.20
Total assets............ 13,076,779 7,259,654 5,819,011 4,624,315 3,357,243
Short-term debt......... 2,691 3,638 2,924 3,361 5,623
Long-term debt.......... 300,770 304,140 304,337 300,836 897
Stockholders' equity.... 6,461,463 3,695,267 2,957,558 2,369,712 1,870,449
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Total revenues grew 15%, 24% and 26% in fiscal 2000, 1999 and 1998,
respectively. The lower overall revenue growth rates in both fiscal 2000 and
fiscal 1999 as compared to the prior corresponding periods, were primarily due
to lower consulting services revenue growth rates than those experienced in
prior years partially offset by higher license revenue growth. Sales and
marketing expenses continue to represent a significant portion of operating
expenses, constituting 26%, 30%, and 33% of revenues in fiscal 2000, 1999 and
1998, respectively,
10
while cost of services as a percentage of total revenues decreased to 29% in
fiscal 2000 from 35% in fiscal 1999 and 32% in fiscal 1998. The decline in the
sales and marketing and cost of services percentages in fiscal 2000 was
primarily the result of increased license revenues and productivity
improvements which reduced headcount and headcount related expenditures. The
Company's investment in research and development amounted to 10% of revenues
in fiscal 2000, 1999, and 1998. General and administrative expenses as a
percentage of revenues were 5% in fiscal 2000, 1999 and 1998. Overall,
operating income as a percentage of revenues was 30%, 21% and 17% (20% prior
to the charges for acquired in-process research and development), in fiscal
2000, 1999 and 1998, respectively.
Domestic revenues increased 17% in fiscal 2000 and 27% in fiscal 1999, while
international revenues increased 12% and 21% in fiscal 2000 and 1999,
respectively. International revenues were unfavorably affected in both fiscal
2000 and 1999 when compared to the corresponding prior year periods as a
result of the strengthening of the U.S. dollar against certain major
international currencies. International revenues expressed in local currency
increased by approximately 17% and 24% in fiscal 2000 and 1999, respectively.
Revenues from international customers were approximately 48%, 49% and 50% of
revenues in fiscal 2000, 1999 and 1998, respectively. Management expects that
the Company's international operations will continue to provide a significant
portion of total revenues. However, international revenues will be adversely
affected if the U.S. dollar continues to strengthen against certain major
international currencies.
Quarterly revenues reflect distinct seasonality. See "Quarterly Results of
Operations" below.
Revenues:
Fiscal Year 2000 Change Fiscal Year 1999 Change Fiscal Year 1998
(in thousands) ---------------- ------ ---------------- ------ ----------------
Licenses and Other...... $ 4,446,795 21% $3,688,366 15% $3,193,490
Percentage of revenues.. 43.9% 41.8% 44.7%
Services................ $ 5,683,333 11% $5,138,886 30% $3,950,376
Percentage of revenues.. 56.1% 58.2% 55.3%
Total Revenues........ $10,130,128 15% $8,827,252 24% $7,143,866
Licenses and Other Revenues. License revenues represent fees earned for
granting customers licenses to use the Company's software products. License
and other revenues also include documentation revenues and other miscellaneous
revenues, which constituted 3% of total license and other revenues in fiscal
2000, 1999 and 1998. License revenues, excluding other revenues, grew 20% and
16% in fiscal 2000 and fiscal 1999. Systems software license revenues, which
include server and development tools revenues, grew 15% and 16% in fiscal 2000
and fiscal 1999, respectively. Business applications license revenues grew 42%
and 16% in fiscal 2000 and fiscal 1999, respectively. The higher license
revenue growth rate experienced in fiscal 2000 is primarily due to stronger
demand for the Company's business applications products, and the introduction
and market positioning of new internet business application products and
versions which have stimulated demand for the Company's products.
Services Revenues. Services revenues consist of support, consulting and
education services revenues which comprised 52%, 40% and 8% of total services
revenues, respectively, during fiscal 2000. Support revenues grew 27% and 31%
in fiscal 2000 and fiscal 1999, respectively, reflecting an increase in the
overall customer installed base. The support revenue growth rate will continue
to be affected by the overall license revenue growth rates. Consulting
revenues declined 4% in fiscal 2000, as compared to a 34% growth rate in
fiscal 1999. The decline in the consulting services revenues experienced in
fiscal 2000 is primarily due to a decrease in the demand for these services as
a result of the following: i) a slowdown in the business applications market
in fiscal 1999, ii) the Company's strategy to focus only on profitable
business, iii) a push towards a partner model, leveraging third party
consulting firms who provide consulting services to the Company's customers
and iv) shorter implementation engagements for Oracle's newer generation of
products. Education revenues, which grew 4% and 12% in fiscal 2000 and fiscal
1999, respectively, were also affected by the lower business applications
growth rate experienced in fiscal 1999 and will continue to be affected by the
overall mix in the systems and applications
11
license revenue growth rates. Consulting and education revenue growth rates
are expected to increase in fiscal 2001 as compared to the prior year
corresponding period due to the increased demand for the Company's business
applications products experienced in fiscal 2000.
Operating Expenses:
Fiscal Year 2000 Change Fiscal Year 1999 Change Fiscal Year 1998
(in thousands) ---------------- ------ ---------------- ------ ----------------
Sales and Marketing..... $2,616,749 0 % $2,622,379 11% $2,371,306
Percentage of revenues.. 25.8% 29.7% 33.2%
Cost of Services........ $2,942,679 (4)% $3,064,148 35% $2,273,607
Percentage of revenues.. 29.0% 34.7% 31.8%
Research and
Development............ $1,009,882 20 % $ 841,406 17% $ 719,143
Percentage of revenues.. 10.0% 9.5% 10.1%
General and
Administrative......... $ 480,658 13 % $ 426,438 16% $ 368,556
Percentage of revenues.. 4.7% 4.8% 5.2%
Acquired In-Process
Research and
Development............ -- -- * $ 167,054
Percentage of revenues.. -- -- 2.3%
- --------
*Not meaningful
International expenses were favorably affected in both fiscal 2000 and fiscal
1999 when compared to the corresponding prior year periods due to the
strengthening of the U.S. dollar against certain major international
currencies. The net impact on operating margins, however, was unfavorable,
since the negative effect on revenues was greater than the positive effect on
expenses.
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 channels as well. Sales and marketing expenses as a
percentage of both total revenues and license revenues decreased in both
fiscal 2000 and fiscal 1999 as compared to the corresponding prior year
periods. As a percentage of license and other revenues, sales and marketing
expenses decreased to 59% in fiscal 2000 from 71% in fiscal 1999 and 74% in
1998. These decreases were primarily related to increased license revenues and
productivity improvements which favorably affected headcount and headcount
related expenditures.
Cost of Services. The cost of providing services consists largely of
consulting, support and education personnel expenses. As a percentage of
services revenues, cost of services decreased to 52% in fiscal 2000 from 60%
in fiscal 1999. The decrease in cost of services as a percentage of services
revenues in fiscal 2000 was due primarily to support revenues, which have
relatively higher margins, constituting a higher percentage of total services
revenues, improved consulting utilization rates, increased productivity
efficiencies and controls over headcount and headcount related expenditures as
the Company continued to focus on margin improvement. As a percentage of
services revenues, cost of services increased to 60% in fiscal 1999 from 58%
in fiscal 1998, primarily due to lower consulting and education utilization
rates as a result of lower than anticipated revenue growth.
Research and Development Expenses. Research and development expenses were 10%
of total revenues in fiscal 2000, 1999 and 1998. Research and development
expenses increased 20% and 17% in fiscal 2000 and 1999, respectively, when
compared to corresponding prior year periods. The higher expense growth rate
in fiscal 2000 was due to planned increases in research and development
headcount in fiscal 2000. 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 remained flat at 5% in fiscal 2000, 1999 and 1998.
12
Acquired In-Process Research and Development. In the first quarter of fiscal
1998, the Company completed the acquisition of Treasury Services Corporation
("TSC") for approximately $110,000,000 in cash, and converted the outstanding
options to purchase TSC stock to options to purchase the Company's stock at a
value of approximately $8,967,000. In addition, the Company also merged its
subsidiary, Liberate Technologies ("Liberate"), previously Network Computer,
Inc., with Navio Communications, Inc. ("Navio"), a development stage company,
in a stock-for-stock exchange valued at approximately $77,000,000. Both of
these acquisitions were accounted for using the purchase method. In connection
with these acquisitions, the Company recorded acquired in-process research and
development charges of $91,500,000 for TSC and $75,554,000 for Navio. The
Company is primarily responsible for estimating the fair value of acquired in-
process research and development. There were no acquisitions involving
acquired in-process research and development charges in fiscal 2000 and 1999
(See Note 6 of Notes to Consolidated Financial Statements for further details
on acquisitions).
Overall Valuation Methodology
Independent valuations of TSC and Navio were performed and used as an aid in
determining the fair value of the identifiable assets and in allocating the
purchase price among the acquired assets, including the portion of the
purchase price attributed to acquired in-process research and development
("R&D"). Assets identified for each transaction varied slightly, but generally
included in-process R&D, developed technology, assembled workforce, installed
customer base, and goodwill. TSC and Navio are collectively referred to as the
"Acquired Companies".
The valuation techniques employed in the appraisals were designed to properly
reflect all intellectual property rights in the intangible assets, including
core technology. The value of the developed technology was derived from direct
sales of existing products including their contribution to in-process R&D. In
this way, value was properly attributed to the engineering know-how embedded
in the existing products that will be used in developmental products. The
appraisals also considered the fact that the existing know-how diminishes in
value over time as new technologies are developed and changes in market
conditions render current products and methodologies obsolete.
Assets were identified through on-site interviews with management and a review
of data provided by the Company and the Acquired Companies' management
concerning the acquired assets, technologies in development, costs necessary
to complete the in-process R&D, market potential, historical financial
performance, estimates of future performance, and the assumptions underlying
these estimates.
The following table presents the purchase price allocations associated with
these acquisitions:
TSC Navio
(in thousands) -------- -------
In-process R&D............................................ $ 91,500 $75,554
Developed Technology...................................... 11,400 --
Other Intangible Assets................................... 24,700 1,750
Installed Customer Base and Trade Names................... 7,200 --
Assembled Workforce....................................... 1,700 350
-------- -------
Total Intangible Assets................................. 136,500 77,654
Net Tangible Assets....................................... (17,533) (654)
-------- -------
Total Purchase Price.................................... $118,967 $77,000
======== =======
Purchased incomplete R&D projects were identified through extensive interviews
and detailed analysis of development plans provided by management concerning
the following:
. Uniqueness of developmental work and the costs incurred
. Critical tasks required to complete the project
. Opportunities which were expected to arise from the project
. Degree of leverage of the new technology on legacy technology
13
. Risks associated with project completion
. Assessment of types of efforts involved (hardware development & software
development)
. Length of time project was expected to be useful, and
. Timing related to completion of projects and resources allocated to
completion, including associated expenses
None of the in-process R&D value was associated with routine on-going efforts
to enhance or otherwise improve on the qualities of the existing products. The
Acquired Companies' engineers were developing advanced, next generation
technologies that involved creating product designs and disparate technologies
to form superior products. The in-process R&D value was determined by
estimating the costs to develop the purchased in-process technology into
commercially viable products, estimating the resulting net cash flows from
such projects, and discounting the net cash flows back to their present value.
Rates used to discount net cash flows ranged from 20% to 50% considering the
uncertainty surrounding the successful development of the purchased in-process
technology, the useful life of such technology, the profitability levels of
such technology, and the uncertainty of technological advances that were
indeterminable at that time.
Stage of Completion
The appraisals included the valuation of each specific R&D project underway at
the respective acquisition dates. In the months leading up to the purchases,
the Acquired Companies had made significant progress in their R&D programs.
However, due to the substantial time and effort necessary to produce these
products in accordance with functional specifications, technological
feasibility of the R&D projects had not yet been achieved. The acquired
projects included next-generation versions of TSC's product family, as well as
planned new products and technologies, and development work associated with
Navio's Internet browser software. The efforts required to develop the
purchased in-process technology of the Acquired Companies into commercially
viable products principally related to the completion of planning, designing,
prototyping, verification and testing activities that were necessary to
establish that the software could be produced to meet its design
specifications, including functions, features, and technical performance
requirements. Anticipated completion dates for the projects in-process ranged
from six to thirty-six months for TSC projects, and three to thirty-six months
for Navio projects, at which dates the Acquired Companies expected to begin
selling the developed software products. Remaining R&D expenditures were
projected to be approximately $83,000,000 through the year 2001 ($49,000,000
for TSC and $34,000,000 for Navio).
The resulting net cash flows from such projects were based on management's
estimates of product revenues, operating expenses, R&D costs, and income taxes
from such projects. The revenue projections used to value the in-process R&D
were based on estimates of relevant market sizes and growth factors, expected
trends in technology, and the nature and expected timing of new product
introductions by the Company and its competitors. The Company's projections
may ultimately prove to be incomplete or inaccurate, and unanticipated events
and circumstances are likely to occur. Therefore, no assurance can be given
that the underlying assumptions used to forecast revenues and costs to develop
such projects will transpire as estimated.
