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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C., 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED MAY 31, 1997

OR

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934

COMMISSION FILE NUMBER: 0-14376

ORACLE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 94-2871189
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

500 ORACLE PARKWAY
REDWOOD CITY, CALIFORNIA 94065
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)

(415) 506-7000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

COMMON STOCK, PAR VALUE $0.01 PER SHARE
PREFERRED STOCK PURCHASE RIGHTS
(TITLE OF CLASS)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES [X] NO [_]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [_]

The aggregate market value of the voting stock held by non-affiliates of the
registrant as of July 31, 1997 was $27,587,690,611. 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, 1997: 653,228,341.

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 13, 1997.

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ORACLE CORPORATION

FISCAL YEAR 1997 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS



PAGE
----

PART I.
Item 1. Business..................................................... 3
Item 2. Properties................................................... 12
Item 3. Legal Proceedings............................................ 12
Item 4. Submission of Matters to a Vote of Security Holders.......... 12
Item 4A. Executive Officers of the Registrant......................... 13
PART II.
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters...................................................... 14
Item 6. Selected Financial Data...................................... 15
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 15
Item 8. Financial Statements and Supplementary Data.................. 24
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 24
PART III.
Item 10. Directors and Executive Officers of the Registrant........... 24
Item 11. Executive Compensation....................................... 24
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................... 24
Item 13. Certain Relationships and Related Transactions............... 24
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K.......................................................... 24
Signatures................................................... 49


2


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
Condition and Results of Operations--Factors That May Affect Future Results
and Market Price of Stock." Readers are cautioned not to place undue reliance
on these forward-looking statements, which reflect management's 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 1998.

PART I

ITEM 1. BUSINESS

Oracle Corporation ("Oracle" or the "Company") is the world's leading
independent supplier of software for information management. In 1979, the
Company introduced the first commercially available relational database
management system for the storing, manipulating and sharing of information.
The Company's primary information management products can be categorized into
three primary product families: Server Technologies (distributed database
servers, connectivity products and gateways), Application Development and
Business Intelligence Tools (tools for application design, development and
data access) and Business Applications (modules for financial management,
supply chain management, manufacturing, project systems, human resources and
sales force automation). The Company's principal product, Oracle8(TM), is a
multimedia, object-relational database management system ("DBMS") that runs on
a broad range of computers, including massively parallel, clustered,
symmetrical multi-processing, minicomputers, workstations, personal computers
and laptop computers and over 85 different operating systems, primarily UNIX,
Windows and Windows NT. The Oracle8(TM) relational DBMS is a key component of
Oracle's database server offering for relational, object-relational, text,
spatial, video and other types of data. The Company's Application Development
and Business Intelligence Tools and Business Applications run on a broad range
of operating systems including UNIX, Windows and Windows NT. The Company also
offers consulting, education, support and systems integration services in
support of its customers' use of the Company's software products.

The Company was incorporated on October 29, 1986 in connection with a
reincorporation of the Company's predecessor in Delaware, which was completed
on March 12, 1987. The Company's primary operating subsidiary, Oracle
Corporation, a California corporation, was incorporated in June 1977. In May
1995, Oracle Corporation was merged into Oracle Systems Corporation, a
Delaware corporation, whose name was changed to Oracle Corporation. Unless the
context otherwise requires, the "Company" or "Oracle" refers to Oracle
Corporation, its predecessor and its subsidiaries. The Company maintains its
executive offices and principal facilities at 500 Oracle Parkway, Redwood
City, California 94065. Its telephone number is (415) 506-7000.

BACKGROUND

Computer software can be classified into two broad categories: system software
and application software. System software includes (1) operating systems,
which control the computer hardware, (2) compilers and interpreters, which
translate programs into a form that can be executed by a computer,
(3) communications software, which permits computers to send data across a
network, and (4) database management systems, which are used to create,
retrieve and modify data stored in computers. Application software automates
the performance of specific business data processing functions such as payroll
processing, general ledger accounting and inventory control.


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Database management systems software permits multiple users and applications
to access data concurrently while protecting the data against user and program
errors and against computer and network failures. Database management systems
are used to support the data access and data management requirements of
transaction processing and decision-support systems.

The comparative advantage of a relational DBMS over a non-relational DBMS is
that users need not know how or where their data is stored in the computer. To
access data, users simply specify what data they desire, not how to retrieve
it. Relational systems navigate automatically to the data, making database
information readily accessible to all users, irrespective of their familiarity
with the structure of the database. Regardless of how the data is actually
stored in the computer memory, the results of database queries are presented
to users in familiar, two-dimensional tables of rows and columns of data.
Relational DBMSs therefore are widely used for management information and
decision-support systems which require flexible access to large quantities of
data.

Relational databases are often chosen to support data warehouses. A data
warehouse is designed to store large amounts of historical or reference data
which typically is used to support the decision-making and information needs
of an enterprise. Because they facilitate application development and
maintenance, relational DBMSs also have become widely used in mid-range and
low-end transaction processing environments. As their performance and
reliability have improved, relational DBMSs increasingly have been chosen to
support mission-critical data processing applications.

Managing multimedia information such as video, audio, text, messaging, spatial
and multi-dimensional data, often dictates the use of relational DBMSs. The
Company believes that such use of relational DBMSs is particularly important
as application development becomes more prevalent on the Internet.
Traditionally, web-based systems have been primarily transaction-oriented in
nature. Because Internet applications are becoming more information-oriented,
relational DBMSs have become more widely used for web-based systems. As the
various forms of information on the Internet become more complex and widely
used (video, audio, text, messaging, spatial and multi-dimensional data), the
Company believes the demand for more sophisticated relational DBMSs will
increase.

Object-oriented technology allows companies to more closely model their
systems to an enterprise's business. In an object-oriented development
environment, developers can define objects (data structures) and methods
(operations) that correspond directly to a business application. To support
these features, Oracle8 includes many new object-relational features such as
custom object types, methods and object views.

PRODUCT DEVELOPMENT HISTORY

In 1976, International Business Machines Corporation ("IBM") published the
specifications for a simple, English-like command language called SQL
(pronounced "sequel"), with which users define, retrieve, manipulate and
control data stored in a relational DBMS. In 1977, the Company was formed to
develop a relational DBMS using IBM's published specifications for the SQL
language. Two years later, in June 1979, the Company introduced the Oracle
relational DBMS, the first commercially available relational DBMS. IBM's first
relational DBMS product, SQL/DS, was released in February 1982. In 1985, IBM
announced DB2, its second relational DBMS product, and its second product to
implement SQL. SQL has become the industry standard command language for
relational DBMS products. In October 1986, the American National Standards
Institute ("ANSI") approved a standard definition for the SQL command
language, which was also adopted by the International Standards Organization
("ISO"). The SQL standard was updated with additional capabilities in 1989,
and a second enhanced standard ("SQL92") was finalized in 1992.

The Company has periodically released updated versions of the Oracle
relational DBMS containing performance and functionality enhancements for
distributed computing, on-line transaction processing and decision support
applications. Complementing the core server technology, Oracle also develops
and markets a comprehensive family of application development tools for
different types of applications. These application tools provide both
development and deployment environments for building scalable, client server
applications running on a broad

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range of platforms. The most recent version of Oracle's tool set includes
Oracle Designer/2000 and Developer/2000, the core development tools for client
server applications development. In addition, the Company introduced Oracle
Web Tools in 1997 which allow users to convert Oracle based client server
applications to web applications. In the data warehousing area, Oracle offers
business intelligence tools including Discoverer/2000 and Oracle Express,
which provide query, analysis and decision support capabilities.

The Company initially entered the business applications market in the late
1980's. Oracle's business applications products provide a comprehensive global
business solution that allows for complete enterprise automation. The business
applications product suite includes over 30 client server applications modules
for financial management, supply chain management, project systems,
manufacturing, sales force automation and human resources. In 1997, the
Company introduced Web Applications which allow users to operate in a "thin-
client" environment and companies to benefit from lower cost of ownership and
easier systems management.

In 1992, the Company introduced Version 7 of the Oracle relational DBMS
("Oracle7"), which was developed to improve the product's ability to support
large numbers of users and higher rates of transaction processing, to provide
enhanced application development capabilities such as DBMS server-enforced
business rules for data integrity, and to permit multiple computers running
DBMSs of Oracle and other vendors to cooperatively share data with other
computers across a communications network.

In 1994, the Company acquired the Rdb relational DBMS and associated software
products (now known as "Oracle Rdb") from Digital Equipment Corporation
("DEC"). This product has many of the same attributes as the Oracle7
relational DBMS, but it operates only on hardware and operating systems
developed by DEC.

In 1995, the Company acquired the Express(R) family of on-line analytical
processing ("OLAP") software products from Information Resources, Inc. ("IRI")
in order to enhance its existing data warehousing strategy. These products
complement Oracle's existing products for the development and maintenance of
data warehouses and enable customers to manage and perform complex analyses of
business data.

In October, 1996, the Company introduced Network Computing Architecture(TM)
(NCA). Oracle's Network Computing Architecture is a cross-platform environment
for developing and deploying object-based, network-centric applications,
including robust Web applications. Through this architecture, existing client
server applications can take advantage of Web technology with minimal change.
It also allows customers to implement distributed object technologies. Based
on open de facto standards, CORBA and HTTP, Oracle's Network Computing
Architecture supports the Netscape ONE client, the network computer and
Microsoft's ActiveX Desktop. Network Computing Architecture enables customers
to protect existing IT investments while taking advantage of new technologies
by dynamically linking Internet, client server and legacy systems.

In 1997, Oracle acquired Datalogix, a provider of client server solutions for
process manufacturing applications.

In June 1997, the Company introduced Oracle8, the latest major version of its
primary product. Oracle8 is based on an advanced scalable architecture and
leverages the broadest range of hardware. Key new features include object
relational technology, data partitioning, server managed back-up and recovery,
advanced queuing, heterogeneous services, index only tables and binary large
objects.

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PRODUCTS

The Company's product strategy is to deliver to its customers scalable
solutions for personal, workgroup, department and enterprise computing as well
as the public. The Company's products span all of these markets and are
contained within three primary product families: Server Technologies,
Application Development and Business Intelligence Tools and Business
Applications, as follows:




SERVER TOOLS APPLICATIONS
------ ----- ------------

ORACLE8 DESIGNER/2000 FINANCIALS
ORACLE8 ENTERPRISE EDITION DEVELOPER/2000 HUMAN RESOURCES
WEB APPLICATION SERVER WEB TOOLS MANUFACTURING
EXPRESS SERVER DATABASE DESIGNER SALES FORCE AUTOMATION
ENTERPRISE MANAGER POWER OBJECTS SUPPLY CHAIN MANAGEMENT
GROUPWARE PROJECTS
OLAP TOOLS DATAWAREHOUSING
WEB APPLICATIONS



SERVER TECHNOLOGIES

Products

The Company's Server Technologies product family consists of an integrated set
of database server and networking products. The principal product is the
Oracle relational DBMS. The Oracle relational DBMS gives users the ability to
define, retrieve, manipulate and control data stored on multiple computers,
using the industry standard SQL language. With the current version, Oracle8,
additional capabilities have been included that allow users to manage
unstructured information such as text, spatial, video, messaging,
multidimensional data and object-relational information.

With the introduction of Oracle's Network Computing Architecture, Oracle
introduced Oracle Web Application Server, a middleware component of Oracle's
three-tier strategy. Oracle Web Application Server is an open-software
platform for developing, deploying and managing distributed software
application programs. Based on CORBA (Common Object Request Broker), the
Oracle Web Applications Server ("thin-client") allows distributed transaction
processing with large numbers of users and data while improving performance
and lowering incremental deployment and maintainence costs. The current
version 3.0 can run on Netscape, Microsoft and Oracle data servers.

Oracle Express Server, acquired in 1995 as part of IRI's Express family of
products, is an advanced calculation engine and data cache for data
warehousing and OLAP (On-line Analytical Processing) and a key component of
Oracle's server technology family. The Express Server uses a multidimensional
model that reflects how users view their business. Oracle Express integrates
cross-departmental data, enabling managers to view their business from a
common information base, along multiple dimensions. It provides users with the
ability to work with all of the data in a data warehouse. Express can also go
beyond the warehouse and integrate data from disparate systems--relational,
legacy or external. This integration enables new applications, such as fact-
based selling, activity-based costing and product profitability analysis to
transcend the boundaries of a single department.

Another component of the Server Technologies product family is the Oracle Open
Gateway products (Oracle Transparent Gateway(R) and Oracle Procedural
Gateway(R)). These products allow non-Oracle DBMSs to be integrated into a
distributed database environment. Users can employ the SQL language to access
data stored in other relational DBMSs such as IBM's DB2 and data stored in
older hierarchical DBMSs or file systems.

6


Key Features

The Oracle8 relational DBMS supports a client server architecture between
application programs and database servers, as well as a network computing
architecture among client devices, applications servers and database servers.
Additionally, Oracle8 permits transparent data sharing across a communications
network so that application programs and users can access data without knowing
or specifying the location of the data within the network. The Oracle8 object-
relational DBMS provides features to support the operational requirements of
on-line transaction processing (OLTP), decision support and data warehouse
environments for high systems availability and performance. The Oracle
relational DBMS provides optional parallel server technology that further
extends scalability and availability by allowing multiple, loosely coupled or
clustered machines to access cooperatively a logical database spread across
multiple disks. Furthermore, the Oracle8 DBMS provides optional parallel query
capabilities that enable quick searching of large amounts of data for large-
scale decision support and data warehouse applications. The Oracle8 relational
DBMS also contains replication features that automatically copy data among
multiple locations, providing systems architects and application developers
with additional flexibility for managing data distribution and access
throughout an enterprise.