In the case of TSC, changing market requirements and evolving Internet
standards forced TSC to undertake R&D projects to re-develop its product line
using a more flexible, three-tier software architecture. If successful, these
R&D projects would provide innovative functionality that would allow TSC a
substantial market advantage over its competition. As of the acquisition date,
TSC had re-engineered the interface components between its products and
completed preliminary designs and verification of the new architecture. Costs
incurred on the in-process R&D projects over the 12 months preceding the
acquisition date were approximately $10,000,000. Costs in periods prior to the
twelve months preceeding the acquisition date, for the acquired R&D projects
were immaterial. TSC was not able to leverage its developed technology to a
large extent due to limitations in the existing software's structure that
required fundamental re-development of all its software modules.
Navio's development team had made significant technological and creative
strides in the development of its experimental Internet technologies as of
August 1997. Navio had expended in excess of $9,000,000 on the
14
acquired R&D since its inception in February 1996. As of the acquisition date,
Navio was a development stage company with minimal product revenues and large
net losses. Navio was entering the testing phase for two of its developmental
products, NC Navigator 3.0 and TV Navigator 1.1. Historical revenues
represented services and limited sales of a Netscape product sold as a test
network computer browser on an experimental basis. This product was superseded
by Navio's NC Navigator 3.0.
Alternative Future Use
Before the Company made the decision not to capitalize the value ascribed to
in-process R&D, the projects were evaluated individually to determine if
technological feasibility had been achieved and if there were any alternative
future uses. Such evaluation consisted of a specific review of the efforts,
including the overall objectives of the project, progress toward the
objectives, and uniqueness of the development efforts.
The Acquired Companies' technical activities were concentrated on the
development of new product knowledge having specific commercial objectives,
and efforts were focused on translating those applied research findings and
other scientific know-how into commercially viable software products. In the
case of TSC, the acquired R&D was related to software applications using
proprietary code and routines designed specifically for the respective
products. Likewise, Navio was developing experimental Internet technologies
for which no market existed at the time of the acquisition. Due to their
specialized nature, the in-process R&D projects had no alternative future
uses, either for re-deployment elsewhere in the business or in liquidation, in
the event the projects failed.
Continuing Efforts
The Company expects that the remaining acquired in-process R&D will be
successfully developed, however, there can be no assurance that commercial
viability of these projects will be achieved. If these projects are not
successfully developed, future revenue and profitability of the Company may be
adversely affected and the value of the intangible assets relating to the
acquisitions may become impaired. Commercial results will also be subject to
uncertain market events and risks that are beyond the Company's control, such
as trends in technology, government regulations, market size and growth, and
product introduction or other actions by competitors.
Other Income, net:
Fiscal Year 2000 Change Fiscal Year 1999 Change Fiscal Year 1998
(in thousands) ---------------- ------ ---------------- ------ ----------------
Net Investment Gains
Related to Marketable
Securities............. $6,936,955 * $24,457 * $ 4,300
Percentage of revenues.. * 0.3% 0.1%
Other Income, net....... $ 106,319 25% $84,740 1% $79,319
Percentage of revenues.. 1.0% 1.0% 1.1%
- --------
*Not meaningful
In February 1999, subsequent to the initial public offering of Oracle Japan,
the Company sold 250,000 of its existing shares of Oracle Japan's Common Stock
at approximately $99 per share resulting in a gain on sale of marketable
securities in the amount of $24,457,000.
In February 2000, Liberate Technologies ("Liberate"), issued and sold
2,890,000 shares of Common Stock at approximately $108 per share in a public
offering. Separately, the Company sold 4,274,703 shares in Liberate
Technologies, resulting in a gain on sale of marketable securities in the
amount of $431,846,000.
In April 2000, Oracle Japan issued and sold 250,000 shares of Common Stock at
approximately $772 per share in a public offering. Separately, the Company
sold 8,700,000 shares in Oracle Japan, resulting in a gain on sale of
marketable securities in the amount of $6,466,378,000.
15
In addition to the above mentioned transactions, the net investment gains
related to marketable securities include gains on sale of other marketable
securities, and the Company's equity share in the results of non-consolidated
subsidiaries.
Other income, net includes interest income and expense, foreign currency
exchange gains and losses as well as the minority interest share in the income
or loss of consolidated subsidiaries. Other income in fiscal 1998 includes the
minority interest's share of a one-time acquired research and development
charge for Navio. Excluding this credit of $25,726,000, other income for
fiscal 1998 was $53,593,000. Other income increased in both fiscal 2000 and
fiscal 1999, primarily due to increased net interest income related to higher
cash and investment balances.
Provision for Income Taxes:
Fiscal Year 2000 Change Fiscal Year 1999 Change Fiscal Year 1998
(in thousands) ---------------- ------ ---------------- ------ ----------------
Provision for Income
Taxes.................. $3,826,631 453% $692,320 35% $514,124
Percentage of revenues.. 37.8% 7.8% 7.2%
The Company's effective tax rates have historically differed from the federal
statutory rate primarily because of state taxes. See Note 10 of Notes to
Consolidated Financial Statements. The effective tax rate was 37.8% in fiscal
2000, 35% in fiscal 1999 and fiscal 1998 (excluding the effect of the acquired
research and development charges for the TSC and Navio transactions, net of
the credit of $25,726,000 for minority interest). The provision for income
taxes for fiscal 2000 includes $166,261,000 and $2,515,421,000 of taxes on the
gain on sale of marketable securities in Liberate and Oracle Japan,
respectively. Excluding these transactions, the effective tax rate for fiscal
2000 would have been 35.5%.
Net Income and Earnings Per Share:
(in thousands, except Fiscal Year 2000 Change Fiscal Year 1999 Change Fiscal Year 1998
per share data) ---------------- ------ ---------------- ------ ----------------
Net Income.............. $6,296,803 388% $1,289,758 59% $813,695
Percentage of revenues.. 62.2% 14.6% 11.4%
Earnings Per Share--
Basic.................. $ 2.22 393% $ 0.45 62% $ 0.28
Earnings Per Share--
Diluted................ $ 2.10 388% $ 0.43 61% $ 0.27
Quarterly Results of Operations
The Company believes that quarterly 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 2001. 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.
16
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 consolidated financial
statements and related notes included elsewhere herein.
Fiscal 2000 Quarter Ended
--------------------------------------------
February
(in thousands, except per August 31 November 30 29 May 31
share data) ---------- ----------- ---------- ----------
Revenues..................... $1,984,517 $2,321,883 $2,449,418 $3,374,310
Operating income............. $ 345,863 $ 576,065 $ 769,721 $1,388,511
Net income................... $ 236,736 $ 384,484 $ 763,176 $4,912,407
Earnings per share--basic.... $ 0.08 $ 0.13 $ 0.27 $ 1.74
Earnings per share--diluted.. $ 0.08 $ 0.13 $ 0.25 $ 1.63
Shares outstanding--basic.... 2,860,920 2,858,890 2,818,939 2,818,928
Shares outstanding--diluted.. 2,982,402 3,006,300 2,998,189 3,004,793
Fiscal 1999 Quarter Ended
--------------------------------------------
February
(in thousands, except per August 31 November 30 28 May 31
share data) ---------- ----------- ---------- ----------
Revenues..................... $1,749,110 $2,055,944 $2,078,919 $2,943,278
Operating income............. $ 277,837 $ 382,067 $ 406,679 $ 806,299
Net income................... $ 195,002 $ 274,076 $ 293,261 $ 527,420
Earnings per share--basic.... $ 0.07 $ 0.09 $ 0.10 $ 0.18
Earnings per share--diluted.. $ 0.07 $ 0.09 $ 0.10 $ 0.18
Shares outstanding--basic.... 2,918,682 2,891,520 2,880,704 2,873,796
Shares outstanding--diluted.. 2,967,447 2,949,810 2,990,922 2,965,618
Liquidity and Capital Resources
Fiscal Year Ended May 31,
--------------------------------------------------
2000 Change 1999 Change 1998
(in thousands) ----------- ------ ---------- ------ ----------
Working capital......... $ 5,021,096 109% $2,400,851 31% $1,838,885
Cash and cash
investments............ 7,871,998 180% 2,812,311 34% 2,105,710
Cash provided by
operating activities... 2,923,564 62% 1,807,099 12% 1,610,279
Cash provided by (used
for) investing
activities............. 6,893,057 * (802,244) (13%) (918,221)
Cash used for financing
activities............. (4,183,236) 763% (484,713) 71% (282,846)
- --------
* Not meaningful
Working capital increased in fiscal 2000 and fiscal 1999 over the
corresponding prior year periods, due primarily to increased cash flow from
operations and cash received from the sale of Oracle Japan and Liberate Common
Stock (See Note 7 of Notes to Consolidated Financial Statements), partially
offset by cash used for the repurchase of the Company's Common Stock and cash
used for other long-term investing activities.
The Company generated higher positive cash flows from operations in fiscal
2000 and fiscal 1999 over the corresponding prior year periods due to
increased operating profitability.
Cash provided by investing activities increased in fiscal 2000 as compared to
the corresponding prior year period primarily due to cash generated from the
sale of Oracle Japan and Liberate Common Stock, as well as changes in the
levels and maturities of cash investments and lower investments in capital
expenditures. The Company expects to continue to invest in capital and other
assets to support its growth.
The Company's Board of Directors has approved the repurchase of up to
548,000,000 shares of Common Stock to reduce the dilutive effect of the
Company's stock plans. Pursuant to this repurchase program, the Company has
repurchased a total of 467,182,575 shares for approximately $7,725,489,000. In
fiscal 2000, 1999 and 1998,
17
the Company purchased 145,370,927, 109,313,038, and 55,338,318 shares of the
Company's Common Stock, respectively. The amounts paid were $5,306,771,000,
$1,086,953,000 and $489,823,000, in fiscal 2000, 1999 and 1998, respectively.
The Company used cash flow from operations and investing activities to
repurchase the Company's Common Stock and to invest in working capital and
other assets to support its growth.
The Company, as part of its authorized stock repurchase program, has sold put
warrants and purchased call options through private placements with
institutional investors. The transactions were exempt under Section 4(2) of
the Securities Act of 1933. The put warrants, if exercised, would entitle the
holder to sell one share of Common Stock to the Company at a specified price.
Similarly, the call options entitle the Company to buy, on a specified day,
one share of the Company's Common Stock at a specified price. As of May 31,
2000, the Company has a maximum potential obligation under the put warrants to
buy back 4,000,000 shares of its Common Stock for a price of $9.70 per share
for an aggregate price of approximately $38,800,000. The put warrants will
expire at various dates through October 2000. As of May 31, 2000, the Company
had the right to purchase, under the call options, up to a maximum of
2,000,000 shares of its Common Stock at a price of $13.03 per share for an
aggregate price of approximately $26,060,000. The call options will expire at
various dates through October 2000. During fiscal 2000, the Company exercised
call options for 38,136,000 shares at an average price of $10.28, which are
included in the stock repurchases discussed above.
During fiscal 1997, the Company issued $150,000,000 in 6.72% Senior Notes due
in the year 2004 and $150,000,000 in 6.91% Senior Notes due in the year 2007.
The Senior Notes are unsecured general obligations of the Company that rank on
parity with all other unsecured and unsubordinated indebtedness of the Company
that may be outstanding. At May 31, 2000, the Company also had other
outstanding debt of approximately $3,461,000, primarily in the form of other
notes payable and capital leases.
The Company had no significant commitments for capital expenditures at May 31,
2000. 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, 2001.
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 these risks.
Revenue Growth and Economic Conditions. The revenue growth and profitability
of the Company's business depends on the overall demand for computer software
and services, particularly in the product segments in which the Company
competes. Because the Company's sales are primarily to major corporate and
government customers, the Company's business also depends on general economic
and business conditions. A softening of demand for computer software caused by
a weakening of the economy may result in decreased revenues or lower growth
rates. In particular, one of the challenges the Company continues to face in
promoting future growth in license revenues is the successful refocusing of
its marketing and sales efforts to the CRM and Internet procurement areas of
its applications business. There can be no assurances that the Company will be
able to effectively promote future license revenue growth in its applications
business.
In October 1997, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") No. 97-2, "Software Revenue
Recognition" which superseded SOP No. 91-1. SOP No. 97-2 was effective for the
Company's fiscal year beginning June 1, 1998, as amended by SOP No. 98-4 and
SOP No. 98-9, and provides guidance on applying generally accepted accounting
principles for software revenue recognition transactions. Based on the
Company's interpretation of the requirements of SOP No. 97-2, as amended,
application of this statement did not and is not expected to have a material
impact on the Company's revenue. In December 1999, the Securities and Exchange
Commission issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue
Recognition in Financial Statements" which provides further revenue
recognition guidance. The accounting profession continues to review certain
provisions of SOP No. 97-2 and SAB 101 with the objective of providing
additional guidance on implementing its provisions. Depending upon the outcome
of
18
these reviews and the issuance of implementation guidelines and
interpretations, the Company may be required to change its revenue recognition
policies and business practices, and such changes could have a material
adverse effect on the Company's business, results of operations or financial
position.
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 expenditures 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. The Company's inability to port to or run on new or increasingly
popular operating systems, or the Company's failure to successfully enhance
and improve its products in a timely manner, and position and/or price its
products, could have a material adverse effect on the Company's business,
results of operations or financial position.