The Company's database technology has supported the management of unstructured
data, such as text, audio and video, since the introduction of Oracle 7.3.
With the release of Oracle8, object-relational capabilities of the Company's
database technology have been extended to support high-speed transactions,
powerful decision-support and leading edge network computing applications.

Among the key features of the Oracle Express Server are functions that
analyze, forecast, model and ask what-if questions of the data. The server has
built-in functions for mathematical, financial, statistical, logical and
string manipulation. Express Server can store and manage multidimensional
arrays of data or provide direct analysis of relational data with a
sophisticated multidimensional caching scheme. Other key features include the
ability to structure data in ways users understand, portability to leading
server platforms and on operating systems such as Microsoft, IBM, Digital and
Hewlett-Packard, scalability from PC to mainframe, simultaneous accessibility
to several multidimensional databases, accessibility through published
Application Programming Interfaces (APIs) which include Dynamic Link Library
(DLL), Visual Basic custom control and Dynamic Data Exchange (DDE), and the
ability to combine relational and multidimensional data through APIs which
include a SQL interface to any database that complies with the Open Database
Connectivity (ODBC) standard, native SQL support for Oracle, Sybase, Ingres,
Teradata, DB2 and SQLServer (both Sybase and Microsoft).

Applications developed with the Oracle relational DBMS are scalable from the
desktop to massively parallel computers and are portable to a wide variety of
hardware and operating system environments with little or no change to the
underlying structure.

APPLICATION DEVELOPMENT AND BUSINESS INTELLIGENCE TOOLS

Products

The Company provides a number of application development tools for different
types of applications. For the personal and workgroup markets, Oracle offers
Oracle Power Objects(R), a simple, easy-to-use development tool for
client/server and web applications. For the departmental and enterprise
systems, Oracle offers two products: Designer/2000(TM) and Developer/2000(TM).
Designer/2000 is a set of development tools for modeling and generating both
client server and web applications. Developer/2000 is an application
development and deployment tool which offers a robust development environment
for building scalable database applications that can be deployed on a variety
of platforms, including the World Wide Web. The Company also offers a suite of
business intelligence tools, Oracle Discoverer(TM) and Oracle(R) Express(R),
which provide query, analysis and decision support capabilities to a wide
range of users accessing data warehouses and data marts.

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Key Features

The Company's application development tools are being developed to run on
Oracle's Network Computing Architecture, with the goal of providing
enterprise-class performance and compatibility with other applications. These
tools run on a variety of platforms, support graphical user interfaces and
allow for an efficient use of hardware resources.

BUSINESS APPLICATIONS

Products

Oracle Applications consist of over 30 integrated software modules for
financial management, supply chain management, manufacturing, project systems,
human resources and sales force automation. These applications combine
business functionality with innovative technologies, such as data warehousing
and workflow, to build enterprise-wide solutions. Oracle currently provides or
is in the process of developing industry solutions for the Consumer Packaged
Goods, Energy, Healthcare, Telecommunications, Government/Higher Education,
Industrial, Financial Services and other industries. Oracle Applications are
designed for rapid implementation and continuous process improvement.

Oracle also provides a family of applications that have been specifically
designed for the World Wide Web--Oracle Applications for the Web. These
applications enable customers to lower the cost of their business operations
by providing their customers, suppliers and employees self-service access to
selected business information using the World Wide Web.

The Company is currently developing web-deployed applications which will have
a "thin-client" technology based on the Oracle Network Computing Architecture
and have the potential to reduce the costs of deployment and maintenance
associated with traditional client server applications.

For better management, Oracle Applications Data Warehouse provides businesses
the enterprise-wide view of information required for informed decision making.

Key Features

Oracle is the only applications vendor that builds an integrated set of
technologies: applications, tools and database. This enables the Company to
build application enhancements within each technology layer for improved
scalability and performance. Oracle's flexible and open applications
architecture enables customers to tailor the applications with minimal
programming and easily integrate Oracle Applications with third party and
legacy systems. Release 10.7 of Oracle Applications is fully compliant with
year 2000 requirements.

With web-deployed Oracle Applications, customers can reduce administrative and
installation costs associated with traditional two-tier architectures by
running Oracle Applications on any Java-enabled Web browser. This enables the
applications to be run on traditional PCs and new low-cost clients such as
network computers.

CONSULTING, EDUCATION AND SUPPORT SERVICES

In most of its sales offices around the world, the Company has trained
consulting and education personnel who offer consulting and education services
that help customers realize the potential of the Company's products in meeting
their information management needs. Consultants and instructors supplement the
Company's product offerings by providing services to assist customers in the
implementation of applications based on the Company's products and to ensure
that customers have the necessary training to use the Company's products.
Consulting and education revenues represented approximately 26% of total
revenues in fiscal 1997 and 24% of total revenues in each of fiscal 1996 and
1995.

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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 around the world. The prices of the Company's support services
are generally based on the level of support services provided and the number
of users authorized to access the Company's software products. Support
revenues represented approximately 23%, 21% and 20% of total revenues in
fiscal 1997, 1996 and 1995, respectively.

The Company believes that its broad-based service offerings and its current
and planned product offerings facilitate the transfer of technology to
customers and stimulate demand for the Company's products.

MARKETING AND SALES

Direct and Indirect Sales Organization

In the United States, the Company markets its 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, 1997, were located in approximately
60 United States metropolitan areas.

Outside the United States, the Company markets its products primarily through
the sales and service organizations of approximately 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. See Note 8 of Notes to Consolidated
Financial Statements for a summary of operations by geographic region.

The Company also markets its products through value-added relicensors,
hardware providers, systems integrators and independent software vendors that
combine the Oracle relational DBMS, application development tools and business
applications with computer hardware or software application packages for
redistribution.

Additionally, the Company markets its products through independent
distributors in international territories not covered by its subsidiaries'
direct sales organizations.

As of May 31, 1997, headcount in the United States included 9,634 sales and
service employees while the international sales and service groups consisted
of 13,015 employees.

Additional Customer Information

Revenues from international customers (including end users and resellers)
amounted to approximately 53%, 57% and 58% of the Company's total revenues in
fiscal 1997, 1996 and 1995, respectively. See Note 8 of Notes to Consolidated
Financial Statements for a summary of operations by geographic region.

PRODUCT DEVELOPMENT

The Company continually enhances its existing products and develops new
products in order to meet its customers' ever-changing requirements and to
expand its product base. Research and development expenditures were 10% of
total revenues in fiscal 1997, 1996 and 1995, respectively (in each case prior
to the effect of amounts capitalized in accordance with Statement of Financial
Accounting Standards No. 86).

Significant areas of product development expenditures during fiscal 1997
included the following:

. Enhancing and extending the Oracle relational DBMS, including extending
its distributed database capability, optimizing its performance in
production applications, increasing its data capacity and ability to
handle large user populations, adding additional security features,
incorporating object oriented extensions to SQL and adding the ability
to manage large objects, including video, audio, text and more complex
structures of data;

9


. Developing and enhancing network software products, including
application development tools for networks, application deployment
platforms for networks, and network management products, including
support for the Internet and the World Wide Web;

. Developing new and enhanced network-oriented groupware products for
document management, communication and personal productivity;

. Developing new and enhanced application development and business
intelligence tools;

. Developing and enhancing client server and network computing business
applications for financial management, supply chain management, project
systems, manufacturing, sales force automation and human resources,
including vertical industry extensions to meet specific industry
solutions initiative ("ISI") requirements;

. Developing reference design specifications for a family of low-cost,
easy-to-use network computing devices and applications, as well as some
applications development for network computer devices; and

. Porting new versions and releases of the Company's products to the
numerous computer models on which prior versions and releases operate,
as well as extending the Company's products to make effective use of new
hardware technologies.

COMPETITION

The computer software industry is intensely competitive and rapidly evolving.
The Company competes in various markets. Prospective customers often perform a
detailed technical evaluation or benchmark of competitive products as a part
of the DBMS, applications software and software development tools selection
process. Technical support is therefore a critical element in the Company's
sales and delivery process. Consequently, sales representatives typically are
teamed with technical support specialists who can answer technical questions,
help customers run benchmarks against competitive products and develop
prototype databases and Oracle-based applications.

The principal independent software competitors in the enterprise and
departmental DBMS marketplace include Informix Corporation, Sybase, Inc.,
Computer Associates International, Inc., Progress Software Corporation and
Software AG. In the workgroup and personal DBMS marketplace, the Company
competes with several desktop software vendors, including Microsoft
Corporation. In addition, hardware systems vendors sell or license database
software with which the Company competes, including International Business
Machines Corporation. In the application development and business intelligence
tools market, the Company competes primarily with Visual Basic, a product
owned by Microsoft Corporation, PowerBuilder, a product owned by Sybase, Inc.,
and Forte Software, Inc. The Company also competes in the client server
business applications software market. Competitors include SAP
Aktiengeschellschaft, Peoplesoft, Inc. and The Baan Company in the financial,
manufacturing and human resources applications markets. The Company also
competes with systems integrators and consulting organizations in the services
marketplace. In the data warehousing market, the Company's OLAP products
compete with those of Red Brick Systems, Inc., Arbor Software Corporation,
Cognos, Inc. and Business Objects, S. A.

In the enterprise market (massively parallel, clustered, symmetrical multi-
processing, mainframes, minicomputers and workstations), the Company believes
that the most important considerations for end user software customers are
performance, functionality, product reliability, ease of use, quality of
technical support and total cost of ownership, including initial price and
deployment costs as well as ongoing maintenance costs. In the workgroup
market, the Company believes that the principal competitive factors are
strength in distribution and marketing, brand name recognition,
price/performance characteristics, ease of use, ability to link with
enterprise systems and product integration. The Company believes that it
competes effectively in each of these markets, although the competition is
intense in each market.

10


PRODUCT AND SERVICES REVENUES

The Company's standard end user license agreement for the Company's products
provides for an initial fee to use the product in perpetuity up to a maximum
number of users on a specified computer. The Company currently offers either
CPU-based or user-based pricing for most products. The Company also enters
into other license agreement types, typically with major end user customers,
which allow for the use of the Company's products, usually restricted by the
number of users, the number of employees, the number of CPUs or the license
term. Fees from licenses with standard acceptance periods (15 days for
commercial customers, and 30 days for shrink-wrap, government and
telemarketing customers) are recognized as revenue upon shipment if there are
no significant post-delivery obligations and payment is due within one year.
If the acceptance period is longer than standard, revenues are not recognized
until the end of the acceptance period. The Company provides for sales returns
based on historical rates of return.

The Company receives sublicense fees from its Oracle Alliance members (value-
added relicensors, hardware providers, systems integrators and independent
software vendors) based on the sublicenses granted by the Oracle Alliance
member. Sublicense fees typically are based on a percentage of the Company's
list price and are generally recognized as they are reported by the reseller.

In general, the Company prices its support services based on the level of
support services provided and the number of users authorized to access the
Company's software products. Most customers take support initially and renew
their support agreements annually. Support usually consists of two parts: (1)
technical support, including telephone consultation on the use of the products
and problem resolution; and (2) system updates for software products and user
documentation. The Company generally bills support fees at the beginning of
each support period. Support revenues are recognized ratably over the contract
period. Revenues related to consulting and education services to be performed
by the Company generally are recognized over the period during which the
applicable service is to be performed or on a services-performed basis.

The Company's quarterly revenues and expenses reflect distinct seasonality.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations."

PRODUCT PROTECTION

The Company relies on a combination of trade secret, copyright, patent,
trademark and other proprietary or intellectual property rights laws, license
agreements and technical measures to protect its rights in its software
products. The Company owns several issued patents and has numerous patent
applications pending before the United States Patent and Trademark Office.

The Company has registered "ORACLE" as a trademark in the United States and in
over 100 foreign countries and has additional registrations pending. The
Company also has registered over 45 other trademarks in the United States for
other product names and also has registration applications pending for
products and services names in the United States and foreign countries.

The Company's products generally are licensed to end users on a "right to use"
basis pursuant to a nontransferable perpetual license that restricts the use
of the products to the customer's operations on either a single CPU or up to a
maximum number of users across a network of services. Although the Company's
license agreements prohibit a customer from disclosing the proprietary
information contained in the Company's products to any other person, it is
technologically possible for competitors of the Company to copy aspects of the
Company's products in violation of the Company's rights. The Company's
products are generally licensed pursuant to signed license agreements, or may
be licensed pursuant to "shrink-wrap" licenses that are not signed by the
licensee. The enforceability of such shrink-wrap licenses has not been
conclusively determined in all jurisdictions. The Company also distributes
certain of its workgroup products through the Internet pursuant to on-line
licenses that are acknowledged by the licensee. The enforceability of such
licenses has not yet been determined by the courts. In addition, the laws of
certain foreign countries do not protect the Company's proprietary rights in
its products to the same extent as do the laws of the United States.

11


The Company believes that its trade secret, copyright, patent, trademark and
other proprietary and intellectual property rights are important. However,
because of the rapid pace of technological change in the computer software
industry, factors such as the knowledge, ability and experience of the
Company's personnel, brand recognition and ongoing product support may be more
significant in maintaining the Company's competitive advantages.

EMPLOYEES

As of May 31, 1997, the Company employed 29,431 full-time persons, including
21,617 in sales and services, 1,032 in marketing, 3,970 in research and
development and 2,812 in general and administrative positions. Of such
employees, 14,181 were located in the United States and 15,250 were employed in
approximately 60 other countries outside the United States.

None of the Company's employees is represented by a labor union. The Company
has experienced no work stoppages and believes that its employee relations are
good.