Significant undetected errors or delays in new products or new versions of a
product, especially in the area of CRM, may affect market acceptance of the
Company's products and could have a material adverse effect on the Company's
business, results of operations or financial position. 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, this could have a material adverse
effect on the Company's business, results of operations or financial position.
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 directly or indirectly market in the future
are in various stages of development.
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 markets where certain vendors offer deep discounts in an
effort to recapture or gain market share or to sell other software or hardware
products. Moreover, the Company has recently changed its pricing model and any
broadly based changes to the Company's prices and pricing policies could lead
to a decline or delay in sales as the Company's sales force and its customers
adjust to the new pricing policies. The bundling of software products for
promotional purposes or as a long-term pricing strategy or guarantees of
product implementations 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. Changes in the customer's use of the Company's
products could also result in lower license revenues if the Company's pricing
model is not adapted to such usage. Shifts toward the use of operating systems
on which the Company experiences relatively greater price competition could
result in lower average license prices, thereby reducing license revenues for
the Company. Additionally, while the distribution of applications through
application service providers may provide a new market for the Company's
products, these new distribution methods could also reduce the price paid for
the Company's products or adversely affect other sales of the Company's
products. Any such price reductions and resulting lower license revenues could
have a material adverse effect on the Company's business, results of
operations or financial position if the Company cannot offset these price
reductions with a corresponding increase in sales volumes or lower spending.
Hiring and Retention of Employees. The Company's continued growth and success
depend to a significant extent on the continued service of its 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 becoming more intense due to lower overall unemployment
rates, the boom in information technology spending and private companies that
can offer equity incentives that provide the potential of greater compensation
in connection with an initial public offering. Accordingly, the Company
expects to experience increased compensation costs that may not be offset
through either improved productivity or higher prices. There can be no
assurances that the Company will be successful in continuously recruiting new
personnel and in retaining
19
existing personnel. In general, the Company does not have long-term employment
or non-competition agreements with its employees. 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
continued growth of the Company.
Competitive Environment. The computer software industry is an intensely
competitive industry with several large vendors that develop and market
databases, application development tools, business applications and business
intelligence products. Certain of these vendors have significantly greater
financial and technical resources than the Company. The introduction of new
competitive products into one or more of the Company's various markets, the
addition of new functionality into an existing competitive product or the
acquisition by one of the Company's competitors of a product could have a
material adverse effect on the Company's business, results of operations or
financial position. In addition, new distribution methods (e.g. electronic
channels) and opportunities presented by the Internet and electronic commerce
have removed many of the barriers to entry historically faced by small and
start-up companies in the software industry. The Company expects to face
increasing competition in the various markets in which it competes.
International Sales. A substantial portion of the Company's revenues is
derived from international sales and is therefore subject to the related
risks, 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, longer payment cycles and
volatilities of exchange rates in certain countries. There can be no
assurances that the Company will be able to successfully address each of these
challenges in the near term. 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 adversely affected revenues and
operating results in the second, third and fourth quarters of fiscal 2000,
particularly in Europe, and will continue to do so throughout fiscal 2001 if
the U.S. dollar strengthens relative to foreign currencies.
Foreign currency transaction gains and losses are primarily related to
sublicense fee and other 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 major currencies. 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.
Uneven Patterns of Quarterly Operating Results. The Company's revenues in
general, and its license revenues in particular, are relatively difficult to
forecast and vary from quarter to quarter due to various factors, including
the (i) relatively long sales cycles for the Company's products, (ii) size and
timing of individual license transactions, the closing of which tend to be
delayed by customers until the end of a fiscal quarter as a negotiating
tactic, (iii) introduction of new products or product enhancements by the
Company or its competitors, (iv) potential for delay or deferral of customer
implementations of the Company's software, (v) changes in customer budgets,
(vi) seasonality of technology purchases and other general economic
conditions, and (vii) changes in the pricing policies of the Company or its
competitors. 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 have historically caused and could
cause quarterly revenues and net income to fall significantly short of
anticipated levels.
The Company's 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.
20
Management of Growth. The Company has a history of rapid growth. However, the
Company has experienced slowing growth rates in a number of areas, including
consulting and education services. The Company's future operating results will
depend on management's ability to manage growth, continuously hire and retain
significant numbers of qualified employees, accurately forecast revenues and
control expenses. A 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
position.
Sales Force Restructuring. The Company historically has relied heavily on its
direct sales force. For the past several years, the Company has restructured
or made other adjustments to its sales force at least once a year. These
changes have generally resulted in a temporarily lack of focus and reduced
productivity by the Company's sales force that may have affected revenues in a
quarter. There can be no assurances that the Company will not continue to
restructure its sales force or that the related transition issues associated
with restructuring the sales force will not recur.
Future Acquisitions. As part of its business strategy, the Company has made
and expects to continue to make acquisitions of, or significant investments
in, businesses that offer complementary products, services and technologies.
Any acquisitions or investments will be accompanied by the risks commonly
encountered in acquisitions of businesses. Such risks include, among other
things, the possibility that the Company pays much more than the acquired
company or assets are worth, the difficulty of assimilating the operations and
personnel of the acquired businesses, the potential product liability
associated with the sale of the acquired company's products, the potential
disruption of the Company's ongoing business, the distraction of management
from the Company's business, the inability of management to maximize the
financial and strategic position of the Company, 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 position,
particularly in the case of a larger acquisition. 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 in connection with any such future
acquisitions.
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 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.
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 ending May 31, 2001 include
significant investments in software research and development and related
product opportunities from which significant revenues are not anticipated for
several years.
Uncertainty of Emerging Areas. Despite tremendous growth in emerging areas
such as the Internet, on-line services and electronic commerce, the impact on
the Company of this growth is uncertain. There can be no assurance 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 assurance 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 expanded its technology
into a number of new business areas to foster long-term growth, including
exchanges for a number of business procurement needs, Internet/electronic
commerce, interactive media, on-line business services and Internet computing.
These areas are relatively 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.
21
The success of Internet computing and, in particular, the Company's current
Internet computing software products is difficult to predict because Internet
computing represents a method of computing that is new to the entire computer
industry. The successful introduction of Internet computing to the market will
depend in large measure on (i) the lower cost of ownership of Internet
computing relative to client/server architecture, (ii) the ease of use and
administration relative to client/server architecture, and (iii) how hardware
and software vendors choose to compete in this market. There can be no
assurances that sufficient numbers of vendors will undertake this commitment,
that the market will accept Internet computing or that Internet computing will
generate significant revenues for the Company. See "New Products."
Sales Forecasts. The Company uses a "pipeline" system, a common industry
practice, to forecast sales and trends in the Company's business. The
Company's sales personnel monitor the status of all proposals, such as the
date when they estimate that a customer will make a purchase decision and the
potential dollar amount of the sale. Management aggregates these estimates
periodically in order to generate a sales pipeline. Management compares the
pipeline at various points in time to look for trends in the Company's
business. While this pipeline analysis may provide some guidance to management
in business planning and budgeting, these pipeline estimates are necessarily
speculative and may not correlate to revenues in a particular quarter or over
a longer period of time. A variation in the conversion of the pipeline into
contracts or in the pipeline itself could cause the Company to improperly plan
or budget and thereby adversely affect its business or results of operations.
Enforcement of the Company's Intellectual Property Rights. The Company relies
on a combination of copyright, patent, trademark, trade secrets,
confidentiality procedures and contractual procedures to protect its
intellectual property rights. Despite the Company's efforts to protect its
intellectual property 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. There can also be no assurances that the Company's
intellectual property rights would survive a legal challenge to their validity
or provide significant protection for the Company. 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.
Possibility of Infringement Claims. The Company from time to time receives
notices from third parties claiming infringement by the Company's products of
third party patent and other intellectual property 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 grow and
the functionality of products overlaps. In addition, the Company expects to
receive more patent infringement claims as companies increasingly seek to
patent their software, especially in light of recent developments in the law
that extend the ability to patent software. Regardless of its merit,
responding to any such claim could be time-consuming, result in costly
litigation and require the Company to enter into royalty and licensing
agreements which may not be offered or 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 position 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 or its
competitors' results of operations, changes in prices of the Company's or its
competitors' products and services, changes in 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.
22
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
Disclosures About Market Risk
Interest Rate Risk. The Company's exposure to market risk for changes in
interest rates relates primarily to the Company's investment portfolio. The
Company places its investments with high credit quality issuers and, by
policy, limits the amount of credit exposure to any one issuer. As stated in
its policy, the Company is averse to principal loss and seeks to preserve its
invested funds by limiting default risk, market risk, and reinvestment risk.
The Company mitigates default risk by investing in only high credit quality
securities that it believes to be low risk and by positioning its portfolio to
respond appropriately to a significant reduction in a credit rating of any
investment issuer or guarantor. The portfolio includes only marketable
securities with active secondary or resale markets to ensure portfolio
liquidity.
The table below presents the principal amount, related weighted average
interest rates and maturities for the Company's investment portfolio. Short
term and long term investments are all in fixed rate instruments. The
principal amount approximates fair value at May 31, 2000.
Table of Investment Securities:
Average
Principal Amount Interest Rate
---------------- -------------
Cash and cash equivalents..................... $7,429,206 5.84%
Short term investment (0-1 years)............. 332,792 5.57%
Long term investment (1-2 years).............. 110,000 5.89%
----------
Total cash and investment securities........ $7,871,998
==========
Foreign Currency Risk. The Company transacts business in various foreign
currencies and the Company has established a foreign currency hedging program,
utilizing foreign currency forward exchange contracts (forward contracts) to
hedge certain foreign currency transaction exposures. Under this program,
increases or decreases in the Company's foreign currency transactions are
offset by gains and losses on the forward contracts, so as to mitigate the
possibility of foreign currency transaction gains and losses. The Company does
not use forward contracts for trading purposes. All foreign currency
transactions and all outstanding forward contracts are marked-to-market at the
end of the period with unrealized gains and losses included in other income
(expense). As the foreign currency transactions are realized as cash flows
against the maturing forward contracts, the realized gains and losses are
recorded in net income as a component of other income (expense). The Company's
ultimate realized gain or loss with respect to currency fluctuations will
depend on the currency exchange rates and other factors in effect as the
contracts mature. The unrealized gain (loss) on the outstanding forward
contracts at May 31, 2000 was immaterial to the Company's consolidated
financial statements.
23
The Company also hedges the net assets of certain of its international
subsidiaries. The net gains on equity hedges are recorded as a component of
accumulated foreign currency translation adjustments in stockholders' equity.
The Company's outstanding forward contracts and equity hedges as of May 31,
2000 are presented in the tables below.
The tables present the notional amounts (at contract exchange rates) and the
weighted average contractual foreign currency exchange rates. Notional
weighted average exchange rates are quoted using market conventions where the
currency is expressed in currency units per U.S. dollar, except for Australia,
Ireland, New Zealand and the UK. All of these forward contracts and equity
hedges mature in ninety days or less as of May 31, 2000.
Table of Forward Contracts:
Notional
Weighted Average
Functional Currency Notional Amount Exchange Rate
------------------- --------------- ----------------
Australian Dollar......................... $ 19,246,725 0.57
Canadian Dollar........................... 84,544,606 1.50
Danish Krone.............................. 4,792,673 7.97
Euro...................................... 112,297,200 0.94
Irish Punt................................ 2,107,298 1.17
Japanese Yen.............................. 1,907,611 105.32
New Zealand Dollar........................ 2,490,455 0.45
Norwegian Krone........................... 7,331,674 8.92
Singapore Dollar.......................... 9,372,999 1.72
Swedish Krona............................. 21,143,112 8.96
Swiss Franc............................... 6,692,943 1.68
Thai Baht................................. 13,117,284 38.88
UK Pound.................................. 64,361,745 1.48
------------
$349,406,325
============
Table of Equity Hedges:
Notional
Weighted Average
Functional Currency Notional Amount Exchange Rate
------------------- --------------- ----------------
Japanese Yen............................. $29,893, 925 103.70
Singapore Dollars........................ 16,843,972 1.69
Swedish Krona............................ 4,613,610 8.67
UK Pound................................. 14,210,550 1.58
------------
$65,562,057
============
Equity Price Risk. The Company, as part of its authorized stock repurchase
program, has sold put warrants and purchased call options through private
placements with institutional investors. The transactions were exempt under
Section 4(2) of the Securities Act of 1933. The put warrants, if exercised,
would entitle the holder to sell one share of Common Stock to the Company at a
specified price. Similarly, the call options entitle the Company to buy, on a
specified day, one share of the Company's Common Stock at a specified price.
As of May 31, 2000, the Company has a maximum potential obligation under the
put warrants to buy back 4,000,000 shares of its Common Stock for a price of
$9.70 per share for an aggregate price of approximately $38,800,000. The put
warrants will expire at various dates through October 2000.
As of May 31, 2000, the Company had the right to purchase, under the call
options, up to a maximum of 2,000,000 shares of its Common Stock at a price of
$13.03 per share for an aggregate price of approximately $26,060,000. The call
options will expire at various dates through October 2000.
24
During fiscal 2000, the Company exercised call options for 38,136,000 shares at
an average price of $10.28.