ITEM 2. PROPERTIES

The Company's headquarters facilities consist of approximately 1,900,000 square
feet of office space in Redwood City and Belmont, California, of which
1,400,000 square feet is located in six buildings. The Company owns two of the
buildings, is in the process of completing the purchase of two additional
buildings, and has options to acquire the other two buildings, which are
currently leased. As discussed in Note 2 to the Consolidated Financial
Statements, the Company has capitalized leases for the two buildings which it
is in the process of acquiring as well as both of the leased buildings. The
Company also owns the land under its main headquarters buildings and owns or
controls additional land near its headquarters site on which it is currently
constructing an additional headquarters building. In addition, the Company has
purchased land in the UK and has constructed a 100,000 square foot facility to
be used for its UK subsidiary's headquarters and is constructing an additional
100,000 square foot facility in the UK. The Company also purchased land in New
Hampshire where it has constructed a 70,000 square foot field office site.
Additionally, the Company has purchased land in Virginia and Rocklin,
California, on which the Company is constructing 200,000 and 100,000 square
foot buildings, respectively. The Company also leases office space in numerous
locations in the United States and many other countries.

The Company believes that its facilities are adequate for its current needs and
that suitable additional or substitute space will be available as needed to
accommodate expansion of the Company's operations. See Notes 2 and 5 of Notes
to Consolidated Financial Statements for information regarding the Company's
lease obligations.

ITEM 3. LEGAL PROCEEDINGS

The Company is subject to various legal proceedings and claims, either asserted
or unasserted, which arise in the ordinary course of business. While the
outcome of these claims cannot be predicted with certainty, management does not
believe that the outcome of any of these legal matters will have a material
adverse effect on the Company's consolidated results of operations or
consolidated financial position.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

12


ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT

The executive officers of the Company are as follows:



NAME OFFICE(S)
---- ---------

Lawrence J. Ellison..... Chief Executive Officer and Chairman of the Board
Raymond J. Lane......... President, Chief Operating Officer and Director
Jeffrey O. Henley....... Executive Vice President, Chief Financial Officer and Director
David J. Roux........... Executive Vice President, Corporate Development
Robert W. Shaw.......... Executive Vice President, Worldwide Consulting Services and
Vertical Markets
Daniel Cooperman........ Senior Vice President, General Counsel and Secretary
Thomas A. Williams...... Vice President and Corporate Controller


Mr. Ellison, 52, 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 and
is a member of President Clinton's Export Council. Mr. Ellison is also a
director of SuperGen, Inc., a pharmaceutical company, as well as Apple
Computer, Inc., a computer hardware company.

Mr. Lane, 50, has been President and Chief Operating Officer of the Company
since July 1996. Mr. Lane served as Executive Vice President of the Company
and President of Worldwide Operations from October 1993 to June 1996, and has
been a Director since June 1995. He served as a Senior Vice President of the
Company and President of Oracle USA from June 1992 to September 1993. Before
joining Oracle, Mr. Lane served as Senior Vice President and Managing Partner
of the Worldwide Information Technology Group at Booz-Allen & Hamilton from
July 1986 to May 1992. He served on the Booz-Allen & Hamilton Executive
Committee and its Board of Directors from April 1987 to May 1992. Mr. Lane is
also a member of the Board of Trustees of Carnegie Mellon University.

Mr. Henley, 52, has been Executive Vice President and Chief Financial Officer
of the Company since March 1991, and has been a Director since June 1995.
Prior to joining Oracle, he served as Executive Vice President and Chief
Financial Officer of Pacific Holding Company, a privately held company with
diversified interests in manufacturing and real estate, from August 1986 to
February 1991. Mr. Henley is also a director of Tricord Systems, Inc., a
computer hardware company.

Mr. Roux, 40, has been Executive Vice President of Corporate Development since
March 1996, and Senior Vice President of Corporate Development of the Company
since September 1994. Before joining Oracle, Mr. Roux served as Senior Vice
President, Marketing and Business Development at Central Point Software from
April 1992 to July 1994. From October 1991 to April 1992, he served as Senior
Vice President of the Portable Computing Group at Lotus Development
Corporation and from June 1990 to October 1991, he served as Vice President of
Business Development at Lotus Development Corporation. Mr. Roux is also a
director of Voxware, Inc., a digital speech processing technology company, and
the Western NIS Enterprise Fund.

Mr. Shaw, 49, has been Executive Vice President of Worldwide Consulting
Services and Vertical Markets since February 1997, and Senior Vice President
of Worldwide Applications and Services of the Company from August 1995 to
January 1997. From June 1992 to July 1995, Mr. Shaw served as Senior Vice
President of Global Services of the Company. Prior to joining Oracle, Mr. Shaw
served as a Vice President of the West Coast Informations Systems group of
Booz-Allen & Hamilton from June 1989 to June 1992.

13


Mr. Cooperman, 46, 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.

Mr. Williams, 45, has been a Vice President of the Company since October 1990
and Corporate Controller since May 1989. Prior to joining Oracle, Mr. Williams
held various positions in the Audit Division of Arthur Andersen LLP, an
international public accounting firm, including Partner from September 1987 to
May 1989.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's Common Stock has been traded in the over-the-counter market and
the NASDAQ National Market since the Company's initial public offering in 1986.
According to records of the Company's transfer agent, the Company had
approximately 8,396 stockholders of record as of May 31, 1997. Because many of
such shares are held by brokers and other institutions on behalf of
stockholders, the Company is unable to estimate the total number of
stockholders represented by these record holders. The following table sets
forth the low and high sale price as of the close of market of the Company's
Common Stock in each of the Company's last eight fiscal quarters.



LOW SALE PRICE HIGH SALE PRICE
-------------- ---------------

Fiscal 1997:
Fourth Quarter................................ $33.63 $48.13
Third Quarter................................. 37.00 51.00
Second Quarter................................ 34.50 50.13
First Quarter................................. 32.00 42.13
Fiscal 1996:
Fourth Quarter................................ $26.49 $36.00
Third Quarter................................. 26.33 36.67
Second Quarter................................ 23.33 32.50
First Quarter................................. 22.67 29.58


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.

During fiscal 1997, the Company issued and sold securities without registration
under the Securities Act of 1933 (the "Securities Act") in reliance on Section
4(2) thereof. On May 12, 1997, the Company issued and sold 3,000,000 Series A
Equity Call Warrants to an institutional investor pursuant to a Warrant
Purchase Agreement dated May 7, 1997 (Exhibit 4.2), and the related pricing
agreement, for an aggregate purchase price of $17,946,000. On May 19, 1997, the
Company issued and sold 3,000,000 Series I Equity Call Warrants to an
institutional investor pursuant to a Warrant Purchase Agreement dated as of May
14, 1997 (Exhibit 4.5), and the related pricing agreement, for an aggregate
purchase price of $17,952,000. There were no underwriters employed in
connection with either of the two transactions.

On July 14, 1997, the Company announced a three-for-two stock split in the form
of a common stock dividend to be distributed on August 15, 1997 to stockholders
of record as of August 1, 1997. Per share data and numbers of common shares
contained in these consolidated financial statements and in Management's
Discussion and Analysis of Financial Condition and Results of Operations have
not been adjusted to reflect the stock split that will be effective in the
first quarter of fiscal 1998.

14


ITEM 6. SELECTED FINANCIAL DATA



YEAR ENDED MAY 31,
------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Revenues............. $5,684,336 $4,223,300 $2,966,878 $2,001,147 $1,502,768
Operating income..... 1,262,985 904,891 649,721 419,953 216,979
Net income........... 821,457 603,279 441,518 283,720 98,256
Earnings per share... 1.22 0.90 0.66 0.43 0.15
Total assets......... 4,624,315 3,357,243 2,424,517 1,594,984 1,184,020
Short-term debt...... 3,361 5,623 9,599 6,898 10,684
Long-term debt....... 300,836 897 81,721 82,845 86,380
Stockholders' equity. 2,369,712 1,870,449 1,211,358 740,553 528,039


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

In fiscal 1997, 1996 and 1995, the Company continued to improve its operating
margins (prior to the effects of the fiscal 1997 and 1996 adjustments for
acquired in-process research and development) over the corresponding prior
year periods due to increases in revenue growth, coupled with lower general
and administrative expenses as a percentage of revenues. The Company's revenue
growth rate was 35%, 42% and 48% in fiscal 1997, 1996 and 1995, respectively.
Sales and marketing expenses continued to represent the largest category of
operating expenses, constituting 35% of revenues in fiscal 1997 and 37% of
revenues in fiscal years 1996 and 1995. Cost of services as a percentage of
total revenues increased to 27% in fiscal 1997 from 26% in both fiscal year
1996 and 1995. The Company's investment in research and development remained
constant at 10% of revenues in fiscal years 1997, 1996 and 1995, prior to the
impact of capitalized software development costs. General and administrative
expenses as a percentage of revenues decreased to 5% in 1997 from 6% in both
fiscal 1996 and 1995. Overall, operating income as a percentage of revenues
was 22% (23% prior to the adjustment for acquired in-process research and
development), 21% (23% prior to the adjustment for acquired in-process
research and development), and 22% in fiscal 1997, 1996 and 1995,
respectively.

Domestic revenues increased 47% in both fiscal 1997 and 1996, while
international revenues increased 25% and 39% in fiscal 1997 and 1996,
respectively. International revenues were unfavorably affected in both fiscal
1997 and 1996 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 31% and 41% in fiscal 1997 and 1996, respectively.
Revenues from international customers were approximately 53%, 57% and 58% of
revenues in fiscal 1997, 1996 and 1995, 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 1997 CHANGE FISCAL YEAR 1996 CHANGE FISCAL YEAR 1995
(DOLLARS IN THOUSANDS) ---------------- ------ ---------------- ------ -----------------

Licenses and Other...... $2,896,696 26% $2,296,572 37% $1,673,731
Percentage of revenues.. 51.0% 54.4% 56.4%
Services................ $2,787,640 45% $1,926,728 49% $1,293,147
Percentage of revenues.. 49.0% 45.6% 43.6%
Total Revenues........ $5,684,336 35% $4,223,300 42% $2,966,878



15


LICENSES AND OTHER REVENUES. During the past three fiscal years, the Company's
customer and product base has broadened as the Company has increased both the
number of channels that it uses to market its products, as well as the number
of computers and operating systems on which its relational DBMS operates, and
as additional software products have been acquired or introduced. License
revenues for software used on computers utilizing the UNIX operating system
decreased to 70% of license revenues in fiscal years 1997 and 1996 from 73% in
fiscal 1995. License revenues for use on desktop computers increased from 17%
in 1995 to 19% in 1996 and 23% in fiscal 1997. License revenues from software
for use on computers utilizing other proprietary operating systems, including
DEC, IBM and other proprietary vendors were 7%, 11% and 10% in fiscal 1997,
1996 and 1995, respectively.

License revenues represent fees earned for granting customers licenses to use
the Company's software products. License revenues also include revenues from
the Company's systems integration business, documentation revenues, certain
software development revenues and other miscellaneous revenues, which
constituted 3% of total license and other revenues in both fiscal 1997 and
1996, and 4% of total license and other revenues in fiscal 1995. License and
other revenue growth rates were 26% and 37% in fiscal 1997 and 1996,
respectively. The lower license and other revenues growth rate experienced in
fiscal 1997 was due primarily to relatively lower growth rates experienced by
the overall database market, continued weakness in the performance of certain
of its international subsidiaries and the strengthening of the U.S. dollar.

SERVICES REVENUES. Support, consulting and education services revenues each
increased in fiscal 1997 and 1996 over the corresponding prior year levels. The
Company's support revenues continued to constitute the largest portion of
services revenues, and grew 46% and 55% in fiscal 1997 and 1996, respectively.
This growth reflects the continued increase in the installed base of the
Company's products under support contracts as well as an increase in the number
of customers electing higher support service offerings. Consulting and
education services grew 44% in both fiscal 1997 and 1996 as the Company
continued to expand its services to assist customers in the use and
implementation of applications based on the Company's products.

OPERATING EXPENSES:



FISCAL YEAR 1997 CHANGE FISCAL YEAR 1996 CHANGE FISCAL YEAR 1995
(DOLLARS IN THOUSANDS) ---------------- ------ ---------------- ------ ----------------

Sales and Marketing..... $1,970,394 27% $1,549,231 40% $1,103,345
Percentage of revenues.. 34.7% 36.7% 37.2%
Cost of Services........ $1,550,466 41% $1,096,013 41% $ 779,012
Percentage of revenues.. 27.3% 26.0% 26.3%
Research and Development
(1).................... $ 555,476 43% $ 389,093 49% $ 260,597
Percentage of revenues.. 9.8% 9.2% 8.8%
General and Administra-
tive................... $ 308,215 32% $ 233,141 34% $ 174,203
Percentage of revenues.. 5.4% 5.5% 5.9%
Acquired In-Process
Research and
Development............ $ 36,800 (28%) $ 50,931 * --
Percentage of revenues.. 0.6% 1.2% --

- --------
* Not meaningful
(1) Pursuant to Statement of Financial Accounting Standards No. 86, the
Company capitalized software development costs equal to 0.5%, 1.1% and
1.6% of total revenues during fiscal 1997, 1996 and 1995, respectively.

International expenses were favorably affected in both fiscal 1997 and 1996
when compared to the corresponding prior year periods due to the strengthening
of the U.S. dollar against certain major international currencies.

SALES AND MARKETING EXPENSES. The Company continues to place significant
emphasis, both domestically and internationally, on direct sales through its
own sales force. However, the Company also continues to market its products
through indirect channels in order to increase market share while reducing
distribution costs. As a

16


percentage of licenses and other revenues, sales and marketing expenses
increased slightly in both fiscal 1997 and 1996 when compared to the
corresponding prior year periods, due primarily to increased sales expenses
incurred in anticipation of higher license growth rates than experienced.
Included in sales and marketing expenses is the amortization of capitalized
software development costs (see below).

COST OF SERVICES. The cost of providing services consists largely of
consulting, education and support personnel expenses. As a percentage of
services revenues, cost of services were 56% in fiscal 1997, having decreased
from 57% in fiscal 1996 and 60% in fiscal 1995. The Company's service margins
for fiscal 1997 were positively affected versus the prior years due primarily
to higher margins in the consulting area and a higher percentage of support
revenues which have higher margins than consulting and education revenues.

RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses would
have been 10% of total revenues in each of the 1997, 1996 and 1995 fiscal
years, without the capitalization of software development costs in accordance
with Statement of Financial Accounting Standards No. 86. Before considering
the impact of software capitalization, research and development expenses
increased 34% and 42% in fiscal 1997 and 1996, respectively. The fiscal 1997
increase was due in part to increases in research and development staff hired
in connection with the acquisitions of Datalogix International, Inc. and the
on-line analytical processing business of Information Resources, Inc. The
fiscal 1996 increase was due in part to research and development staff hired
in connection with the acquisitions of the on-line analytical processing
business of Information Resources, Inc. and the Rdb and repository businesses
of Digital Equipment Corporation. The Company capitalized $28,064,000,
$48,031,000 and $48,187,000, of computer software development costs in fiscal
1997, 1996 and 1995, respectively, which represented 5%, 11% and 16% of total
expenditures for research and development in fiscal 1997, 1996 and 1995.
Amortization of capitalized software development costs is charged to sales and
marketing expenses and totaled $28,156,000, $48,815,000 and $48,662,000, in
fiscal 1997, 1996 and 1995, respectively. The Company believes that research
and development expenditures are essential to maintaining its competitive
position and expects these costs to continue to constitute a significant
percentage of revenues.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses as a
percentage of revenues decreased in both fiscal 1997 and 1996 when compared to
their corresponding prior year periods, due primarily to higher revenue
levels.

ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT. Based on the results of third-
party appraisals, the Company recorded special charges of $36,800,000 in the
third quarter of fiscal 1997 and $50,931,000 in the first quarter of fiscal
1996 to expense in-process research and development costs related to the
acquisitions of Datalogix International, Inc. and the on-line analytical
processing business of Information Resources, Inc., respectively. In the
opinion of management and the appraiser, the acquired in-process research and
development had not yet reached technological feasibility and had no
alternative future uses.

OTHER INCOME (EXPENSE):



FISCAL YEAR 1997 CHANGE FISCAL YEAR 1996 CHANGE FISCAL YEAR 1995
(DOLLARS IN THOUSANDS) ---------------- ------ ---------------- ------ ----------------

Other Income (Expense).. $ 20,542 41% $ 14,619 58% $ 9,261
Percentage of revenues.. 0.4% 0.3% 0.3%

Changes in other income and non-operating expenses primarily reflect
fluctuations in interest income and expense related to changes in cash and debt
balances and interest rates, as well as foreign exchange and other
miscellaneous items. Additionally, the Company realized a gain of approximately
$3,100,000 during the first quarter of fiscal 1996 related to the sale of a
portion of its investment in Datalogix International, Inc.

PROVISION FOR INCOME TAXES:


FISCAL YEAR 1997 CHANGE FISCAL YEAR 1996 CHANGE FISCAL YEAR 1995
(DOLLARS IN THOUSANDS) ---------------- ------ ---------------- ------ ----------------

Provision for Income
Taxes.................. $462,070 46% $316,231 45% $217,464
Percentage of revenues.. 8.1% 7.5% 7.3%



17


The Company's effective tax rates have historically differed from the federal
statutory rate primarily because of tax credits, certain foreign sales
corporation income that is not taxed, state taxes, foreign income taxes
provided at rates greater than the federal statutory rate, as well as foreign
losses that could not be utilized. See Note 7 of Notes to Consolidated
Financial Statements. The effective tax rate was 36% in fiscal 1997, 34.4% in
fiscal 1996 and 33% in fiscal 1995. The increase in the tax rate in fiscal 1997
is due to the expiration of the federal research and development credit and the
relative profitability of various foreign subsidiaries.

NET INCOME AND EARNINGS PER SHARE:



FISCAL YEAR 1997 CHANGE FISCAL YEAR 1996 CHANGE FISCAL YEAR 1995
(DOLLARS IN THOUSANDS) ---------------- ------ ---------------- ------ ----------------

Net Income.............. $821,457 36% $603,279 37% $441,518
Percentage of revenues.. 14.5% 14.3% 14.9%
Earnings Per Share...... $ 1.22 36% $ 0.90 36% $ 0.66


QUARTERLY RESULTS OF OPERATIONS

The Company believes that fourth quarter revenues and expenses are affected by
a number of seasonal factors, including the Company's sales compensation plans.
The Company believes that these seasonal factors are common in the computer
software industry. Such factors historically have resulted in first quarter
revenues in any year being lower than revenues in the immediately preceding
fourth quarter. The Company expects this trend to repeat in the first quarter
of fiscal 1998. In addition, the Company's European operations generally
provide lower revenues in the summer months because of the generally reduced
economic activity in Europe during the summer.

The following table sets forth selected unaudited quarterly information for the
Company's last eight fiscal quarters. The Company believes that all necessary
adjustments (which consisted only of normal recurring adjustments) have been
included in the amounts stated below to present fairly the results of such
periods when read in conjunction with the financial statements and related
notes included elsewhere herein.



FISCAL 1997 QUARTER ENDED
--------------------------------------------
FEBRUARY
AUGUST 31 NOVEMBER 30 28 MAY 31
---------- ----------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Revenues....................... $1,052,320 $1,311,373 $1,372,612 $1,948,031
Operating Income............... $ 168,875 $ 274,188 $ 260,127 $ 559,795
Net Income..................... $ 112,771 $ 179,496 $ 169,253 $ 359,937
Earnings Per Share (1)......... $ 0.17 $ 0.27 $ 0.25 $ 0.54
Number of Common and Common
Equivalent Shares Outstanding. 673,810 675,949 673,186 668,508

FISCAL 1996 QUARTER ENDED
--------------------------------------------
FEBRUARY
AUGUST 31 NOVEMBER 30 29 MAY 31
---------- ----------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Revenues....................... $ 771,803 $ 967,184 $1,020,239 $1,464,074
Operating Income............... $ 74,191 $ 204,612 $ 219,942 $ 406,146
Net Income..................... $ 53,763 $ 136,901 $ 146,290 $ 266,325
Earnings Per Share (1)......... $ 0.08 $ 0.20 $ 0.22 $ 0.40
Number of Common and Common
Equivalent Shares Outstanding. 669,776 670,710 670,479 671,667

--------
(1) Earnings per share before the effect of the adjustment for acquired in-
process research and development were $0.29 and $0.13 per share in the
quarters ended February 28, 1997 and August 31, 1995, respectively.

18


LIQUIDITY AND CAPITAL RESOURCES



FISCAL YEAR ENDED MAY 31,
-------------------------------------------
1997 CHANGE 1996 CHANGE 1995
---------- ------ -------- ------ --------
(IN THOUSANDS)

Working capital.................. $1,348,957 63% $829,501 48% $562,045
Cash and cash investments........ 1,329,527 51% 882,871 51% 585,818
Cash provided by operating activ-
ities........................... 1,030,504 16% 889,157 56% 568,684
Cash used for investing activi-
ties............................ 777,381 41% 551,488 11% 495,769
Cash used for financing activi-
ties............................ 57,122 (35%) 88,291 451% 16,034


Working capital increased in both fiscal 1997 and 1996 over the corresponding
prior year periods, due primarily to increased cash flow from operations as
well as proceeds from the issuance of Senior Notes in fiscal 1997 (see below),
offset in part by stock repurchases, which resulted in higher cash levels.

The Company generated higher positive cash flows from operations in both
fiscal 1997 and 1996, due primarily to improved profitability and strong cash
collections.

Cash used for investing activities increased in both fiscal 1997 and 1996 as
compared to the corresponding prior year periods due primarily to changes in
the levels of cash investments. In both periods, the Company made significant
investments in capital expenditures. In addition, the Company acquired
Datalogix International, Inc. for $82,000,000 in cash in the third quarter of
fiscal 1997 ($58,000,000 net of cash assumed) and the on-line analytical
processing business of Information Resources, Inc. for $100,000,000 in cash in
the first quarter of fiscal 1996. The Company expects to continue to invest in
capital assets and capitalized software development activities to support its
growth.

The Company's Board of Directors has approved the repurchase of up to
47,000,000 shares of Common Stock on the open market to reduce the dilutive
effect of the Company's stock plans. Pursuant to this repurchase program, the
Company purchased 12,807,500 shares of the Company's Common Stock for
approximately $528,209,000 in fiscal 1997, 4,478,134 shares of the Company's
Common Stock for approximately $113,087,000 in fiscal 1996, 4,201,875 shares
of the Company's Common Stock for approximately $75,859,000 in fiscal 1995 and
13,437,000 shares of the Company's Common Stock for approximately $124,787,000
prior to fiscal 1995. The Company used cash flow from operations and proceeds
from the issuance of Senior Notes in fiscal 1997 to repurchase the Company's
Common Stock and to invest in working capital and other assets to support its
growth.

During fiscal 1995 and 1994, the Company sold 5,752,500 put warrants. On March
24, 1995, 3,502,500 of these put warrants were canceled at minimal cost and
the remaining warrants expired without being exercised. Additionally, the
Company purchased 3,595,500 call options in fiscal 1995 and 1994. On July 6,
1995, the Company sold 2,189,250 of the call options and credited the net
proceeds of $17,175,000 to equity. The remaining 1,406,250 call options were
exercised in October 1995 at $21.08 per share for a total of $29,648,000 and
were included in stock repurchases for fiscal 1996.

During fiscal 1997, the Company sold 6,000,000 warrants, each of which
entitles the holder to purchase one share of Common Stock at prices between
$77.00 and $77.55. These warrants expire in May 2000 and the proceeds of
$35,898,000 were credited to equity.

During the third quarter of 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, 1997, the Company also had other outstanding debt of approximately
$4,197,000, primarily in the form of other notes payable and capital leases.

19


Subsequent to May 31, 1997, the Company announced the completion of the merger
of its wholly owned subsidiary, Network Computer, Inc., and Navio
Communications, Inc. in a stock for stock exchange. Additionally, the Company
announced that it had reached agreement to acquire all of the outstanding
shares of Treasury Services Corporation, subject to certain regulatory
approvals and other conditions, for up to $120 million in cash. Both of these
acquisitions will be accounted for using the purchase method of accounting and
are expected to result in one time charges for the write-off of in-process
research and development expenses in the first quarter of fiscal 1998.

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, 1998.

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.

MANAGEMENT OF GROWTH. The Company has a history of rapid growth. The Company's
future operating results will depend on management's ability to manage growth,
continuously hire and retain significant numbers of qualified employees,
forecast revenues and control expenses. An unexpected decline in the growth
rate of revenues without a corresponding and timely slowdown in expense growth
could have a material adverse effect on the Company's business, results of
operations or financial condition.

COMPETITIVE ENVIRONMENT. The computer software industry is an intensely
competitive industry with several large vendors that develop and market
databases, applications, development tools or decision support products.
Certain of these vendors have significantly more financial and technical
resources than the Company. The introduction of new competitive products into
one or more of the Company's various markets could have a material adverse
effect on the Company's business, results of operations or financial
condition. In addition, new distribution methods (e.g. electronic channels)
and opportunities presented by the Internet have removed many of the barriers
to entry historically faced by small and start-up companies in the software
industry. The Company expects to face increasing competition from such
companies in the various markets in which it competes.

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 database marketplace where certain vendors offer deep
discounts in an effort to recapture or gain marketshare. In addition, the
bundling of software products for promotional purposes or as a long-term
pricing strategy by certain of the Company's competitors could have the effect
over time of significantly reducing the prices that the Company can charge for
its products. 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. 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
condition if the Company cannot offset these price reductions with a
corresponding increase in sales volumes.

INTERNATIONAL SALES. A substantial portion of the Company's revenues is
derived from international sales and is therefore subject to the risks
attendant thereto, including the general economic conditions in each country,
the overlap of different tax structures, the difficulty of managing an
organization spread over various countries, changes in regulatory
requirements, compliance with a variety of foreign laws and regulations and
longer payment cycles in certain countries. The Company has experienced
relatively slower growth rates in certain international countries during the
last several years, primarily as a result of weaker economies relative to the
rest of the world, slower adoption of information technology, a strong U.S.
dollar which negatively affects reported revenue growth in U.S. dollars, and
senior management changes in several major countries. There can be no
assurance 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.

20


A significant portion of the Company's business is conducted in currencies
other than the U.S. dollar. Changes in the value of major foreign currencies
relative to the value of the U.S. dollar therefore could adversely affect
future revenues and operating results. Foreign currency transaction gains and
losses are primarily related to sublicense fee agreements between the Company
and selling distributors and subsidiaries. These gains and losses are charged
against earnings in the period incurred.

The Company has reduced its transaction and translation gains and losses
associated with converting foreign currencies into U.S. dollars by using
forward foreign exchange contracts to hedge transaction and translation
exposures in major currencies. Such contracts meet the criteria established in
FASB 52 for hedge accounting treatment. The Company finds it impractical to
hedge all foreign currencies in which it conducts business. As a result, the
Company will continue to experience foreign currency gains and losses.