The table below presents the shares, the weighted average strike prices, the
contract amount and the estimated fair value of the put warrants and call
options at May 31, 2000:
Estimated
2000 Fair
Maturity Value
(in thousands, except per share data) -------- ---------
Put Warrants:
Shares.................................................. 4,000
Weighted average stock price............................ $ 9.70
Contract amount......................................... $38,800 $ 0
Call Options:
Shares.................................................. 2,000
Weighted average stock price............................ $ 13.03
Contract amount......................................... $26,060 $118,410
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.
25
PART III
Item 10. Directors and Executive Officers of the Registrant
The information regarding directors and executive officers 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 16, 2000.
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 16, 2000. 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 16, 2000 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 16, 2000.
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 16, 2000.
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.............................. 29
Consolidated Financial Statements:
Balance Sheets as of May 31, 2000 and 1999.......................... 30
Statements of Operations for the years ended May 31, 2000, 1999 and
1998............................................................... 31
Statements of Stockholders' Equity for the years ended May 31, 2000,
1999 and 1998...................................................... 32
Statements of Cash Flows for the years ended May 31, 2000, 1999 and
1998............................................................... 33
Notes to Consolidated Financial Statements.......................... 34
(a) 2. Financial Statement Schedules
The following financial statement schedule is filed as a part of this report:
Page
----
II Valuation and Qualifying Accounts.................................. 54
All other schedules are omitted because they are not required or the required
information is shown in the financial statements or notes thereto.
26
(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(13) Restated Certificate of Incorporation of the Company filed with the
Delaware Secretary of State on January 11, 2000.
3.02 The Company's Bylaws, as adopted October 30, 1986, and amendments
dated January 13, 1989 and December 3, 1990.
3.03(1) Specimen Certificate of Registrant's Common Stock.
3.04 Certificate of Amendment of Restated Certificate of Incorporation
of the Company filed with the Delaware Secretary of State on June
5, 2000.
4.01(8) Indenture between Oracle Corporation and State Street Bank and
Trust Company of California, N.A., dated February 24, 1997.
4.02(9)* Oracle Corporation 1993 Deferred Compensation Plan, as amended and
restated as of January 1, 1998.
4.03(10) Amended and Restated Preferred Shares Rights Agreement, dated March
31, 1998.
4.04(11) Amendment Number One to the Amended and Restated Preferred Shares
Rights Agreement, dated March 22, 1999.
10.01(2)* The Company's Stock Option Plan (1985), as amended to date, and
related documents.
10.02(3)* 1990 Directors' Stock Option Plan, as adopted July 30, 1990, and
related documents.
10.03(4)* 1990 Executive Officers' Stock Option Plan, as adopted October 15,
1990, and related documents.
10.04(5)* Oracle Systems Corporation Employee Stock Purchase Plan (1992), as
adopted August 24, 1992.
10.05(6)* 1993 Directors' Stock Option Plan, as adopted May 24, 1993.
10.06(7)* Amendment to 1993 Directors' Stock Option Plan, as adopted May 31,
1994.
10.07(12)* Amendment to the Employee Stock Purchase Plan (1992).
10.08(13)* The 1991 Long-Term Equity Incentive Plan, as amended through
October 18, 1999.
10.09* Amendment to the 1991 Long-Term Equity Incentive Plan, dated
January 7, 2000.
10.10* Amendment to the 1991 Long-Term Equity Incentive Plan, dated June
2, 2000.
21.01 Subsidiaries of the Registrant.
23.01 Consent of Arthur Andersen LLP.
27.01 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 10-K filed on August 27, 1990.
(4) Incorporated by reference to the Form 10-K filed on August 28, 1991.
(5) Incorporated by reference to the Form 10-Q filed on January 7, 1993.
(6) Incorporated by reference to the Form 10-K filed on July 22, 1993.
(7) Incorporated by reference to the Form 10-K filed on July 27, 1994.
(8) Incorporated by reference to the Form 10-Q filed on April 10, 1997.
27
(9) Incorporated by reference to the Form S-8 filed on December 10, 1997.
(10) Incorporated by reference to the Form 8-A/A filed on March 31, 1998.
(11) Incorporated by reference to the Form 8-A/A filed on March 22, 1999.
(12) Incorporated by reference to the Form 10-K filed on August 30, 1999.
(13) Incorporated by reference to the Form 10-Q filed on January 14, 2000.
(b) Reports on Form 8-K
None.
28
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, 2000 and
1999, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended May 31,
2000. 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 auditing standards generally
accepted in the United States. 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, 2000 and 1999, and the results of their operations
and their cash flows for each of the three years in the period ended May 31,
2000, in conformity with accounting principles generally accepted in the
United States.
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 16, 2000
29
ORACLE CORPORATION
CONSOLIDATED BALANCE SHEETS
As of May 31, 2000 and 1999
(in thousands, except share data)
May 31,
----------------------
2000 1999
----------- ----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents............................ $ 7,429,206 $1,785,715
Short-term cash investments.......................... 332,792 777,049
Trade receivables, net of allowance for doubtful
accounts of $272,203 in 2000 and $217,096 in 1999... 2,533,964 2,238,204
Other receivables.................................... 256,203 240,792
Prepaid and refundable income taxes.................. 212,829 299,670
Prepaid expenses and other current assets............ 118,340 105,844
----------- ----------
Total current assets............................... 10,883,334 5,447,274
LONG-TERM CASH INVESTMENTS............................. 110,000 249,547
PROPERTY, net.......................................... 934,455 987,482
INTANGIBLE AND OTHER ASSETS............................ 1,148,990 575,351
----------- ----------
Total assets....................................... $13,076,779 $7,259,654
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable and current maturities of long-term
debt................................................ $ 2,691 $ 3,638
Accounts payable..................................... 287,495 283,896
Income taxes payable................................. 2,821,776 277,700
Accrued compensation and related benefits............ 725,860 693,525
Customer advances and unearned revenues.............. 1,133,482 1,007,149
Value added tax and sales tax payable................ 165,304 128,774
Other accrued liabilities............................ 725,630 651,741
----------- ----------
Total current liabilities.......................... 5,862,238 3,046,423
LONG-TERM DEBT......................................... 300,770 304,140
OTHER LONG-TERM LIABILITIES............................ 186,178 77,937
DEFERRED INCOME TAXES.................................. 266,130 135,887
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, 11,000,000,000 shares;
outstanding: 2,807,572,142 shares in 2000 and
2,862,267,330 shares in 1999........................ 3,112,126 1,475,763
Retained earnings.................................... 3,343,857 2,266,915
Accumulated other comprehensive income (loss)........ 5,480 (47,411)
----------- ----------
Total stockholders' equity......................... 6,461,463 3,695,267
----------- ----------
Total liabilities and stockholders' equity......... $13,076,779 $7,259,654
=========== ==========
See notes to consolidated financial statements.
30
ORACLE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended May 31, 2000, 1999 and 1998
(in thousands, except per share data)
Year Ended May 31,
-----------------------------------
2000 1999 1998
----------- ---------- ----------
REVENUES
Licenses and other...................... $ 4,446,795 $3,688,366 $3,193,490
Services................................ 5,683,333 5,138,886 3,950,376
----------- ---------- ----------
Total revenues........................ 10,130,128 8,827,252 7,143,866
----------- ---------- ----------
OPERATING EXPENSES
Sales and marketing..................... 2,616,749 2,622,379 2,371,306
Cost of services........................ 2,942,679 3,064,148 2,273,607
Research and development................ 1,009,882 841,406 719,143
General and administrative.............. 480,658 426,438 368,556
Acquired in-process research and
development............................ -- -- 167,054
----------- ---------- ----------
Total operating expenses.............. 7,049,968 6,954,371 5,899,666
----------- ---------- ----------
OPERATING INCOME.......................... 3,080,160 1,872,881 1,244,200
----------- ---------- ----------
OTHER INCOME (EXPENSE)
Net investment gains related to
marketable securities.................. 6,936,955 24,457 4,300
Interest income......................... 141,904 118,486 85,986
Interest expense........................ (18,894) (21,424) (16,658)
Other................................... (16,691) (12,322) 9,991
----------- ---------- ----------
Total other income (expense).......... 7,043,274 109,197 83,619
----------- ---------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES.. 10,123,434 1,982,078 1,327,819
Provision for income taxes.............. 3,826,631 692,320 514,124
----------- ---------- ----------
NET INCOME................................ $ 6,296,803 $1,289,758 $ 813,695
=========== ========== ==========
EARNINGS PER SHARE
Basic................................... $ 2.22 $ 0.45 $ 0.28
Diluted................................. $ 2.10 $ 0.43 $ 0.27
SHARES OUTSTANDING
Basic................................... 2,839,419 2,891,176 2,932,798
Diluted................................. 2,997,921 2,968,450 2,999,176
See notes to consolidated financial statements.
31
ORACLE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended May 31, 2000, 1999 and 1998
(in thousands, except share data)
Common Stock and
Additional Paid in
Capital Accumulated
------------------------- Other
Comprehensive Number of Retained Comprehensive
Income Shares Amount Earnings Income (Loss) Total
------------- ------------- ---------- ----------- ------------- -----------
BALANCES, May 31, 1997.. $ -- 2,933,910,958 $ 696,018 $ 1,686,170 $(12,476) $ 2,369,712
Common stock issued
under stock option
plans.................. -- 25,107,132 72,432 -- -- 72,432
Common stock issued
under stock purchase
plan................... -- 16,329,766 131,860 -- -- 131,860
Repurchase of common
stock.................. -- (55,338,318) (16,280) (473,543) -- (489,823)
Equity adjustments
related to
acquisitions........... -- -- 47,350 -- -- 47,350
Effect of common stock
dividend............... -- -- 3,266 (3,266) -- --
Tax benefits from stock
plans.................. -- -- 41,629 -- -- 41,629
Foreign currency
translation
adjustments............ (29,325) -- -- -- (29,325) (29,325)
Unrealized gain/(loss)
on equity securities... 28 -- -- -- 28 28
Net income.............. 813,695 -- -- 813,695 -- 813,695
----------
Comprehensive income.... $ 784,398 -- -- -- -- --
========== ------------- ---------- ----------- -------- -----------
BALANCES, May 31, 1998.. -- 2,920,009,538 $ 976,275 $ 2,023,056 $(41,773) $ 2,957,558
Common stock issued
under stock option
plans.................. -- 33,511,560 159,754 -- -- 159,754
Common stock issued
under stock purchase
plan................... -- 18,059,270 146,668 -- -- 146,668
Repurchase of common
stock.................. -- (109,313,038) (45,859) (1,041,094) -- (1,086,953)
Effect of common stock
dividend............... -- -- 4,805 (4,805) -- --
Equity adjustments
related to subsidiary
equity transactions.... -- -- 178,120 -- -- 178,120
Tax benefits from stock
plans.................. -- -- 56,000 -- -- 56,000
Foreign currency
translation
adjustments............ (5,614) -- -- -- (5,614) (5,614)
Unrealized gain/(loss)
on equity securities... (24) -- -- -- (24) (24)
Net income.............. 1,289,758 -- -- 1,289,758 -- 1,289,758
----------
Comprehensive income.... $1,284,120 -- -- -- -- --
========== ------------- ---------- ----------- -------- -----------
BALANCES, May 31, 1999.. -- 2,862,267,330 $1,475,763 $ 2,266,915 $(47,411) $ 3,695,267
Common stock issued
under stock option
plans.................. -- 50,410,940 298,118 -- -- 298,118
Common stock issued
under stock purchase
plan................... -- 13,028,606 185,613 -- -- 185,613
Exercise of warrants.... -- 27,000,000 457,866 -- -- 457,866
Repurchase of common
stock.................. -- (145,370,927) (101,071) (5,205,700) -- (5,306,771)
Effect of common stock
dividend............... -- -- 14,161 (14,161) -- --
Equity adjustments
related to subsidiary
equity transactions.... -- -- 288,676 -- -- 288,676
Tax benefits from stock
plans.................. -- -- 493,000 -- -- 493,000
Foreign currency
translation
adjustments............ (720) -- -- -- (720) (720)
Unrealized gain/(loss)
on equity securities... 53,611 -- -- -- 53,611 53,611
Net income.............. 6,296,803 -- -- 6,296,803 -- 6,296,803
==========
Comprehensive income.... $6,349,694 -- -- -- -- --
========== ------------- ---------- ----------- -------- -----------
BALANCES, May 31, 2000.. 2,807,335,949 $3,112,126 $ 3,343,857 $ 5,480 $ 6,461,463
============= ========== =========== ======== ===========
See notes to consolidated financial statements.