INDUSTRY GROWTH AND ECONOMIC CONDITIONS. The strength and profitability of the
Company's business depends on the overall demand for computer software and
growth in the computer industry. Because the Company's sales are primarily to
major corporate, government, education and other business customers, the
Company's business also partly depends on general economic and business
conditions. A softening of demand for computer software, caused by a weakening
of the economy or otherwise, may result in decreased revenues or declining
revenue growth rates for the Company. For example, industry analysts have
noted that a significant amount of current demand for applications software is
generated by customers in the process of replacing and upgrading applications
not designed to automatically accommodate the change in date from December 31,
1999 to January 1, 2000. Once such customers have completed their preparations
for the year 2000, the software industry and the Company may experience a
significant deceleration from the strong annual growth rates recently
experienced in the applications software marketplace.

NEW PRODUCTS. The markets for the Company's products are characterized by
rapid technological advances in hardware and software development, evolving
standards in computer hardware and software technology and frequent new
product introductions and enhancements. Product introductions and short
product life cycles necessitate high levels of expenditure for research and
development. To maintain its competitive position, the Company must enhance
and improve existing products and continue to introduce new products and new
versions of existing products that keep pace with technological developments,
satisfy increasingly sophisticated customer requirements and achieve market
acceptance. The Company's inability to port to or run on new or increasingly
popular operating systems, or the Company's failure to successfully improve,
position and/or price its products, could have a material adverse effect on
the Company's business, results of operations or financial condition.

Significant undetected errors or delays in new products or new versions of a
product 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 condition. 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 condition.

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. Some of these products, such as web
applications server and network computing software, are in business areas that
are relatively new to the Company's product development and sales and product
marketing personnel. See "New Business Areas."

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
(i) the relatively long sales cycles for the Company's products, (ii) the size
and timing of individual license transactions, which tend to be initiated by
customers at the end of a fiscal quarter as a negotiating tactic, (iii) the
timing of the introduction of new products or product enhancements by the
Company or its competitors, (iv) the

21


potential for delay or deferral of customer implementations of the Company's
software, (v) changes in customer budgets and (vi) seasonality of technology
purchases and other general economic conditions. Accordingly, the Company's
quarterly results are difficult to predict until the end of the quarter, and
delays in product delivery or closing of sales near the end of a quarter can
cause quarterly revenues and net income to fall significantly short of
anticipated levels.

The Company'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.

SALES FORCE AND ALTERNATE DISTRIBUTION CHANNELS. The Company historically has
relied heavily on its direct sales force. However, the Company is moving
increasingly toward indirect, electronic and other alternate distribution
channels to meet competitive demands. In addition, the Company is training and
reorganizing part of its sales force to provide specialized expertise within
certain vertical markets. There can be no assurance that the Company will be
successful in increasing sales within these alternate distribution channels or
within these markets. If the Company is not successful, it may lose
significant sales opportunities.

UNCERTAINTY OF EMERGING AREAS. The impact on the Company of emerging areas
such as the Internet, on-line services and electronic commerce is uncertain.
There can be no 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
Internet/electronic commerce, interactive media and data warehousing. It also
has begun to promote the use of network computers. 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. The success of network
computers and, in particular, the Company's current network computer products
is difficult to predict because network computers represent a method of
computing that is new to the entire computer industry. The successful
introduction of network computers to the market will depend in large measure
on (i) the commitment by hardware and software vendors to manufacture, promote
and distribute network computers, (ii) the lower cost of ownership relative to
personal computers, and (iii) the ease of use. There can be no assurance that
sufficient numbers of vendors will undertake this commitment, that the market
will accept network computers or that network computers will generate
significant revenues to the Company. See "New Products."

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 intense. There can be no assurance that the Company will be
successful in continuously recruiting new personnel and in retaining existing
personnel. None of the Company's employees is subject to a long-term
employment or a noncompetition agreement. 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. In addition, the Company may experience
increased compensation costs in order to attract and retain skilled employees.

FUTURE ACQUISITIONS. As part of its business strategy, the Company has
recently completed the acquisition of Navio Communications, Inc. and has
announced plans to acquire Treasury Services Corporation, subject to certain
regulatory approvals and other conditions, and expects to make acquisitions
of, or significant investments in, businesses that offer complementary
products, services and technologies. Any acquisitions or investments will

22


be accompanied by the risks commonly encountered in acquisitions of
businesses. Such risks include, among other things, the difficulty of
assimilating the operations and personnel of the acquired businesses, the
potential disruption of the Company's ongoing business, the inability of
management to maximize the financial and strategic position of the Company,
the maintenance of uniform standards, controls, procedures and policies and
the impairment of relationships with employees and clients as a result of any
integration of new management personnel. These factors could have a material
adverse effect on the Company's business, results of operations or financial
condition. Consideration paid for future acquisitions, if any, could be in the
form of cash, stock, rights to purchase stock or a combination thereof.
Dilution to existing stockholders and to earnings per share may result to the
extent that shares of stock or other rights to purchase stock are issued in
connection with any such future acquisitions.

RELATIVE PRODUCT PROFITABILITY. Certain of the Company's revenues are derived
from products which, as a percentage of revenues, currently require a higher
level of development, distribution and support expenditures compared to
certain of its other core products. To the extent that revenues generated from
such products become a greater percentage of the Company's total revenues, the
Company's operating margins may be adversely affected, unless the expenses
associated with such products decline as a percentage of revenues.

ENFORCEMENT OF THE COMPANY'S 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. In addition, the
laws of certain countries do not protect the Company's proprietary rights to
the same extent as do the laws of the United States. Accordingly, there can be
no assurance that the Company will be able to protect its proprietary
technology against unauthorized third party copying or use, which could
adversely affect the Company's competitive position.

The Company from time to time receives notices from third parties claiming
infringement by the Company's products of third party 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 grows and the functionality of
products overlaps. 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
condition could be materially adversely affected.

POSSIBLE VOLATILITY OF STOCK PRICE. The market price of the Company's Common
Stock has experienced significant fluctuations and may continue to fluctuate
significantly. The market price of the Common Stock may be significantly
affected by factors such as the announcement of new products or product
enhancements by the Company or its competitors, technological innovation by
the Company or its competitors, quarterly variations in the Company's 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.

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, 1998 include
significant investments in software research and development and related
product opportunities from which significant revenues are not anticipated for
several years.

23


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The response to this item is submitted as a separate section of this Form 10-K.
See Item 14.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information regarding directors required by Item 10 is incorporated by
reference from the Company's definitive proxy statement for its annual
stockholders' meeting to be held on October 13, 1997.

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 13, 1997. 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 13, 1997 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 13, 1997.

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 13, 1997.

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............................. 28
Consolidated Financial Statements:
Balance Sheets as of May 31, 1997 and 1996.......................... 29
Statements of Operations for the years ended May 31, 1997, 1996 and
1995............................................................... 30
Statements of Stockholders' Equity for the years ended May 31, 1997,
1996 and 1995...................................................... 31
Statements of Cash Flows for the years ended May 31, 1997, 1996 and
1995............................................................... 32
Notes to Consolidated Financial Statements.......................... 33


(A) 2. FINANCIAL STATEMENT SCHEDULES

The following financial statement schedule is filed as a part of this
report:


PAGE
----

II Valuation and Qualifying Accounts.................................. 48


All other schedules are omitted because they are not required or the
required information is shown in the financial statements or notes
thereto.

24


(A) 3. EXHIBITS

The following exhibits are filed herewith or are incorporated by reference to
exhibits previously filed with the Commission. The Company shall furnish copies
of exhibits for a reasonable fee (covering the expense of furnishing copies)
upon request.



EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------

3.01(1) Registrant's Restated Certificate of Incorporation, as amended to
March 11, 1987.
3.02(3) Certificate of Amendment of Certificate of Incorporation, dated
June 30, 1989.
3.03(1) Registrant's Bylaws, as adopted October 30, 1986.
3.04(6) Amendment to Registrant's Bylaws, dated January 13, 1989.
3.05(5) Amendment to Registrant's Bylaws, dated December 3, 1990.
3.06(5) Certificate of Designation specifying the terms of the Series A
Junior Participating Preferred Stock of Registrant, filed with the
Secretary of State of Delaware on December 7, 1990.
3.07(5) Rights Agreement between Oracle Systems Corporation and the Bank of
America, N.T. & S.A., dated December 3, 1990.
3.08(1) Specimen Certificate of Registrant's Common Stock.
3.09(13) Certificate of Amendment of Certificate of Incorporation, dated
November 4, 1993.
3.10(14) Amendment Number One to Rights Agreement, dated December 3, 1990,
between Oracle Systems Corporation and the Bank of America, N.T.
& S.A.
3.11(14) Rights Agreement, dated August 1, 1991, between Oracle Systems
Corporation and Harris Trust Company of California.
3.12(16) Certificate of Amendment of Certificate of Incorporation, dated
January 13, 1995.
3.13(18) Certificate of Amendment of Certificate of Incorporation of the
Company filed with the Delaware Secretary of State on October 29,
1996.
4.1(19) Indenture between Oracle Corporation and State Street Bank and
Trust Company of California, N.A., dated February 24, 1997.
4.2 Warrant Purchase Agreement between Oracle Corporation and Morgan
Stanley & Co. Incorporated, as agent for Morgan Stanley & Co.
International Limited dated May 7, 1997.
4.3 Warrant Agreement between Oracle Corporation and BankBoston, N.A.
dated May 12, 1997.
4.4 Warrant Certificate dated May 12, 1997.
4.5 Warrant Purchase Agreement between Oracle Corporation and Goldman,
Sachs & Co. dated May 14, 1997.
4.6 Warrant Agreement between Oracle Corporation and BankBoston, N.A.
dated May 19, 1997.
4.7 Warrant Certificate dated May 19, 1997.
10.01(2)* Registrant's Stock Option Plan (1985), as amended to date, and
related documents.
10.02(2)* Stock Option Agreement with Lawrence J. Ellison for the purchase of
720,000 shares of the Registrant's Common Stock, dated October 2,
1986.
10.03(4)* 1990 Directors' Stock Option Plan, as adopted July 30, 1990, and
related documents.
10.04(7)* 1990 Executive Officers' Stock Option Plan, as adopted October 15,
1990, and related documents.
10.05(8)* 1991 Long-Term Equity Incentive Plan, as adopted July 31, 1991.
10.06(10)* Oracle Systems Corporation Employee Stock Purchase Plan (1992), as
adopted August 24, 1992.
10.07(11)* 1993 Directors' Stock Option Plan, as adopted May 24, 1993.
10.08(15)* Amendment to 1993 Directors' Stock Option Plan, as adopted May 31,
1994.
10.09(3) Lease Agreement for 500 Centrum Plaza Drive by and between Oracle
Corporation and Centrum V Associates, dated May 10, 1989.
10.10(3) Lease Agreement for 400 Centrum Plaza Drive by and between Oracle
Corporation and Centrum V Associates, dated May 10, 1989.



25




EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------

10.11(4) Lease Agreement for 300 Centrum Plaza Drive by and between Oracle
Corporation and Centrum V Associates, dated December 11, 1989.
10.12(4) Lease Agreement for 100 Square by and between Oracle Corporation UK
Limited, Oracle Systems Corporation and Guidefront Limited, dated
June 8, 1989.
10.13(12) Loan purchase and sale agreement among Oracle Corporation and
Connecticut General Life Insurance Company, dated August 19, 1993,
the related notes and related documents.
10.14(13)* 1993 Oracle Corporation Deferred Compensation Plan.
10.15(9) Preferred Strategic Relationship Agreement by and among Oracle
Systems Corporation, Oracle Corporation, Oracle Corporation Japan,
and Nippon Steel Corporation, dated December 9, 1991.
10.16(9) Holding Warrant Agreement by and among Oracle Systems Corporation,
Oracle Corporation, Oracle Japan Holding, Inc., Nippon Steel
Corporation, and Nippon Steel Europe B.V., dated December 9, 1991.
10.17(9) Common Stock Warrant Certificate of Oracle Japan Holding, Inc.,
dated December 9, 1991.
10.18(9) Certificate of Designations, Preferences and Rights of Series A
Convertible Preferred Stock of Oracle Japan Holding, Inc., dated
December 9, 1991.
10.19(9) Oracle Japan Warrant Agreement by and among Oracle Systems
Corporation, Oracle Corporation, Oracle Japan Holding, Inc., Nippon
Steel Corporation, and Nippon Steel Europe B.V., dated December 9,
1991.
10.20(9) Common Stock Warrant Certificate of Oracle Corporation Japan, dated
December 9, 1991.
10.21(9) Product Activities Agreement by and among Oracle Systems
Corporation, Oracle Corporation, and Nippon Steel Corporation,
dated December 9, 1991.
10.22(9) Integration Agreement among Oracle Systems Corporation, Oracle
Corporation, Oracle Corporation Japan, Oracle Japan Holding, Inc.,
Nippon Steel Corporation, Nippon Steel U.S.A., and Nippon Steel
Europe B.V., dated December 9, 1991.
10.23(9) Tax Sharing and Payment Agreement by and between Oracle Systems
Corporation, Oracle Corporation, Oracle Japan Holding, Inc., Nippon
Steel Corporation, and Nippon Steel Europe B.V., dated December 9,
1991.
10.24(17)* Restatement of Employment Agreement with David Roux as of August
31, 1996.
10.25 Amendment No 1 to 1991 Long-Term Equity Incentive Plan dated
December 9, 1996.
21.01 Subsidiaries of the Registrant.
23.01 Consent of Arthur Andersen LLP.
27.1 Financial Data Schedule.

- --------
* Indicates management contract or compensatory plan or arrangement.

(1) Incorporated by reference to the Form S-1 Registration Statement filed
March 27, 1987, File No. 33-12941.