32
ORACLE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended May 31, 2000, 1999 and 1998
(in thousands)
Year Ended May 31,
-------------------------------------
2000 1999 1998
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................. $ 6,296,803 $ 1,289,758 $ 813,695
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization......... 314,315 319,823 286,318
Amortization of purchase price in
excess of net tangible assets
acquired............................. 76,610 55,561 42,245
Write-off of acquired in-process
research and development............. -- -- 167,054
Provision for doubtful accounts....... 135,312 96,989 106,915
Gain on sale of marketable
securities........................... (6,936,955) (24,457) (4,300)
Changes in assets and liabilities, net
of effects of acquisitions:
Increase in trade receivables........ (421,513) (486,431) (464,994)
(Increase) decrease in prepaid and
refundable income taxes............. 87,398 (39,683) 10,370
Increase in other current assets..... (27,578) (62,856) (52,301)
Increase in accounts payable......... 2,839 45,098 58,680
Increase in income taxes payable..... 3,036,143 153,376 12,640
Increase in customer advances and
unearned revenues................... 122,145 134,317 292,323
Increase in accrued compensation and
related benefits.................... 29,758 154,465 159,127
Increase in value added tax and sales
tax payable......................... 35,646 10,076 2,534
Increase in other accrued
liabilities......................... 81,167 136,703 123,832
Increase in long-term liabilities.... 108,202 3,993 33,055
Increase (decrease) in deferred
income taxes........................ (16,728) 20,367 23,086
----------- ----------- -----------
Net cash provided by operating
activities............................. 2,923,564 1,807,099 1,610,279
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of cash investments.......... (886,571) (1,250,501) (1,196,066)
Proceeds from maturities of cash
investments........................... 1,470,375 1,055,938 803,402
Capital expenditures................... (263,443) (346,592) (328,358)
Proceeds from sale of marketable
securities............................ 7,047,298 24,969 6,268
Increase in intangible and other assets
net of cash acquired in acquisitions.. (474,602) (286,058) (203,467)
----------- ----------- -----------
Net cash provided by (used for)
investing activities................... 6,893,057 (802,244) (918,221)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (payments) under notes
payable and long-term debt............ (4,757) 17 2,685
Proceeds from common stock issued...... 941,597 306,422 204,292
Proceeds from subsidiaries' stock
offerings............................. 186,695 295,801 --
Repurchase of common stock............. (5,306,771) (1,086,953) (489,823)
----------- ----------- -----------
Net cash used for financing activities.. (4,183,236) (484,713) (282,846)
----------- ----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH................................... 10,106 (8,108) (25,693)
----------- ----------- -----------
Net increase in cash and cash
equivalents........................... 5,643,491 512,034 383,519
CASH AND CASH EQUIVALENTS
Beginning of year...................... 1,785,715 1,273,681 890,162
----------- ----------- -----------
End of year............................ $ 7,429,206 1,785,715 $ 1,273,681
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Common stock dividend.................. $ 14,161 $ 4,805 $ 3,266
=========== =========== ===========
See notes to consolidated financial statements.
33
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2000
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
Oracle develops, manufactures, markets and distributes computer software
products with a wide variety of uses, including database management,
application development, business intelligence and Internet business
applications. The Company also offers consulting, education, support and
hosting 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 generally translated into United States dollars
using current exchange rates, and the effects of foreign currency translation
adjustments are included as a component of stockholders' equity.
The Company hedges certain portions of its exposure to foreign currency
fluctuations through a variety of strategies and financial instruments. The
primary hedging instruments are forward foreign exchange contracts. At May 31,
2000, the Company had approximately $349,406,000 of forward foreign exchange
contracts outstanding as hedges of intercompany accounts of certain of its
international subsidiaries. An additional $65,562,000 of forward contracts
were outstanding as hedges of net assets of certain of its international
subsidiaries. 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.
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. Net foreign exchange
transaction losses and expenses were $9,413,000, $5,466,000 and $8,752,000 in
fiscal 2000, 1999, and 1998, respectively, and are included in other income
and expense. Net gains (losses) on equity hedges were ($1,964,000),
($979,000), and $6,668,000 in fiscal 2000, 1999, and 1998, respectively. These
net gains (losses) on equity hedges were recorded as a component of
stockholders' equity.
As of May 31, 2000, and 1999, the balances related to foreign currency
translation adjustments and net gains (losses) on equity hedges contained in
accumulated other comprehensive income (loss) in stockholders' equity were net
losses of $48,136,000 and $47,416,000, respectively.
34
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
May 31, 2000
As of May 31, 2000, the contract amount and fair value of outstanding foreign
forward exchange contracts were as follows:
Contract Fair
Amount Value
(in thousands) -------- --------
Intercompany account hedges............................... $349,406 $348,142
Equity hedges............................................. $ 65,562 $ 63,134
At May 31, 2000, maturities of the Company's forward foreign exchange and
equity hedge contracts were twelve months or less in term.
Accounting for Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board ("FASB"), issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and for Hedging Activities". SFAS No. 133 establishes
accounting and reporting standards requiring that every derivative instrument
be recorded in the balance sheet as either an asset or liability measured at
its fair value. SFAS No. 133 also requires that changes in the derivatives
fair value be recognized currently in earnings unless specific hedge
accounting criteria are met and that a company must formally document,
designate, and assess the effectiveness of transactions that receive hedge
accounting. SFAS No. 133 is effective for fiscal years beginning after June
15, 2000 and cannot be applied retroactively. The Company is currently
evaluating this statement, but does not expect that it will have a material
impact on the Company's financial position or results of operations.
Supplemental Statements of Cash Flows Data
The Company paid income taxes in the net amount of $975,977,000, $642,007,000
and $430,245,000 during fiscal years ended 2000, 1999 and 1998, respectively.
Interest payments approximated interest expense in the amount of $18,894,000,
$21,424,000 and $16,658,000 during the fiscal years ended 2000, 1999 and 1998,
respectively. The Company purchased equipment under capital leases in the
amount of $412,000, $536,000 and $736,000 in fiscal 2000, 1999 and 1998,
respectively.
Substantially all of the Company's cash and cash equivalents at May 31, 2000
consisted of highly liquid investments in time deposits of major world banks,
commercial paper, money market mutual funds and taxable municipal securities
with original maturities or put options 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, 2000 primarily consisted
of taxable municipal securities, commercial paper and U.S. Government Agency
Paper with original maturities or put options of 91 days or more. No
individual investment security equaled or exceeded 2% of total assets.
Investments in Debt and Equity Securities
In accordance with SFAS No. 115 "Accounting for Certain Investments in Debt
and Equity Securities", 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. All of the Company's long-term investments
mature within 30 months.
35
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
May 31, 2000
At May 31, 2000 and 1999, the amortized cost basis, aggregate fair value and
gross unrealized holding gains and losses by major security type were as
follows:
Amortized Aggregate Unrealized Unrealized
Cost Basis Fair Value Gains Losses
(in thousands) ---------- ---------- ---------- ----------
Fiscal 2000:
Debt securities issued by states
of the United States and
political subdivisions of the
states.......................... $ 178,475 $ 176,325 $ -- $(2,150)
Corporate debt securities........ 264,317 263,211 42 (1,148)
---------- ---------- ------ -------
Total cash investments......... $ 442,792 $ 439,536 $ 42 $(3,298)
========== ========== ====== =======
Fiscal 1999:
Debt securities issued by states
of the United States and
political subdivisions of the
states.......................... $ 201,130 $ 199,990 $ 167 $(1,307)
Corporate debt securities........ 825,466 820,943 1,232 (5,755)
---------- ---------- ------ -------
Total cash investments......... $1,026,596 $1,020,933 $1,399 $(7,062)
========== ========== ====== =======
The following represents the maturities of investments in debt securities as
of May 31:
Amortized Cost
Basis
-------------------
2000 1999
(in thousands) -------- ----------
Due in 0-1 year........................................ $332,792 $ 777,049
Due in 1-2 years....................................... 110,000 249,547
-------- ----------
Total................................................ $442,792 $1,026,596
======== ==========
The Company has classified its marketable equity securities as available-for-
sale (included in "Intangible and Other Assets" in the accompanying
consolidated balance sheets) and recorded net unrealized holding gains in
stockholders' equity of $53,616,000 and $5,000 as of May 31, 2000 and 1999,
respectively, which were included in "Accumulated Other Comprehensive Income
(Loss)" in the accompanying consolidated balance sheets.
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 position and the risk with respect to trade receivables
is further mitigated by the fact that the Company's customer base is highly
diversified.
Transfer of Financial Assets
The Company offers its customers the option to acquire its software and
services through payment plans, financing or leasing contracts. In general,
the Company transfers future payments under these contracts to financing
institutions on a non-recourse basis. The Company records such transfers as
sales of the related accounts receivable when it is considered to have
surrendered control of such receivables under the provisions of SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities."
36
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
May 31, 2000
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 two to forty years. Capital leases and leasehold
improvements are amortized over the estimated useful lives or lease terms, as
appropriate.
In fiscal 2000, 1999 and 1998, the Company purchased approximately $27,000,
$590,000 and $13,000, 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 a variety of
internal development and production purposes.
Software Development Costs
The Company capitalizes internally generated software development costs in
compliance with SFAS No. 86, "Accounting for the Costs of Computer Software to
be Sold, Leased or Otherwise Marketed." As of May 31, 2000 and 1999, net
capitalized software development costs were $94,609,000 and $98,870,000,
respectively, and are included in Intangible and Other Assets in the
accompanying consolidated balance sheets.
Deferred Revenues
Deferred revenues primarily relate to support agreements which have been paid
for by customers prior to the performance of those services.
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, 2000.
Revenue Recognition
In October 1997, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") No. 97-2, "Software Revenue
Recognition" which superseded SOP No. 91-1. SOP No. 97-2, as amended, was
adopted by the Company in the fiscal year beginning June 1, 1998. SOP No. 97-2
provides guidance on applying generally accepted accounting principles for
software revenue recognition transactions. Based on the Company's
interpretation of the requirements of SOP No. 97-2, as amended, application of
this statement did not have a material impact on the Company's revenues,
results of operations or financial position.
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 power units (processing power
of the computers in the customer's network) or a maximum number of named
users. The Company also enters into other license agreement types, which allow
for the use of the Company's products, usually restricted by the number of
employees or the license term. Fees from licenses are recognized as revenue
upon shipment, provided fees are fixed and determinable and collection is
probable. Fees from licenses sold together with consulting services are
generally recognized upon shipment provided that the above criteria have been
met, payment of the license fees is not dependent upon the performance of the
consulting services and the consulting services are not essential to the
functionality of the licensed software. In instances where the
37
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
May 31, 2000
aforementioned criteria have not been met, both the license and consulting
fees are recognized under the percentage of completion method of contract
accounting.
The Company receives sublicense fees from its Oracle Alliance partners (value-
added relicensors, value-added distributors, hardware providers, systems
integrators and independent software vendors) based on the sublicenses granted
by the Oracle Alliance partner. Sublicense fees are typically 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 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 statements of operations.
Consulting and Education Services. The Company provides consulting and
education services to its customers. Revenue from such services is generally
recognized over the period during which the applicable service is to be
performed or on a services-performed basis.
Accounting for Stock-Based Compensation
Effective June 1, 1996, the Company adopted the disclosure provisions of SFAS
No. 123, "Accounting for Stock-Based Compensation." In accordance with the
provisions of SFAS No. 123, the Company applies Accounting Principles Board
Opinion 25 and related interpretations in accounting for its employee stock
option plans. In April 2000, the FASB issued FASB Interpretation No. 44 ("FIN
No. 44"), "Accounting for Certain Transactions Involving Stock Compensation:
An Interpretation of APB No. 25". The Company has adopted the provisions of
FIN No. 44, and such adoption did not materially impact the Company's results
of operations. See Note 9 for a summary of the pro forma effects on reported
net income and earnings per share for fiscal 2000, 1999, and 1998 based on the
fair value of options and shares granted as prescribed by SFAS No. 123.
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
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 subsidiary equity transactions.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current
year presentation.
38
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
May 31, 2000
2. PROPERTY
Property consists of:
Year Ended May 31,
------------------------
2000 1999
(in thousands) ----------- -----------
Computer equipment............................... $ 991,254 $ 967,784
Buildings and improvements....................... 698,291 633,078
Furniture and fixtures........................... 316,933 303,377
Land............................................. 108,096 109,758
Automobiles...................................... 10,456 9,450
----------- -----------
Total.......................................... 2,125,030 2,023,447
Accumulated depreciation and amortization........ (1,190,575) (1,035,965)
----------- -----------
Property, net.................................... $ 934,455 $ 987,482
=========== ===========
During fiscal 1994, the Company purchased $85,100,000 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 $4,000,000. The
Company has the right to leave the partnership and to take full title to both
buildings without making further capital contributions. As a result of the
original note purchases and capital contribution, the Company capitalized the
two building leases, and the $89,100,000 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 $22,100,000. 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 $22,100,000 in payments have been classified as land
and buildings and improvements.
In fiscal 1997, the Company became a 74% limited partner in III Centrum
Associates Limited Partnership, a real estate limited partnership, which owns
one of the buildings leased by the Company at its headquarters site, by making
a capital contribution of $2,500,000. Additionally, in fiscal 1997, the
Company loaned the partnership $60,400,000 in the form of a promissory note
secured by a deed of trust which was used to pay off a mortgage on a building
owned by the partnership. Pursuant to the Company's right under the
partnership agreement, the Company left the partnership on May 30, 2000, and
obtained title to the building without making further capital contributions.
The $62,900,000 in payments have been classified as building and improvements.
Equipment under capital leases included in property at May 31, 2000 and 1999
was $39,948,000 and $27,615,000, respectively. Accumulated amortization of
leased equipment at such dates was $26,860,000 and $27,213,000, respectively.
39
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
May 31, 2000
As of May 31, 2000, future minimum annual lease payments under capital leases
together with their present value were:
Year Ended May 31,
------------------ (in thousands)
2001........................................................ $ 407
2002........................................................ 476
2003........................................................ 295
2004........................................................ 105
------
Total minimum lease payments.............................. 1,283
Amount representing interest................................ (213)
------
Present value of minimum lease payments................... $1,070
======
3. NOTES PAYABLE AND CURRENT MATURITIES OF LONG-TERM DEBT
At May 31, 2000 and 1999, the Company had unsecured short-term borrowings from
banks which were payable on demand in the amounts of $2,371,000 and
$3,092,000, respectively. The Company also had current maturities of long-term
debt of $320,000 and $546,000 at May 31, 2000 and 1999, respectively.
4. LONG-TERM DEBT
Long-term debt consists of:
Year Ended May
31,
------------------
2000 1999
(in thousands) -------- --------
Senior notes........................................... $300,000 $300,000
Capital lease obligations (See Note 2)................. 1,070 686
Other.................................................. 20 4,000
-------- --------
Total................................................ 301,090 304,686
Current maturities..................................... (320) (546)
-------- --------
Long-term debt......................................... $300,770 $304,140
======== ========
During fiscal 1997, the Company issued $150,000,000 in 6.72% Senior Notes due
in the year 2004 and $150,000,000 in 6.91% Senior Notes due in the year 2007.
The Senior Notes are unsecured general obligations of the Company that rank on
a parity with all other unsecured and unsubordinated indebtedness of the
Company that may be outstanding.
5. COMMITMENTS
In December 1996, the Company entered into a seven year master lease facility
which provides for the construction or purchase of up to $150,000,000 of
property and improvements to be leased to the Company. In May 1998, this
facility was increased by $32,000,000 to a total of $182,000,000. Rent is
payable quarterly in arrears over a term of seven years. The Company's
obligations under the lease facility currently are collateralized by a forward
contract to sell 18,000,000 shares of the Company's Common Stock at $8.84 per
share plus accretion, subject to adjustments over time. The forward contract
has a stated maturity of February 13, 2003. The buyer may complete the sale on
February 13, 2001 (or for a fifteen day period thereafter) or in certain other
circumstances as defined by the forward contract. The Company may, at its
option, anytime during the lease term substitute other collateral such as U.S.
treasury securities. The Company may, at its option, purchase the leased
40
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
May 31, 2000
properties during the term of the lease at approximately the amount expended
by the lessor to construct or purchase such properties. In the event that the
Company does not exercise its purchase option, the Company has agreed to
guarantee that the properties will have a specified residual value which will
be determined at the lease inception date for each property. As of May 31,
2000, approximately $167,648,000 of the master lease facility had been
utilized. As of May 31, 2000, the general terms of the $182,000,000 master
lease facility call for a residual guarantee of the leased property equal to
85% of its original cost. As the net present value of the minimum lease
payments, including this 85% residual guarantee, was less than 90% of the fair
value of the lease property at the inception of the lease, these leases have
been classified as operating leases.
As of May 31, 2000, future minimum annual lease payments of the master lease
facility on completed properties are as follows:
Year Ended May 31,
------------------ (in thousands)
2001........................................................ $10,729
2002........................................................ 10,729
2003 ....................................................... 5,365
-------
Total..................................................... $26,823
=======
Additional facilities and certain furniture and equipment are leased under
operating leases. As of May 31, 2000, future minimum annual lease payments
(excluding the master lease facility discussed above and the lease payments
related to capitalized facilities discussed in Note 2) are as follows:
Year Ended May 31,
------------------ (in thousands)
2001........................................................ $114,335
2002........................................................ 94,517
2003 ....................................................... 80,696
2004 ....................................................... 60,850
2005 ....................................................... 43,936
Thereafter.................................................. 76,603
--------
Total..................................................... $470,937
========
Rent expense was $259,884,000, $240,434,000 and $206,108,000, for fiscal years
2000, 1999 and 1998, net of sublease income of approximately $1,855,000,
$3,963,000 and $3,169,000, respectively. Certain of the Company's lease
agreements contain renewal options providing for an extension of the lease
term. Generally, the renewal lease rates range between 85% and 100% of the
fair market lease rates as determined at the end of the initial lease period.
6. ACQUISITIONS
On August 29, 1997, the Company acquired the shares of Treasury Services
Corporation ("TSC") for approximately $110,000,000 in cash and the conversion
of outstanding TSC options to options to purchase the Company's stock. As a
result of this conversion, the Company recorded a credit to stockholders'
equity of approximately $8,967,000 related to the value of the stock options.
The Company received an appraisal of certain intangible assets which indicated
that $91,500,000 of the acquired intangible assets consisted of in-process
research and development ("R&D"). In the opinion of management and the
appraiser, the acquired in-process R&D had not yet reached technological
feasibility and had no alternative future uses. Accordingly, the Company
recorded a special charge of $91,500,000 in the first quarter of fiscal 1998.
The remaining intangible assets acquired, with an assigned value of
approximately $45,000,000, were included in "Intangible and Other Assets" in
the accompanying consolidated balance sheets, and are being amortized over a
five year period.
41
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
May 31, 2000
On August 11, 1997, the Company completed the merger of its subsidiary,
Liberate Technologies ("Liberate"), and Navio Communications, Inc. ("Navio"),
a development stage company, in a stock for stock exchange valued at
approximately $77,000,000. After the date of the merger, the Company owned
approximately 60% of the entity, with the remaining 40% owned by the minority
interest shareholders. As of the acquisition date, the Company's interest in
the increased net assets of the combined entity was recorded as a credit to
stockholders' equity in the amount of $46,076,000, with the balance recorded
as minority interest. Subsequent to the acquisition, the Company acquired
stock directly from certain of the minority shareholders which, net of stock
option exercise proceeds and the amount previously recorded as minority
interest, was recorded as a debit to stockholders' equity in the amount of
$7,693,000. The net balance of $38,383,000 is included in the accompanying
consolidated statement of stockholders' equity. As a result of the merger and
the above transactions, the Company's interest in Liberate was increased to
66%. The Company received an appraisal of certain intangible assets which
indicated that $75,554,000 of the acquired intangible assets consisted of in-
process R&D. In the opinion of management and the appraiser, the acquired in-
process R&D had not yet reached technological feasibility and had no
alternative future uses. Accordingly, the Company recorded a special charge of
$75,554,000 in the first quarter of fiscal 1998. The remaining intangible
assets acquired, with an assigned value of approximately $2,100,000, were
included in "Intangible and Other Assets" in the accompanying consolidated
balance sheets, and are being amortized over a three year period.
No pro forma financial statements for the periods prior to the acquisitions
have been provided due to the amounts being immaterial.
7. SUBSIDIARY STOCK TRANSACTIONS
Oracle Japan
In November 1997, Oracle Corporation Japan ("Oracle Japan"), a majority-owned
subsidiary, issued and sold 944,200 shares of its common stock at
approximately $26 per share to a third party. As part of the stock purchase
agreement, the third party was given an option to put these shares back to the
Company in the event that an initial public offering did not take place before
December 1999. The put price was equal to the purchase price plus interest, as
defined in the stock purchase agreement. As a result of the original put
option, the Company recorded the proceeds from the sale as an increase to
minority interest, which is included in "Other Long-term Liabilities" in the
accompanying consolidated balance sheets. In conjunction with the initial
public offering of Oracle Japan, discussed in the following paragraph, the put
option expired and the Company recorded a credit to stockholders' equity in
the amount of $18,129,000, net of deferred taxes of $10,000,000, reflecting
the increase in its share of the net assets of Oracle Japan related to this
and other equity transactions entered into with minority shareholders in
Oracle Japan.
In February 1999, Oracle Japan issued and sold 4,570,000 shares of common
stock at approximately $57 per share in an initial public offering in Japan.
In connection with this offering, Oracle Japan received cash proceeds of
$248,811,000, net of issuance costs of $13,833,000. The Company's ownership
interest in Oracle Japan was reduced from 90.78% to 84.94% following the
issuance and sale of the aforementioned shares. The Company recorded a credit
to stockholders' equity of $133,100,000, net of deferred taxes of $73,700,000,
reflecting the increase in its share of the net assets of Oracle Japan related
to the stock offering.
In February 1999, subsequent to the initial public offering, the Company sold
250,000 of its existing shares of Oracle Japan's common stock at approximately
$99 per share. In connection with this sale, the Company received cash
proceeds of $24,969,000. The Company's ownership interest in Oracle Japan was
reduced from 84.94% to 84.59% following the sale of the aforementioned shares.
The Company recorded a gain from this sale of $24,457,000 which is included in
net investment gains related to marketable securities in the accompanying
consolidated statements of operations.
42
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
May 31, 2000
In April 2000, Oracle Japan issued and sold 250,000 shares of its common stock
at approximately $772 per share in a public offering. As a result of the
issuance of new shares and the sale of existing shares, the Company's
ownership interest in Oracle Japan was reduced from 84.59% to 74.16%. The
Company has recorded a credit to stockholders' equity in the amount of
$88,741,000, net of deferred taxes of $48,837,000, reflecting the increase in
its share of the net assets of Oracle Japan related to the stock offering.
Separately, the Company sold 8,700,000 shares in Oracle Japan, resulting in a
gain on sale of marketable securities in the amount of $6,466,378,000 and
related taxes of $2,515,421,000.
Liberate Technologies
In April 1999, Liberate, a then majority-owned subsidiary of the Company,
issued and sold 5,208,326 shares of its preferred stock at approximately $9.60
per share to third parties. Liberate received cash proceeds of $46,990,000,
net of issuance costs of $3,010,000. The Company's ownership interest in
Liberate was reduced from 70.11% to 59.20% following the offering. In
conjunction with this sale, the Company recorded a credit to stockholders'
equity in the amount of $26,891,000, net of deferred taxes of $17,611,000,
reflecting the increase in its share of the net assets of Liberate related to
the stock offering.
In July 1999, Liberate issued and sold 6,701,050 shares of common stock at
approximately $16 per share in an initial public offering. In connection with
this offering, Liberate received cash proceeds of $98,042,000, net of issuance
costs of $9,175,000. The Company's ownership interest in Liberate was reduced
from 59.20% to 48.24% following the offering. As a result of the offering, the
Company recorded a credit to stockholders' equity in the amount of
$31,522,000, net of deferred taxes of $19,733,000, reflecting the increase in
its share of the net assets of Liberate related to the stock offering. In
addition, effective July 1, 1999, the Company began to account for its
ownership interest in Liberate Technologies using the equity method of
accounting.
In February 2000, Liberate issued and sold 2,890,000 shares of common stock at
approximately $108 per share in a public offering. As a result of the
offering, the Company recorded a credit to stockholders' equity in the amount
of $73,579,000, net of deferred taxes of $46,061,000, reflecting the increase
in its share of the net assets of Liberate related to the stock offering.
Separately, the Company sold 4,274,703 shares in Liberate Technologies,
resulting in a gain on sale of marketable securities in the amount of
$431,846,000 and related taxes of $166,261,000.
During fiscal 2000, Liberate and another of the Company's subsidiaries entered
into a number of other equity transactions that resulted in an increase in the
Company's share in their net assets. As a result of these transactions, the
Company recorded an additional credit to stockholders' equity, net of deferred
taxes, in the amount of $94,834,000.
8. EARNINGS PER SHARE
Basic earnings per share is calculated using the weighted average number of
shares outstanding during the period. Diluted earnings per share is computed
on the basis of the weighted average number of Common shares outstanding plus
the dilutive effect of outstanding stock warrants, stock options and the
employee stock purchase plan using the "treasury stock" method.
On January 18, 2000, the Company effected a two-for-one stock split in the
form of a Common Stock dividend to stockholders of record as of December 30,
1999. All per share data and numbers of Common shares, where appropriate, have
been retroactively adjusted to reflect the stock split.
43
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
May 31, 2000
The following table sets forth the computation of basic and diluted earnings
per share:
Year Ended May 31,
-------------------------------
2000 1999 1998
(in thousands, except per share data) ---------- ---------- ---------
Net income.................................... $6,296,803 $1,289,758 $ 813,695
========== ========== =========
Weighted average shares outstanding........... 2,839,419 2,891,176 2,932,798
Dilutive effect of stock warrants, employee
stock options and stock purchase plan........ 158,502 77,274 66,378
---------- ---------- ---------
Diluted shares outstanding.................... 2,997,921 2,968,450 2,999,176
========== ========== =========
Basic earnings per share...................... $ 2.22 $ 0.45 $ 0.28
Diluted earnings per share.................... $ 2.10 $ 0.43 $ 0.27
The net investment gains related to marketable securities in fiscal 2000, 1999
and 1998 in the amounts of $6,936,955,000, $24,457,000 and $4,300,000 relate
primarily to sale of existing shares in Oracle Japan and Liberate. Excluding
the effects of these transactions on the fiscal years, the diluted earnings
per share would have been $0.69, $0.43 and $0.27, respectively.
9. 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 of Directors
(generally ratably over four to five years), and generally expire ten years
from the date of grant. As of May 31, 2000, options to purchase 789,566 shares
were outstanding and vested. As of May 31, 2000, there were no options for
shares of Common Stock available for future grant under this plan.
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 43,335,000 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 of
Directors (generally ratably over four years), and generally expire ten years
from the date of grant. As of May 31, 2000, options to purchase 174,386 shares
of Common Stock were outstanding and vested. Options for 10,391,788 shares
were available for future grant under these plans at May 31, 2000.