(2) Incorporated by reference to the Form S-8 Registration Statement filed
February 24, 1986, File No. 33-3536, as amended.

(3) Incorporated by reference to the Form 10-K filed August 25, 1989.

(4) Incorporated by reference to the Form 10-K filed on August 27, 1990.

(5) Incorporated by reference to the Form 8-K filed on December 10, 1990.

(6) Incorporated by reference to the Form 10-Q filed on January 11, 1991.

(7) Incorporated by reference to the Form 10-K filed on August 28, 1991.

(8) Incorporated by reference to the Form S-8 Registration Statement filed
December 23, 1991, File No. 33-44702.

26


(9) Incorporated by reference to the Form 10-Q filed on January 13, 1992.

(10) Incorporated by reference to the Form 10-Q filed on January 7, 1993.

(11) Incorporated by reference to the Form 10-K filed on July 22, 1993.

(12) Incorporated by reference to the Form 10-Q filed on September 23, 1993.

(13) Incorporated by reference to the Form 10-Q filed on January 11, 1994.

(14) Incorporated by reference to the Form 8-A filed on February 28, 1994.

(15) Incorporated by reference to the Form 10-K filed on July 27, 1994.

(16) Incorporated by reference to the Form 10-K filed on August 25, 1995.

(17) Incorporated by reference to the Form 10-Q filed on October 11, 1996.

(18) Incorporated by reference to the Form 10-Q filed on January 10, 1997.

(19) Incorporated by reference to the Form 10-Q filed on April 10, 1997.

(B) REPORTS ON FORM 8-K

None.

27


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, 1997 and
1996, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended May 31,
1997. These financial statements and the schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Oracle Corporation and
subsidiaries as of May 31, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended May 31,
1997, in conformity with generally accepted accounting principles.

Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed under Item 14(a)2
is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not a part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in our audits
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.

ARTHUR ANDERSEN LLP

San Jose, California
June 16, 1997

28


ORACLE CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF MAY 31, 1997 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

ASSETS


MAY 31,
----------------------
1997 1996
---------- ----------

CURRENT ASSETS
Cash and cash equivalents.............................. $ 890,162 $ 715,742
Short-term cash investments............................ 323,028 125,166
Trade receivables, net of allowance for doubtful ac-
counts of $127,840 in 1997 and $105,711 in 1996....... 1,540,470 1,084,858
Other receivables...................................... 168,469 119,118
Prepaid and refundable income taxes.................... 274,366 171,560
Prepaid expenses and other current assets.............. 74,601 68,021
---------- ----------
Total current assets.................................. 3,271,096 2,284,465
LONG-TERM CASH INVESTMENTS.............................. 116,337 41,963
PROPERTY, net........................................... 868,948 685,754
COMPUTER SOFTWARE DEVELOPMENT COSTS, net of accumulated
amortization of $36,303 in 1997 and $78,025 in 1996.... 98,981 99,072
OTHER ASSETS............................................ 268,953 245,989
---------- ----------
Total assets.......................................... $4,624,315 $3,357,243
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable and current maturities of long-term debt. $ 3,361 $ 5,623
Accounts payable....................................... 185,444 169,895
Income taxes........................................... 203,646 181,999
Accrued compensation and related benefits.............. 394,153 295,048
Customer advances and unearned revenues................ 602,862 434,435
Value added tax and sales tax payable.................. 121,914 99,409
Other accrued liabilities.............................. 410,759 268,555
---------- ----------
Total current liabilities............................. 1,922,139 1,454,964
LONG-TERM DEBT.......................................... 300,836 897
OTHER LONG-TERM LIABILITIES............................. 24,226 21,726
DEFERRED INCOME TAXES................................... 7,402 9,207
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, 2,000,000,000 shares; outstand-
ing: 651,980,213 shares in 1997 and 655,825,902 shares
in 1996............................................... 696,018 475,833
Retained earnings...................................... 1,686,170 1,382,203
Accumulated foreign currency translation adjustments
and unrealized gain on equity securities.............. (12,476) 12,413
---------- ----------
Total stockholders' equity............................ 2,369,712 1,870,449
---------- ----------
Total liabilities and stockholders' equity............ $4,624,315 $3,357,243
========== ==========


See notes to consolidated financial statements.


29


ORACLE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MAY 31, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)



YEAR ENDED MAY 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------

REVENUES
Licenses and other........................ $2,896,696 $2,296,572 $1,673,731
Services.................................. 2,787,640 1,926,728 1,293,147
---------- ---------- ----------
Total revenues........................... 5,684,336 4,223,300 2,966,878
---------- ---------- ----------
OPERATING EXPENSES
Sales and marketing....................... 1,970,394 1,549,231 1,103,345
Cost of services.......................... 1,550,466 1,096,013 779,012
Research and development.................. 555,476 389,093 260,597
General and administrative................ 308,215 233,141 174,203
Acquired in-process research and develop-
ment..................................... 36,800 50,931 --
---------- ---------- ----------
Total operating expenses................. 4,421,351 3,318,409 2,317,157
---------- ---------- ----------
OPERATING INCOME........................... 1,262,985 904,891 649,721
---------- ---------- ----------
OTHER INCOME (EXPENSE)
Interest income........................... 47,381 30,235 21,095
Interest expense.......................... (6,806) (6,632) (6,970)
Other..................................... (20,033) (8,984) (4,864)
---------- ---------- ----------
Total other income (expense)............. 20,542 14,619 9,261
---------- ---------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES... 1,283,527 919,510 658,982
Provision for income taxes................ 462,070 316,231 217,464
---------- ---------- ----------
NET INCOME................................. $ 821,457 $ 603,279 $ 441,518
========== ========== ==========
EARNINGS PER SHARE......................... $ 1.22 $ 0.90 $ 0.66
========== ========== ==========
COMMON AND COMMON EQUIVALENT SHARES
OUTSTANDING............................... 672,863 670,658 665,399
========== ========== ==========


See notes to consolidated financial statements.

30


ORACLE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MAY 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)



ACCUMULATED
FOREIGN
COMMON STOCK AND CURRENCY
ADDITIONAL PAID-IN TRANSLATION
CAPITAL ADJUSTMENTS
---------------------- AND UNREALIZED
NUMBER OF RETAINED GAIN ON EQUITY
SHARES AMOUNT EARNINGS SECURITIES TOTAL
----------- --------- ---------- -------------- ----------

BALANCES, May 31, 1994.. 644,311,763 $ 254,500 $ 488,595 $ (2,542) $ 740,553
Common stock issued un-
der stock option plans. 7,009,377 19,679 -- -- 19,679
Common stock issued
under stock purchase
plan................... 2,916,367 40,968 -- -- 40,968
Reclassification of put
warrant obligations.... -- 328 (336) -- (8)
Repurchase of common
stock.................. (4,201,875) (2,187) (73,672) -- (75,859)
Effect of common stock
dividend............... -- 1,967 (1,967) -- --
Tax benefits from stock
plans.................. -- 23,731 -- -- 23,731
Foreign currency trans-
lation adjustments..... -- -- -- 20,776 20,776
Net income.............. -- -- 441,518 -- 441,518
----------- --------- ---------- -------- ----------
BALANCES, May 31, 1995.. 650,035,632 338,986 854,138 18,234 1,211,358
Common stock issued un-
der stock option plans. 7,145,391 31,720 -- -- 31,720
Common stock issued
under stock purchase
plan................... 3,123,013 61,071 -- -- 61,071
Reclassification of put
warrant obligations.... -- 1,053 37,385 -- 38,438
Proceeds from sale of
call options........... -- 17,175 -- -- 17,175
Repurchase of common
stock.................. (4,478,134) (2,676) (110,411) -- (113,087)
Effect of common stock
dividend............... -- 2,188 (2,188) -- --
Tax benefits from stock
plans.................. -- 26,316 -- -- 26,316
Foreign currency trans-
lation adjustments..... -- -- -- (12,147) (12,147)
Unrealized gain on eq-
uity securities........ -- -- -- 6,326 6,326
Net income.............. -- -- 603,279 -- 603,279
----------- --------- ---------- -------- ----------
BALANCES, May 31, 1996.. 655,825,902 475,833 1,382,203 12,413 1,870,449
Common stock issued un-
der stock option plans. 5,876,177 46,013 -- -- 46,013
Common stock issued
under stock purchase
plan................... 3,085,634 92,171 -- -- 92,171
Sale of warrants to pur-
chase stock............ -- 35,898 -- -- 35,898
Repurchase of common
stock.................. (12,807,500) (10,719) (517,490) -- (528,209)
Tax benefits from stock
plans.................. -- 56,822 -- -- 56,822
Foreign currency trans-
lation adjustments..... -- -- -- (18,565) (18,565)
Unrealized loss on eq-
uity securities........ -- -- -- (6,324) (6,324)
Net income.............. -- -- 821,457 -- 821,457
----------- --------- ---------- -------- ----------
BALANCES, May 31, 1997.. 651,980,213 $ 696,018 $1,686,170 $(12,476) $2,369,712
=========== ========= ========== ======== ==========


See notes to consolidated financial statements.

31


ORACLE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MAY 31, 1997, 1996 AND 1995
(IN THOUSANDS)



YEAR ENDED MAY 31,
-------------------------------
1997 1996 1995
--------- --------- ---------

CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................... $ 821,457 $ 603,279 $ 441,518
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization............... 264,773 219,494 147,772
Write-off of acquired in-process research
and development............................ 36,800 50,931 --
Provision for doubtful accounts............. 92,635 64,412 53,784
Changes in assets and liabilities, net of
effects of acquisitions;
Increase in trade receivables.............. (628,025) (449,780) (347,311)
Increase in prepaid and refundable income
taxes..................................... (102,864) (20,377) (80,183)
Increase in prepaid expenses and other cur-
rent assets............................... (8,893) (37,685) (5,464)
Increase in accounts payable............... 16,807 48,392 24,113
Increase in income taxes................... 78,050 86,367 90,713
Increase in other accrued liabilities...... 275,534 210,984 181,638
Increase in customer advances and unearned
revenues.................................. 175,657 127,126 77,223
Increase (decrease) in deferred income tax-
es........................................ 6,286 (25,351) (13,341)
Increase (decrease) in other non-current
liabilities............................... 2,287 11,365 (1,778)
--------- --------- ---------
Net cash provided by operating activities.... 1,030,504 889,157 568,684
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of cash investments............... (524,313) (238,960) (176,536)
Proceeds from maturities of cash invest-
ments...................................... 252,077 177,491 130,824
Capital expenditures........................ (390,741) (308,392) (262,046)
Capitalization of computer software develop-
ment costs................................. (28,064) (48,031) (48,187)
Increase in other assets, net of cash ac-
quired from acquisitions................... (86,340) (133,596) (139,824)
--------- --------- ---------
Net cash used for investing activities....... (777,381) (551,488) (495,769)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (payments) under notes pay-
able and long-term debt.................... 298,321 (81,624) 5,346
Payments of capital leases.................. (1,316) (3,546) (6,168)
Proceeds from common stock issued........... 138,184 92,791 60,647
Proceeds from sales of call options......... -- 17,175 --
Proceeds from sales of warrants............. 35,898 -- --
Repurchase of common stock.................. (528,209) (113,087) (75,859)
--------- --------- ---------
Net cash used for financing activities....... (57,122) (88,291) (16,034)
--------- --------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH....... (21,581) (13,794) 18,467
--------- --------- ---------
Net increase in cash and cash equivalents.... 174,420 235,584 75,348
CASH AND CASH EQUIVALENTS
Beginning of year............................ 715,742 480,158 404,810
--------- --------- ---------
End of year.................................. $ 890,162 $ 715,742 $ 480,158
========= ========= =========


See notes to consolidated financial statements.

32


ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Organization

Oracle Corporation designs, develops, markets and supports computer software
products with a wide variety of uses, including database management,
application development and business intelligence tools and business
applications. The Company also offers consulting, education and support
services in support of its customers' use of its software products.

Basis of Financial Statements

The consolidated financial statements include the accounts of the Company and
its subsidiaries. All intercompany transactions and balances between the
companies have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

Foreign Currency Translation

In general, the functional currency of a foreign operation is deemed to be the
local country's currency. Consequently, assets and liabilities of operations
outside the United States are translated into United States dollars using
current exchange rates, and the effects of foreign currency translation
adjustments are included as a component of stockholders' equity. At May 31,
1997 and 1996, accumulated foreign translation balances were $(12,478,000) and
$6,087,000, respectively.

The Company hedges certain portions of its exposure to foreign currency
fluctuations through a variety of strategies and financial instruments. The
primary hedging instruments are forward foreign exchange contracts. At May 31,
1997, the Company had approximately $226,628,000 of forward foreign exchange
contracts outstanding used to hedge intercompany accounts of certain of its
international subsidiaries, and approximately $100,299,000 of equity hedges
outstanding used to hedge the net assets of certain of its international
subsidiaries. The intercompany balances primarily reflect sub-license fees
owed to Oracle Corporation or intercompany loans. The fair value of foreign
currency contracts is estimated based on the spot rate of the various hedged
currencies as of the end of the period. 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 $6,645,000, $4,232,000 and $3,732,000 in fiscal 1997, 1996 and 1995,
respectively, and are included in other income and expense. Net gains on
equity hedges were $7,598,000 and $9,051,000 in fiscal 1997 and 1996,
respectively, and net losses on equity hedges were $10,213,000 in fiscal 1995.
These net gains and losses on equity hedges were recorded as a component of
accumulated foreign currency translation adjustments in stockholders' equity.

As of May 31, 1997, the fair value (and carrying amount) of outstanding
foreign forward exchange contracts were as follows:



CONTRACT
AMOUNT FAIR VALUE
------------ ------------

Intercompany account hedges................... $226,628,000 $226,629,000
Equity hedges................................. $100,299,000 $ 91,659,000


33


ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


At May 31, 1997, maturities of the Company's forward foreign exchange and
equity hedge contracts were twelve months or less in term.

Supplemental Statements of Cash Flows Data

The Company paid income taxes in the amount of $533,914,000, $438,791,000 and
$223,725,000, and interest expense of $843,000, $8,616,000 and $6,087,000
during the fiscal years ended 1997, 1996 and 1995, respectively. In fiscal
1997, 1996 and 1995, the Company received income tax refunds in the amount of
$13,273,000, $6,201,000 and $809,000, respectively. The Company purchased
equipment under capital leases in the amount of $946,000, $803,000 and
$1,438,000 in fiscal 1997, 1996 and 1995, respectively.

Non-cash transactions in fiscal 1996 included the expiration of $38,438,000 of
put warrants which were reclassified from liabilities to stockholders' equity.

Substantially all of the Company's cash and cash equivalents at May 31, 1997
consisted of highly liquid investments in time deposits of major world banks,
commercial paper, money market mutual funds and tax-free municipal securities
with original maturities or puts of 90 days or less. The Company considers
such investments to be cash equivalents for purposes of the statements of cash
flows. Cash investments at May 31, 1997 primarily consisted of tax-exempt
municipal securities, commercial paper and U.S. Government Agency Paper with
original maturities or puts of 91 days or more. No individual investment
security equaled or exceeded 2% of total assets.

Investments in Debt and Equity Securities

In accordance with SFAS No. 115 and based on the Company's intentions
regarding these instruments, the Company has classified all marketable debt
securities and long-term debt investments as held-to-maturity and has
accounted for these investments at amortized cost. The Company has classified
its marketable equity securities as available for sale (included in "Other
Assets" in the accompanying consolidated balance sheets) and recorded net
unrealized holding gains in equity of $2,000 and $6,326,000 as of May 31, 1997
and 1996, respectively, which were included in "Accumulated foreign currency
translation adjustments and unrealized gain on equity securities" in the
accompanying consolidated balance sheets.

At May 31, 1997, the amortized cost basis, aggregate fair value and gross
unrealized holding gains and losses by major security type were as follows:



AMORTIZED AGGREGATE FAIR UNREALIZED
COST VALUE GAINS/(LOSSES)
--------- -------------- -------------
(IN THOUSANDS)

Fiscal 1997:
Debt securities issued by states
of the United States and politi-
cal subdivisions of the states.. $251,670 $251,993 $ 323
Corporate debt securities........ 187,695 187,786 91
-------- -------- -----
Total cash investments......... $439,365 $439,779 $ 414
======== ======== =====
Fiscal 1996:
Debt securities issued by states
of the United States and politi-
cal subdivisions of the states.. $131,119 $130,625 $(494)
Corporate debt securities........ 36,010 36,101 91
-------- -------- -----
Total cash investments......... $167,129 $166,726 $(403)
======== ======== =====


All of the Company's long-term investments mature within 29 months.

34


ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


Concentration of Credit Risk

Financial instruments which potentially subject the Company to concentrations
of credit risk consist primarily of cash investments and trade receivables.
The Company has cash investment policies that limit investments to investment
grade securities. The Company performs ongoing credit evaluations of its
customer's financial condition and the risk with respect to trade receivables
is further mitigated by the fact that the Company's customer base is highly
diversified.

Property

Property is stated at cost. Capital leases are recorded at the present value
of the future minimum lease payments at the date of acquisition. Depreciation
is computed using the straight-line method based on estimated useful lives of
the assets which range from three to forty years. Capital leases and leasehold
improvements are amortized over the estimated useful lives or lease terms, as
appropriate.

In fiscal 1997, 1996 and 1995, the Company purchased approximately $15,000,
$300,000 and $1,000,000, respectively, in computer equipment and maintenance
services from nCUBE Corporation, the principal shareholder of which is
Lawrence J. Ellison, Chief Executive Officer of the Company, for use for a
variety of internal development and production purposes.

Software Development Costs

The Company capitalizes internally generated software development costs in
compliance with Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed." Capitalization of computer software development costs begins upon
the establishment of technological feasibility for the product. Capitalized
software development costs amounted to $28,064,000, $48,031,000 and
$48,187,000 in fiscal 1997, 1996 and 1995, respectively.

Amortization of capitalized computer software development costs begins when
the products are available for general release to customers, and is computed
on a product-by-product basis as the greater of: (a) the ratio of current
gross revenues for a product to the total of current and anticipated future
gross revenues for the product; or (b) the straight-line method over the
remaining estimated economic life of the product (generally two to three
years). Amortization amounted to $28,156,000, $48,815,000 and $48,662,000, for
the fiscal years ended May 31, 1997, 1996 and 1995, respectively, and is
included in sales and marketing expenses.

Acquisitions

As of December 31, 1996, the Company had a minority investment in Datalogix
International, Inc. of approximately 13.4%. Effective January 1, 1997, the
Company completed a merger transaction, by which it acquired the remaining
outstanding shares of Datalogix International, Inc. for approximately
$82,000,000 in cash. The Company received an appraisal of certain intangible
assets which indicated that $36,800,000 of the acquired intangible assets
consisted of in-process research and development. In the opinion of management
and the appraiser, the acquired in-process research and development had not
yet reached technological feasibility and had no alternative future uses.
Accordingly, the Company recorded a special charge of $36,800,000 in the
accompanying consolidated statement of operations in fiscal 1997. The
remaining intangible assets acquired, with an assigned value of approximately
$20,000,000, were included in "Other Assets" in the accompanying consolidated
balance sheets and are being amortized over a five year period. Amortization
expense of approximately $1,700,000 was included in the accompanying
consolidated statement of operations in fiscal 1997.

35


ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

On July 27, 1995, the Company completed the acquisition of the on-line
analytical processing business of Information Resources, Inc. for
approximately $100,000,000 in cash. The Company received an appraisal of
certain intangible assets which indicated that $50,931,000 of the acquired
intangible assets consisted of in-process research and development. In the
opinion of management and the appraiser, the acquired in-process research and
development had not yet reached technological feasibility and had no
alternative future uses. Accordingly, the Company recorded a special charge of
$50,931,000 in the accompanying consolidated statement of operations in fiscal
1996. The remaining intangible assets acquired, with an assigned value of
approximately $33,000,000, were included in "Other Assets" in the accompanying
consolidated balance sheets and are being amortized over a five year period.
Amortization expenses of approximately $6,000,000 and $5,000,000 were included
in the accompanying consolidated statement of operations in fiscal 1997 and
1996, respectively.

On November 30, 1994, the Company completed the acquisition of the Rdb
database and repository businesses of Digital Equipment Corporation, including
all related software products and customer support services, for approximately
$108,000,000 in cash. Intangible assets, with an assigned value of
approximately $105,000,000, were included in "Other Assets" in the
accompanying consolidated balance sheets and are being amortized over a seven
year period. Amortization expense of approximately $15,000,000 in fiscal 1997
and 1996, and $8,000,000 in fiscal 1995, were included in the accompanying
consolidated statements of operations.

Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of

Effective June 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 121 ("SFAS No. 121"), "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of." The adoption of
SFAS No. 121 did not have a material impact on the results of operations or
financial position of the Company.

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, 1997.

Revenue Recognition

The Company generates several types of revenue including the following:

License and Sublicense Fees. The Company's standard end user license
agreement for the Company's products provides for an initial fee to use the
product in perpetuity up to a maximum number of users on a specified computer.
The Company also enters into other license agreement types, typically with
major end user customers, which allow for the use of the Company's products,
usually restricted by the number of employees, the number of users, the number
of computers or the license term. Fees from licenses with standard acceptance
periods (15 days for commercial customers, and 30 days for shrink-wrap,
government and telemarketing customers) are recognized as revenue upon
shipment if there are no significant post-delivery obligations and payment is
due within one year. If the acceptance period is longer than standard,
revenues are not recognized until the end of the acceptance period. The
Company provides for sales returns based on historical rates of return.

The Company receives sublicense fees from its Oracle Alliance Members (value-
added relicensors, hardware providers, systems integrators and independent
software vendors) based on the sublicenses granted by the Oracle Alliance
member. Sublicense fees typically are based on a percentage of the Company's
list price and are generally recognized as they are reported by the reseller.

36


ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


Support Agreements. Support agreements generally call for the Company to
provide technical support and certain software updates to customers. Revenue
on technical support and software update rights is recognized ratably over the
term of the support agreement and is included in services revenue in the
accompanying statement of operations.

Consulting and Education Services. The Company provides consulting and
education services to its customers; revenue from such services is generally
recognized as the services are performed.

Deferred Revenues. Deferred revenues primarily relate to post-contract
support which has been paid by the customers prior to the performance of these
services.

Accounting for Stock-Based Compensation

Effective June 1, 1996, the Company adopted the disclosure provisions of
Financial Accounting Standards No. 123, ("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. Note 6 to
the Consolidated Financial Statements contains a summary of the pro forma
effects on reported net income and earnings per share for fiscal 1997 and 1996
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
methods of accounting for capitalized software development costs, the timing
of recognition of certain revenue items, the timing of the deductibility of
certain reserves and accruals for income tax purposes and the timing of
recognition of dividends from subsidiaries.

Earnings Per Share

On July 14, 1997, the Company announced a three-for-two stock split in the
form of a common stock dividend to be distributed on August 15, 1997 to
stockholders of record as of August 1, 1997. Per share data and numbers of
common shares contained in these consolidated financial statements and in
Management's Discussion and Analysis of Financial Condition and Results of
Operations have not been adjusted to reflect the stock split that will be
effective in the first quarter of fiscal 1998.

Earnings per share was computed based on the weighted average number of common
and common equivalent shares outstanding during the period. Common equivalent
shares are calculated using the treasury stock method and represent
incremental shares issuable upon the exercise of outstanding stock options and
warrants.

In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 128 "Earnings per
Share," which will be adopted by the Company in the third quarter of fiscal
1998. SFAS No. 128 requires companies to compute net income per share under
two different methods, basic and diluted, and to disclose the methodology used
for the calculation. If SFAS No. 128 had been applied by the Company during
fiscal 1997 and 1996, basic net income per share would have been $1.25 and
$0.92 and diluted net income per share would have been $1.22 and $0.90,
respectively.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current
year presentation.

37


ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


2. PROPERTY

Property consists of:


YEAR ENDED MAY 31,
--------------------
1997 1996
--------- ---------
(IN THOUSANDS)

Computer equipment.................................... $ 681,324 $ 523,991
Furniture and fixtures................................ 217,109 172,355
Automobiles........................................... 6,653 4,764
Buildings and improvements............................ 486,208 344,071
Land.................................................. 85,980 83,413
--------- ---------
Total............................................... 1,477,274 1,128,594
Accumulated depreciation and amortization............. (608,326) (442,840)
--------- ---------
Property, net....................................... $ 868,948 $ 685,754
========= =========


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 $2.5 million. Additionally, in fiscal 1997, the
Company loaned the partnership $60.4 million 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. The Company has the right to leave the partnership
on January 1, 2000, and to take title to the building without making further
capital contributions. The Company continues to lease the building from the
partnership. As a result of the loan and capital contribution, the Company has
capitalized the building lease, and the $62.9 million in payments have been
classified as buildings and improvements.

During fiscal 1994, the Company purchased $85.1 million in mortgage notes.
These notes are the obligations of IV Centrum Associates, a real estate
limited partnership, which owns two buildings leased by the Company at its
headquarters site. The Company also became a 74% limited partner in IV Centrum
Associates by making a capital contribution of approximately $4 million. The
Company intends to leave the partnership in the first quarter of fiscal 1998
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
$89.1 million in payments have been classified as buildings and improvements.

Additionally, during fiscal 1994, the Company entered into an arrangement
whereby it leased an office building adjacent to its headquarters site and
concurrently acquired the land under the building and all outstanding mortgage
notes for a total of $22.1 million. The Company has various options to extend
the lease and to purchase the building at various times during the lease term.
As a result of the land and note purchases, the Company has capitalized the
building lease, and the $22.1 million in payments have been classified as land
and buildings and improvements.

Equipment under capital leases included in property at May 31, 1997 and 1996
was $29,452,000 and $30,428,000, respectively. Accumulated amortization of
leased equipment at such dates was $27,698,000 and $27,650,000, respectively.

38


ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


As of May 31, 1997, future minimum annual lease payments under capital leases
together with their present value were:



YEAR ENDED MAY 31,
------------------ (IN THOUSANDS)

1998..................................................... $1,104
1999..................................................... 452
2000..................................................... 269
2001..................................................... 45
------
Total minimum lease payments........................... 1,870
Amount representing interest............................. (269)
------
Present value of minimum lease payments................ $1,601
======


3. NOTES PAYABLE AND CURRENT MATURITIES OF LONG-TERM DEBT

At May 31, 1997 and 1996, the Company had unsecured short-term borrowings from
banks which were payable on demand in the amounts of $2,532,000 and $4,377,000,
respectively. Interest on the borrowings outstanding at May 31, 1997 ranged
from 2% to 15%. The Company also had current maturities of long-term debt of
$829,000 and $1,246,000 at May 31, 1997 and 1996, respectively.

4. LONG-TERM DEBT

Long-term debt consists of:



YEAR ENDED MAY 31,
-------------------
1997 1996
-------- ---------
(IN THOUSANDS)

Senior Notes....................................... $300,000 $ --
Other.............................................. 64 100
Capital lease obligations (See Note 2)............. 1,601 2,043
-------- ---------
Total............................................ 301,665 2,143
Current maturities................................. (829) (1,246)
-------- ---------
Long-term debt..................................... $300,836 $ 897
======== =========


During the third quarter of 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.