In fiscal 1992, the Company adopted the 1991 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
101,250,000 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 of Directors (generally ratably over four years), and generally
expire ten years from the date of grant. An additional 81,000,000 shares of
Common Stock were reserved for issuance under the plan in each of fiscal 1994
and fiscal 1996. In fiscal 2000, 1999 and 1997, an additional 140,000,000,
150,000,000 and 153,000,000 shares of Common Stock were reserved for issuance
under the plan, respectively. As of May 31, 2000, options to purchase
292,754,196 shares of Common Stock
44
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
May 31, 2000
were outstanding, of which 94,641,594 shares were vested. Options for
261,757,035 shares were available for future grant under the plan at May 31,
2000. 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 10,125,000 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. Each individual who
becomes an outside director shall automatically be granted options to purchase
150,000 shares. The 1993 Directors Plan also provides for subsequent stock
option grants. On May 31 of each year, each outside director will be granted
options to purchase 54,000 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, in lieu of the grant of an
option to purchase 54,000 shares of Common Stock, each outside director who
has served as the Chairman of the Executive or Finance and Audit Committee of
the Company's Board of Directors will be granted options to purchase
120,000 shares of Common Stock on May 31 of each year, provided that the
outside director has served as a Chairman of any such committee for at least
one year. In addition, an outside director who is the Chairman of the
Compensation Committee of the Company's Board of Directors and who has served
on the Compensation Committee for at least one year, will be granted options
to purchase 75,000 shares of Common Stock on May 31 of each year beginning May
31, 1998. As of May 31, 2000, options to purchase 2,488,369 shares of Common
Stock were outstanding, of which 1,235,119 were vested. Options for 5,586,682
shares were available for future grant under this plan at May 31, 2000.
In December 1997, the Company reduced the exercise price of approximately 20%
of the outstanding Common Stock options held by the Company's employees to the
fair market value per share as of the date of the reduction in price. The
Company repriced these employee stock options in an effort to retain employees
at a time when a significant percentage of employee stock options had exercise
prices that were above fair market value. The Company believes that stock
options are a valuable tool in compensating and retaining employees. Executive
officers and directors were excluded from this repricing.
The following table summarizes stock option plan activity:
Shares
Under Weighted Average
Option Exercise Price
----------- ----------------
Balance, May 31, 1997........................ 196,334,042 $ 5.00
Granted.................................... 93,548,602 9.91
Exercised.................................. (25,107,132) 2.89
Canceled................................... (57,387,648) 11.11
-----------
Balance, May 31, 1998........................ 207,387,864 $ 5.78
Granted.................................... 84,006,716 8.94
Exercised.................................. (33,511,560) 4.68
Canceled................................... (17,692,010) 7.66
-----------
Balance, May 31, 1999........................ 240,191,010 $ 6.90
Granted.................................... 128,659,609 30.74
Exercised.................................. (50,410,940) 5.97
Canceled................................... (22,233,162) 11.21
-----------
Balance, May 31, 2000........................ 296,206,517 $17.09
===========
45
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
May 31, 2000
As of May 31, 2000, the Company had reserved 573,942,022 shares of Common
Stock for the exercise of options. The range of exercise prices for options
outstanding at May 31, 2000 was $0.23 to $84.00. The range of exercise prices
for options is due to the fluctuating price of the Company's stock over the
period of the grants.
The following table summarizes information about stock options outstanding at
May 31, 2000:
Number Number Weighted Average
Range of Outstanding Weighted Average Weighted Exercisable Exercise Price
Exercise as of Remaining Average as of of Exercisable
Price 5/31/00 Contractual Life Exercise Price 5/31/00 Options
-------- ----------- ---------------- -------------- ----------- ----------------
$ 0.23-$ 3.37 28,469,268 2.24 $ 1.39 27,455,241 $ 1.41
$ 3.40-$ 7.53 34,831,103 5.77 $ 6.26 29,639,341 $ 6.07
$ 7.54-$ 8.15 54,037,638 7.25 $ 7.82 16,776,865 $ 7.71
$ 8.17-$ 8.35 21,154,599 8.11 $ 8.23 3,790,583 $ 8.23
$ 8.36-$12.09 31,453,534 7.11 $ 9.52 18,134,745 $ 9.31
$12.44-$13.75 84,373,259 8.96 $13.73 461,513 $12.87
$14.58-$29.09 9,806,501 9.13 $21.22 582,377 $15.94
$31.03-$78.44 2,845,650 9.66 $54.31 0 $ 0.00
$81.63-$81.63 29,121,365 9.78 $81.63 0 $ 0.00
$81.94-$84.00 113,600 9.80 $82.93 0 $ 0.00
----------- ----------
$ 0.23-$84.00 296,206,517 7.46 $17.09 96,840,665 $ 5.82
=========== ==========
Stock Purchase Plan
In October 1987, the Company adopted an Employee Stock Purchase Plan (the
"1987 Purchase Plan") and reserved 162,000,000 shares of Common Stock for
issuance thereunder. In September 1992, the plan was amended to reserve an
additional 5,062,500 shares of Common Stock. 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 "Employee Stock Purchase Plan") and reserved 40,500,000 shares of Common
Stock for issuance thereunder. An additional 90,000,000, 31,500,000 and
40,500,000 shares of Common Stock were reserved for issuance under the plan in
fiscal 1999, fiscal 1997, and fiscal 1994 respectively. 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, 2000,
115,003,638 shares had been issued and 87,496,362 shares were reserved for
future issuances under this plan.
During fiscal 2000, 1999, and 1998, the Company issued 13,028,606, 18,059,270,
and 16,329,766 shares, respectively, under the Employee Stock Purchase Plan.
If the Company had elected to recognize the compensation cost based on the
fair value of the employee's purchase rights, the cost would have been
estimated using the Black-Scholes model, with the following assumptions for
each of the two six-month periods in fiscal 2000, 1999, and 1998: (i) dividend
yield of zero percent for all periods, (ii) expected life of one-half year for
all periods, (iii) expected volatility of 67%, 48%, and 39%, and (iv) risk-
free interest rates within a range of 5.28%-6.72%. The weighted-average fair
value of each purchase right granted in fiscal 2000, 1999, and 1998 was $6.20,
$3.20 and $3.11 per share, respectively.
Shareholder Rights Plan
On December 3, 1990, the Board of Directors adopted a Shareholder Rights Plan.
The Shareholder Rights Plan was amended and restated on March 31, 1998 and
amended on March 22, 1999. Pursuant to the Shareholder
46
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
May 31, 2000
Rights 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 of Directors
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. As a result of a
stock split effected by the Company, each share of Common Stock now has
associated with it one-third of a right.
The Rights are not exercisable until the earlier of (i) ten days (or such
later date as may be determined by the Board of Directors) following an
announcement that a person or group has acquired beneficial ownership of 15%
of the Company's Common Stock or (ii) ten days (or such later date as may be
determined by the Board of Directors) following the announcement of a tender
offer which would result in a person or group obtaining beneficial ownership
of 15% or more of the Company's outstanding Common Stock, subject to certain
exceptions (the earlier of such dates being called the "Distribution Date.")
The Rights are initially exercisable for one-six thousand seven hundred
fiftieth of a share of the Company's Series A Junior Participating Preferred
Stock at a price of $125 per one-six thousand seven hundred fiftieth of a
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 15% of the
Company's Common Stock, then holders of Rights (other than the 15% 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
acquirer) having a market value of two times the exercise price of the Right.
The Company is entitled to redeem the Rights, for $0.00148 per Right, at the
discretion of the Board of Directors, until certain specified times. The
Company may also require the exchange of Rights, at a rate of one and one-half
shares of Common Stock, for each Right, under certain circumstances. The
Company also has the ability to amend the Rights, subject to certain
limitations.
Stock Repurchases
The Company's Board of Directors has approved the repurchase of up to
548,000,000 shares of Common Stock to reduce the dilutive effect of the
Company's stock plans. Pursuant to this repurchase program, the Company
purchased 145,370,927 shares of the Company's Common Stock for approximately
$5,306,771,000 in fiscal 2000, 109,313,038 shares of the Company's Common
Stock for approximately $1,086,953,000 in fiscal 1999, 55,338,318 shares of
the Company's Common Stock for approximately $489,823,000 in fiscal 1998 and
157,160,292 shares of the Company's Common Stock for approximately
$841,942,000 prior to fiscal 1998.
Stock Warrants
During fiscal 1997, the Company sold 27,000,000 warrants, each of which
entitled the holder to purchase one share of Common Stock at prices between
$17.11 and $17.24. These warrants were exercised in May 2000 for total
proceeds of approximately $457,866,000. Included in the stock repurchase
amounts above are shares that were repurchased to offset the dilutive effect
of the warants.
During fiscal 1999 and fiscal 1998, the Company, as part of its authorized
stock repurchase program, sold put warrants and purchased call options through
private placements. As of May 31, 2000, the Company has a maximum potential
obligation under the put warrants to buy back 4,000,000 shares of its Common
Stock for a price of $9.70 per share for an aggregate price of approximately
$38,800,000. The put warrants will expire at various dates through October
2000. As of May 31, 2000, the Company had the right to purchase, under the
call options, up to a maximum of 2,000,000 shares of its Common Stock at a
price of $13.03 per share for an aggregate price of approximately $26,060,000.
The call options will expire at various dates through October
47
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
May 31, 2000
2000. During fiscal 2000, the Company exercised call options for 38,136,000
shares at an average price of $10.28, which are included in the stock
repurchases discussed above.
Accounting for Stock-Based Compensation
Pro forma information regarding net income and earnings per share is required
by SFAS No. 123. This information is required to be determined as if the
Company had accounted for its employee stock purchase plan and employee stock
options granted subsequent to May 31, 1996 under the fair value method of that
statement.
The fair value of options granted for fiscal years ending May 31, 2000, 1999,
and 1998 reported below has been estimated at the date of grant using a Black-
Scholes option pricing model with the following weighted average assumptions:
Year Ended May 31,
------------------------------
Employee Stock Options 2000 1999 1998
---------------------- ---------- --------- ---------
Expected life from vest date (in years):
Employees................................ 0.45 0.59 0.45
Officers and Directors................... 0.52-6.31 0.66-6.17 0.43-6.14
Risk-free interest rates................... 5.28-6.72% 4.5-5.7% 5.6-6.6%
Volatility................................. 67.0% 48.0% 39.0%
Dividend yield............................. -- -- --
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions, including the expected stock price volatility.
The Company's options have characteristics significantly different from those
of traded options, and changes in the subjective input assumptions can
materially affect the fair value estimate. Based upon the above assumptions,
the weighted average fair value of employee stock options granted during
fiscal 2000, 1999, and 1998 was $15.67, $3.46, and $3.11 per share,
respectively.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized over the options' vesting period. Had the Company's stock option
and stock purchase plan been accounted for under SFAS No. 123, net income and
earnings per share would have been reduced to the following pro forma amounts:
Year Ended May 31,
------------------------------
2000 1999 1998
(in thousands, except per share data) ---------- ---------- --------
Net income:
As reported.............................. $6,296,803 $1,289,758 $813,695
Pro forma................................ $5,737,161 $1,095,969 $656,711
Earnings per share:
Basic.................................... $ 2.22 $ 0.45 $ 0.28
Diluted.................................. $ 2.10 $ 0.43 $ 0.27
Proforma basic........................... $ 2.02 $ 0.38 $ 0.23
Proforma diluted......................... $ 1.91 $ 0.37 $ 0.22
The effects of applying SFAS No. 123 on pro forma disclosures of net income
and earnings per share for fiscal 2000, 1999, and 1998 are not likely to be
representative of the pro forma effects on net income and earnings per share
in future years for the following reasons: 1) the number of future shares to
be issued under these plans is not known, 2) the effect of an additional year
of vesting on options granted prior to the effective date of SFAS No. 123 is
not considered in the assumptions as of May 31, 2000 and 3) the assumptions
used to determine the fair value can vary significantly.
48
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
May 31, 2000
10. INCOME TAXES
The following is a geographical breakdown of the Company's income before taxes:
Year Ended May 31,
-----------------------------------
2000 1999 1998
(in thousands) ----------- ---------- ----------
Domestic............................ $ 9,269,069 $1,301,712 $ 799,814
Foreign............................. 854,365 680,366 528,005
----------- ---------- ----------
Total............................. $10,123,434 $1,982,078 $1,327,819
=========== ========== ==========
The provision for income taxes consists of the following:
Year Ended May 31,
-----------------------------------
2000 1999 1998
(in thousands) ----------- ---------- ----------
Current payable:
Federal........................... $ 3,002,644 $ 306,558 $ 230,421
State............................. 543,936 96,161 54,035
Foreign........................... 313,245 287,321 179,206
----------- ---------- ----------
Total current................... 3,859,825 690,040 463,662
----------- ---------- ----------
Deferred payable (prepaid):
Federal........................... (5,160) 29,468 45,116
State............................. (21,652) (13,700) (9,369)
Foreign........................... (6,382) (13,488) 14,715
----------- ---------- ----------
Total deferred.................. (33,194) 2,280 50,462
----------- ---------- ----------
Total............................... $ 3,826,631 $ 692,320 $ 514,124
=========== ========== ==========
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,
-----------------------------------
2000 1999 1998
(in thousands) ----------- ---------- ----------
Tax provision at statutory rate..... $ 3,543,202 $ 693,727 $ 464,737
State tax expense, net of federal
benefit............................ 339,485 42,589 34,367
Nondeductible write-off of acquired
in-process research and
development........................ -- -- 49,274
Other, net.......................... (56,056) (43,996) (34,254)
----------- ---------- ----------
Provision for income taxes.......... $ 3,826,631 $ 692,320 $ 514,124
=========== ========== ==========
49
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
May 31, 2000
The components of the deferred tax assets and liabilities, as reflected on the
balance sheet, consist of the following:
Year Ended May 31
------------------------------
2000 1999 1998
(in thousands) --------- --------- --------
Deferred tax liabilities:
Capitalized software development
costs................................. $ (35,179) $ (39,794) $(38,051)
Unrealized gain on stock............... (291,211) (98,547) --
Other.................................. -- (23,640) (10,787)
--------- --------- --------
Total deferred tax liabilities....... (326,390) (161,981) (48,838)
--------- --------- --------
Deferred tax assets:
Reserves and accruals.................. 228,682 182,311 117,705
Differences in timing of revenue
recognition........................... 163,961 59,264 77,335
Depreciation and amortization.......... 91,688 70,682 55,550
Employee compensation and benefits..... 57,661 59,720 35,602
Other tax assets....................... 66,198 77,996 53,479
--------- --------- --------
Total deferred tax assets............ 608,190 449,973 339,671
Valuation allowance.................... (12,723) (14,730) (6,986)
--------- --------- --------
Net.................................. $ 269,077 $ 273,262 $283,847
========= ========= ========
Recorded as:
Prepaid and refundable income taxes.... $ 212,829 $ 299,670 $260,624
Deferred income taxes.................. (266,130) (135,887) (15,856)
Other assets........................... 322,378 109,479 39,079
--------- --------- --------
$ 269,077 $ 273,262 $283,847
========= ========= ========
The Company provides U.S. income taxes on the earnings of foreign
subsidiaries, unless they are considered permanently invested outside the U.S.
As of May 31, 2000, the cumulative amount of earnings upon which U.S. income
taxes have not been provided are approximately $850,961,000. At May 31, 2000,
the unrecognized deferred tax liability for these earnings is approximately
$148,699,000.
Certain foreign subsidiaries of the Company have net operating loss carry-
forwards at May 31, 2000, totaling approximately $67,880,000, which may be
used to offset future taxable income. These carry-forwards expire at various
dates; $3,450,000 in 2002, $8,171,000 in 2003, $9,601,000 in 2004, $1,609,000
in 2005, $26,419,000 in 2006, $724,000 in 2007 and the remaining balance has
no expiration.
The Company's federal tax returns have been examined by the Internal Revenue
Service for all years through 1995. The IRS has assessed taxes for years 1988
through 1995 that the Company is contesting in Tax Court. The IRS is examining
the Company's U.S. income tax returns for 1996 through 1999. Management does
not believe that the outcome of these matters will have a material adverse
effect on the Company's consolidated results of operations or consolidated
financial position.
11. SEGMENT INFORMATION
The Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information," in fiscal 1999. SFAS No. 131 established standards
for reporting information about operating segments in annual financial
statements and requires selected information about operating segments in
interim financial reports issued to stockholders. It also established
standards for related disclosures about products and services, and
50
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
May 31, 2000
geographic areas. Operating segments are defined as components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker, or decision making
group, in deciding how to allocate resources and in assessing performance. The
Company's chief operating decision maker is the Chief Executive Officer of the
Company.
The Company is organized geographically and by line of business. The Company
has four major line of business operating segments: license, support,
education and consulting. The Company also evaluates certain subsets of
business segments by product categories. While the Chief Executive Officer of
the Company evaluates results in a number of different ways, the line of
business management structure is the primary basis for which financial
performance is assessed and resources allocated.
The license line of business is engaged in the licensing of information
management software. Information management software can be classified into
two broad categories: systems software and Internet business applications
software. Systems software includes database management software and
development tools. Internet business applications software includes both
Enterprise Resource Planning and Customer Relationship Management
applications. The support line of business provides customers with a wide
range of support services that include on-site support, telephone or internet
access to support personnel, as well as software updates. The education line
of business provides both media-based and instructor-led training to customers
on how to use the Company's products. The consulting line of business assists
customers in the implementation of applications based on the Company's
products.
The accounting policies of the line of business operating segments are the
same as those described in the summary of significant accounting policies. The
Company does not track assets by operating segments. Consequently, it is not
practical to show assets by operating segments.
The following table presents a summary of operating segments:
License Support(3) Education Consulting Total
(in thousands) ---------- ---------- --------- ---------- -----------
2000
- ----
Revenues from
unaffiliated customers
(1).................... $4,383,037 $2,978,772 $529,297 $2,239,022 $10,130,128
Depreciation expense.... 39,129 22,456 9,889 35,482 106,956
Distribution expenses... 2,065,498 722,677 300,473 1,684,686 4,773,334
---------- ---------- -------- ---------- -----------
Distribution margin
(2).................... $2,278,410 $2,233,639 $218,935 $ 518,854 $ 5,249,838
========== ========== ======== ========== ===========
1999
- ----
Revenues from
unaffiliated customers
(1).................... $3,648,335 $2,342,318 $497,888 $2,338,712 $ 8,827,253
Depreciation expense.... 40,602 20,047 12,820 33,963 107,432
Distribution expenses... 2,132,007 622,662 339,245 1,827,814 4,921,728
---------- ---------- -------- ---------- -----------
Distribution margin
(2).................... $1,475,726 $1,699,609 $145,823 $ 476,935 $ 3,798,093
========== ========== ======== ========== ===========
1998
- ----
Revenues from
unaffiliated customers
(1).................... $3,158,093 $1,791,760 $435,154 $1,758,859 $ 7,143,866
Depreciation expense.... 38,136 15,799 12,963 27,199 94,097
Distribution expenses... 1,951,447 452,686 319,309 1,367,778 4,091,220
---------- ---------- -------- ---------- -----------
Distribution margin
(2).................... $1,168,510 $1,323,275 $102,882 $ 363,882 $ 2,958,549
========== ========== ======== ========== ===========
- --------
(1) Operating segment revenues differ from the external reporting
classification due to certain license products which are classified as
services revenues for management reporting purposes.
51
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
May 31, 2000
(2) The distribution margins reported reflect only the direct controllable
expenses of each line of business and do not represent the actual margins
for each operating segment since they do not contain an allocation for
marketing, general and administrative, corporate, development and other
expenses incurred in support of the line of business.
(3) Support includes update rights which, in certain sectors of the software
industry such as the "shrink wrap sector," would typically be classified as
license revenue.
PROFIT RECONCILIATION
Year Ended May 31,
-----------------------------------
2000 1999 1998
(in thousands) ----------- ---------- ----------
Total Distribution Margin............. $ 5,249,838 $3,798,093 $2,958,549
Corporate & General and
Administrative....................... (610,707) (587,167) (449,695)
Product Development................... (1,092,992) (902,867) (753,372)
Marketing & Alliances................. (382,652) (375,398) (301,428)
Other Income (Expenses)............... 22,991 24,960 (126,235)
Gain on Sale of Investments........... 6,936,956 24,457 --
----------- ---------- ----------
Income Before Taxes................. $10,123,434 $1,982,078 $1,327,819
=========== ========== ==========
LICENSE REVENUES BY PRODUCT:
Year Ended May 31,
-----------------------------------
2000 1999 1998
(in thousands) ----------- ---------- ----------
Systems software...................... $ 3,391,825 $2,939,826 $2,526,781
Internet business applications........ 923,204 651,042 562,280
Other revenues (1).................... 68,008 57,467 69,032
----------- ---------- ----------
Total license revenues.............. $ 4,383,037 $3,648,335 $3,158,093
=========== ========== ==========
- --------
(1) Other revenues include documentation and miscellaneous other revenues.
GEOGRAPHIC INFORMATION:
Year Ended May 31,
------------------------------------------------------------------
2000 1999 1998
---------------------- --------------------- ---------------------
Long Lived Long Lived Long Lived
Revenues Assets Revenues Assets Revenues Assets
(in thousands) ----------- ---------- ---------- ---------- ---------- ----------
USA..................... $ 5,270,869 $1,256,228 $4,485,924 $1,022,527 $3,546,119 $ 901,301
United Kingdom.......... 779,672 201,436 847,587 204,456 709,977 160,731
Germany................. 473,118 6,440 452,720 4,462 374,237 6,144
Japan................... 603,687 52,780 436,756 41,871 356,882 38,993
France.................. 304,581 8,044 301,855 10,652 227,515 11,610
Canada.................. 243,273 8,939 230,690 7,783 194,228 7,585
Other Foreign
Countries.............. 2,454,928 454,969 2,071,720 161,594 1,734,908 143,961
----------- ---------- ---------- ---------- ---------- ----------
Total................. $10,130,128 $1,988,836 $8,827,252 $1,453,345 $7,143,866 $1,270,325
=========== ========== ========== ========== ========== ==========
52
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
May 31, 2000
12. LEGAL PROCEEDINGS
Shareholder class actions were filed in the Superior Court of the State of
California, County of San Mateo against the Company and its Chief Financial
Officer and the former Chief Operating Officer on and after December 18, 1997.
The class actions are brought on behalf of purchasers of the stock of the
Company during the period April 29, 1997 through December 9, 1997. Plaintiffs
allege that the defendants made false and misleading statements about the
Company's actual and expected financial performance, while selling Company
stock, in violation of state securities laws. Plaintiffs further allege that
the individual defendants sold Company stock while in possession of material
non-public information. The Company believes that it has meritorious defenses
to these actions and intends to vigorously defend them.
A related shareholder derivative lawsuit was filed in the Superior Court of
the State of California, County of San Mateo on November 17, 1998. The
derivative suit was brought by Company stockholders, allegedly on behalf of
the Company, against certain of the Company's current and former officers and
directors. The derivative plaintiffs allege that these officers and directors
breached their fiduciary duties to the Company by making or causing to be made
alleged misstatements about the Company's revenue, growth, and financial
status while certain officers and directors sold Company stock and by allowing
the Company to be sued in the shareholder class actions. The derivative
plaintiffs seek compensatory and other damages, disgorgement of compensation
received and temporary and permanent injunctions requiring the defendants to
relinquish their directorships. On January 15, 1999, the Court entered a
stipulation and order staying the action until further notice.
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.
53
SCHEDULE II
ORACLE CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
Balance at Additions Balance at
Beginning of Charged to Translation End of
Classification Period Operations Write-offs Adjustments Period
-------------- ------------ ------------ ------------ ----------- ------------
Allowance for Doubtful
Accounts Year Ended:
May 31, 1998.......... $127,840,000 $106,915,000 $(34,407,000) $(4,739,000) $195,609,000
============ ============ ============ =========== ============
May 31, 1999.......... $195,609,000 $ 96,989,000 $(73,736,000) $(1,766,000) $217,096,000
============ ============ ============ =========== ============
May 31, 2000.......... $217,096,000 $135,125,000 $(71,973,000) $(8,045,000) $272,203,000
============ ============ ============ =========== ============
54
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on August 28, 2000.
Oracle Corporation
/s/ Lawrence J. Ellison
By: _________________________________
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
---- ----- ----
/s/ Lawrence J. Ellison Chief Executive Officer and August 28, 2000
______________________________________ Chairman of the Board of
Lawrence J. Ellison Directors (Principal Executive
Officer)
/s/ Jeffrey O. Henley Executive Vice President, Chief August 28, 2000
______________________________________ Financial Officer and Director
Jeffrey O. Henley (Principal Financial Officer)
/s/ Jennifer L. Minton Senior Vice President and August 28, 2000
______________________________________ Corporate Controller (Principal
Jennifer L. Minton Accounting Officer)
/s/ Jeffrey Berg Director August 28, 2000
______________________________________
Jeffrey Berg
/s/ Michael J. Boskin Director August 28, 2000
______________________________________
Michael J. Boskin
/s/ Jack F. Kemp Director August 28, 2000
______________________________________
Jack F. Kemp
/s/ Kay Koplovitz Director August 28, 2000
______________________________________
Kay Koplovitz
/s/ Donald L. Lucas Director August 28, 2000
______________________________________
Donald L. Lucas
/s/ Richard A. McGinn Director August 28, 2000
______________________________________
Richard A. McGinn
55
4290-10K00
ORACLE CORPORATION
INDEX OF EXHIBITS
Exhibit No. Exhibit Titles
----------- --------------
3.02 The Company's Bylaws, as adopted October 30, 1986, and amendments
dated January 13, 1989 and December 3, 1990.
3.04 Certificate of Amendment of Restated Certificate of Incorporation
of the Company filed with the Delaware Secretary of State on June
5, 2000.
10.09 Amendment to the 1991 Long-Term Equity Incentive Plan dated
January 7, 2000.
10.10 Amendment to the 1991 Long-Term Equity Incentive Plan dated June
2, 2000.
21.01 Subsidiaries of the Registrant.
23.01 Consent of Arthur Andersen LLP.
27.01 Financial Data Schedule.