As of May 31, 1997, maturities of long-term debt (excluding the Senior Notes
discussed above and the lease payments related to capitalized facilities
discussed in Note 2) are:



YEAR ENDED MAY 31,
------------------ (IN THOUSANDS)

1998..................................................... $31
1999..................................................... 25
2000..................................................... 8
---
Total.................................................. $64
===


39


ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


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. The Company's
obligation to make lease payments generally will begin at the end of the
construction period. Rent will be payable quarterly in arrears over a term of
seven years. The Company's obligations under the lease facility currently are
collateralized by U.S. treasury securities. The Company has the discretion to
substitute other collateral for the treasury securities. The Company may, at
its option, purchase the leased 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, 1997, the Company has drawn down
approximately $46,500,000 of the master lease facility. Leases under the
provisions of this agreement are accounted for as operating leases.

Facilities and certain furniture and equipment are leased under operating
leases. As of May 31, 1997, 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)

1998..................................................... $129,777
1999..................................................... 104,827
2000..................................................... 79,079
2001..................................................... 55,935
2002..................................................... 43,768
Thereafter............................................... 192,880
--------
Total.................................................. $606,266
========


Rent expense was $184,468,000, $179,227,000 and $132,647,000, for fiscal years
1997, 1996 and 1995, respectively. Rent expense in fiscal 1997, 1996 and 1995
is net of sublease income of approximately $1,394,000, $2,020,000 and
$2,076,000, respectively.

6. STOCKHOLDERS' EQUITY

Stock Option Plans

The Company's 1985 Stock Option Plan provided for the issuance of incentive
stock options to employees of the Company and non-qualified options to
employees, directors, consultants and independent contractors of the Company.
Under the terms of this plan, options were generally granted at not less than
fair market value, became exercisable as established by the Board (generally
ratably over four to five years), and generally expire ten years from the date
of grant. As of May 31, 1997, options to purchase 1,655,022 shares were
outstanding and vested. As of May 31, 1997, 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 9,630,000 shares of
Common Stock were reserved for issuance, generally are granted at not less
than fair market value, become exercisable as established by the Board
(generally ratably over four years), and generally expire ten years from the
date of grant. As of May 31, 1997, options to purchase 1,144,127 shares of
Common Stock were outstanding, of which 919,127 shares were vested. Options
for 2,306,920 shares were available for future grant under these plans at
May 31, 1997.

40


ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


In fiscal 1992, the Company adopted the Long-term Equity Incentive Plan which
provides for the issuance of non-qualified stock options and incentive stock
options, as well as stock purchase rights, stock appreciation rights (in
connection with options), and long-term performance awards to eligible
employees, officers, directors who are also employees or consultants, and
advisors of the Company. Under the terms of this plan, options to purchase
22,500,000 shares of Common Stock were reserved for issuance, generally are
granted at not less than fair market value, become exercisable as established
by the Board (generally ratably over four years), and generally expire ten
years from the date of grant. An additional 18,000,000 shares of Common Stock
were reserved for issuance under the plan in both fiscal 1994 and fiscal 1996.
In fiscal 1997, an additional 34,000,000 shares of Common Stock were reserved
for issuance under the plan. As of May 31, 1997, options to purchase
40,342,450 shares of Common Stock were outstanding, of which 16,360,953 shares
were vested. Options for 39,978,146 shares were available for future grant
under the plan at May 31, 1997. To date, the Company has not issued any stock
purchase rights, stock appreciation rights or long-term performance awards
under this plan.

In fiscal 1993, the Company's Board of Directors adopted the 1993 Directors
Stock Option Plan (the "1993 Directors Plan") which provides for the issuance
of non-qualified stock options to outside directors. Under the terms of this
plan, options to purchase 2,250,000 shares of Common Stock were reserved for
issuance, are granted at not less than fair market value, become exercisable
over four years, and expire ten years from the date of grant. Under the terms
of the 1993 Directors Plan, all grants of options to purchase shares of the
Company's Common Stock are automatic and nondiscretionary. The plan provides
for initial stock option grants of 22,500 shares to each individual who was an
outside director on May 24, 1993. In addition, the Chairman of the Executive
Committee of the Company's Board of Directors was automatically granted
options to purchase 180,000 shares of the Company's Common Stock. Each
individual who becomes an outside director after May 24, 1993 shall
automatically be granted options to purchase 56,250 shares. The 1993 Directors
Plan also provides for subsequent stock option grants. On May 31 of each year
beginning on May 31, 1994, each outside director will be granted options to
purchase 16,875 shares of the Company's Common Stock, provided that on such
date the outside director has served on the Company's Board of Directors for
at least six months. In addition, each outside director who has served as a
Chairman of the Executive or Finance and Audit Committee of the Company's
Board of Directors will be granted options to purchase 39,375 shares of Common
Stock on May 31 of each year beginning on May 31, 1994, provided that the
outside director has served as a Chairman of any such committee for at least
one year. As of May 31, 1997, options to purchase 488,188 shares of common
stock were outstanding, of which 169,998 were vested. Options for 1,536,814
shares were available for future grant under this plan at May 31, 1997.

41


ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


The following table summarizes stock option plan activity:



SHARES
UNDER
OPTION OPTION PRICES
---------- ----------------

Balance, May 31, 1994..................... 37,508,414 $ 0.10 -- $16.06
Granted................................. 8,375,025 15.36 -- 24.67
Exercised............................... (6,368,127) 15.50 -- 24.67
Canceled................................ (2,215,530) 1.28 -- 21.33
----------

WEIGHTED AVERAGE
EXERCISE PRICE
----------------

Balance, May 31, 1995..................... 37,299,782 $ 9.21
Granted................................. 12,457,219 30.34
Exercised............................... (7,066,368) 4.42
Canceled................................ (2,472,707) 18.44
----------
Balance, May 31, 1996..................... 40,217,926 $ 16.04
----------
Granted................................. 11,443,612 38.55
Exercised............................... (5,877,143) 8.12
Canceled................................ (2,154,608) 25.00
----------
Balance, May 31, 1997..................... 43,629,787 $ 22.50
==========


As of May 31, 1997, the Company had reserved 87,451,667 shares of Common Stock
for the exercise of options. The range of exercise prices for options
outstanding at May 31, 1997 was $1.14 to $47.25. The range of exercise prices
for options is due primarily to the increasing price of the Company's stock
over the period of the grants.

The following table summarizes information about stock options outstanding at
May 31, 1997:



WEIGHTED
WEIGHTED AVERAGE
NUMBER AVERAGE WEIGHTED NUMBER EXERCISE
OUTSTANDING REMAINING AVERAGE EXERCISABLE PRICE OF
RANGE OF EXERCISE AS OF CONTRACTUAL EXERCISE AS OF EXERCISABLE
PRICE 5/31/97 LIFE PRICE 5/31/97 OPTIONS
----------------- ----------- ----------- -------- ----------- -----------

$ 1.14 -- $ 1.33 1,162,529 3.43 $ 1.33 937,529 $ 1.33
$ 1.38 -- $ 2.03 4,908,882 4.09 $ 2.02 4,908,882 $ 2.02
$ 2.04 -- $ 9.36 4,759,307 5.19 $ 5.72 4,318,182 $ 5.86
$ 9.69 -- $15.17 4,610,394 6.47 $13.53 3,224,818 $13.47
$ 15.22 -- $21.33 5,062,635 7.27 $19.16 2,407,275 $18.94
$ 21.42 -- $27.92 4,742,095 7.76 $24.13 1,434,471 $23.80
$ 28.25 -- $33.25 2,911,326 8.62 $31.60 704,436 $31.65
$ 33.50 -- $33.88 4,448,026 8.57 $33.87 1,122,625 $33.87
$ 34.38 -- $37.63 4,394,595 8.85 $34.98 32,204 $35.54
$ 38.13 -- $47.25 6,629,998 9.53 $41.12 14,678 $43.14
---------- ---- ------ ---------- ------
$ 1.14 -- $47.25 43,629,787 7.28 $22.50 19,105,100 $11.60
---------- ---- ------ ---------- ------



42


ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


Stock Purchase Plan

In October 1987, the Company adopted an Employee Stock Purchase Plan (the
"1987 Purchase Plan"), and reserved 36,000,000 shares of Common Stock for
issuance thereunder. In September 1992, the plan was amended to reserve an
additional 1,125,000 shares of Common Stock for the purpose of ensuring that
sufficient shares remained available for a full allocation of shares to all
participants in the offering period ended September 30, 1992. The 1987
Purchase Plan was terminated on September 30, 1992, and the remaining shares
became available for issuance under the 1992 Purchase Plan.

In August 1992, the Company adopted the Employee Stock Purchase Plan (1992)
(the "Employee Stock Purchase Plan"), and reserved 9,000,000 shares of Common
Stock for issuance thereunder. An additional 9,000,000 and 7,000,000 shares of
Common Stock were reserved for issuance under the plan in fiscal 1994 and
fiscal 1997, 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, 1997, 15,020,681 shares had been
issued and 10,392,621 shares are reserved for future issuances under this
plan.

During fiscal 1997 and 1996, the Company issued 3,085,634 and 3,123,013
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 1997 and 1996: (i) dividend yield of zero percent for
all periods, (ii) expected life of one-half year for all periods, (iii)
expected volatility of 37.5%, and (iv) risk-free interest rates within a range
of 6.11% to 6.37%. The weighted-average fair value of each purchase right
granted in fiscal 1997 and 1996 was $9.52 and $6.29 per share, respectively.

Shareholder Rights Plan

On December 3, 1990, the Board adopted a Shareholder Rights Plan. Pursuant to
the Plan, the Company distributed Preferred Stock Purchase Rights as a
dividend at the rate of one Right for each share of the Company's Common Stock
held by stockholders of record as of December 31, 1990. The Board also
authorized the issuance of Rights for each share of Common Stock issued after
the record date, until the occurrence of certain specified events. The
Shareholder Rights Plan was adopted to provide protection to stockholders in
the event of an unsolicited attempt to acquire the Company.

The Rights are not exercisable until the earlier of (i) ten days following an
announcement that a person or group has acquired beneficial ownership of 20%
of the Company's Common Stock or (ii) ten business days (or such later date as
may be determined by the Board) following the announcement of a tender offer
which would result in a person or group obtaining beneficial ownership of 20%
or more of the Company's outstanding Common Stock, subject to certain
exceptions (the earlier of such dates being called the "Distribution Date").
The Rights are initially exercisable for one forty-five hundredth of a share
of the Company's Series A Junior Participating Preferred Stock at a price of
$55.56 per one forty-five hundredth share, subject to adjustment. However, if
(i) after the Distribution Date the Company is acquired in certain types of
transactions, or (ii) any person or group (with certain exceptions) acquires
beneficial ownership of 20% of the Company's Common Stock, then holders of
Rights (other than the 20% holder) will be entitled to receive upon exercise
of the Right, Common Stock of the Company (or in the case of acquisition of
the Company, Common Stock of the acquiror) having a market value of two times
the exercise price of the Right.

The Company is entitled to redeem the Rights, for $0.00022 per Right, at the
discretion of the Board of Directors, until certain specified times. The
rights are not exercisable until the Company's period for redemption has
passed. The Company may also require the exchange of rights, at a rate of one
share of Common Stock, or one forty-five hundredth share of Series A Junior
Participating Preferred Stock, for each Right, under certain circumstances.
The Company also has the ability to amend the Rights, subject to certain
limitations.

43


ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


Stock Repurchases

The Company's Board of Directors has approved the repurchase of up to
47,000,000 shares of Common Stock on the open market to reduce the dilutive
effect of the Company's stock plans. Pursuant to this repurchase program, the
Company purchased 12,807,500 shares of the Company's Common Stock for
approximately $528,209,000 in fiscal 1997, 4,478,134 shares of the Company's
Common Stock for approximately $113,087,000 in fiscal 1996, 4,201,875 shares of
the Company's Common Stock for approximately $75,859,000 in fiscal 1995 and
13,437,000 shares of the Company's Common Stock for approximately $124,787,000
prior to fiscal 1995.

Stock Warrants

During fiscal 1995 and 1994, the Company sold 5,752,500 put warrants. On March
24, 1995, 3,502,500 of these put warrants were canceled at minimal cost and the
remaining warrants expired without being exercised. Additionally, the Company
purchased 3,595,500 call options in fiscal 1995 and 1994. On July 6, 1995, the
Company sold 2,189,250 of the call options and credited the net proceeds of
$17,175,000 to equity. The remaining 1,406,250 call options were exercised in
October 1995 at $21.08 per share for a total of $29,648,000.

During fiscal 1997, the Company sold 6,000,000 warrants, each of which entitles
the holder to purchase one share of Common Stock at prices between $77.00 and
$77.55. These warrants expire in May 2000 and the proceeds of $35,898,000 were
credited to equity.

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 options granted subsequent to May
31, 1995 under the fair value method of that statement. The fair value of
options granted for fiscal years ending May 31, 1997 and May 31, 1996 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 1997 1996
---------------------- ------------ ------------

Expected life from vest date (in years):
Employees.................................... 0.41 0.41
Officers and Directors....................... 0.43 -- 6.14 0.43 -- 6.14
Risk-free interest rates....................... 5.6 -- 6.8% 5.3 -- 6.7%
Volatility..................................... 37.5% 37.5%
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
1997 and 1996 was $17.40 and $13.33 per share, respectively.

44


ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


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,
-----------------
1997 1996
-------- --------
(IN THOUSANDS,
EXCEPT PER SHARE
DATA)

Net income:
As reported.......................................... $821,457 $603,279
Pro forma............................................ $737,779 $572,913
Earnings per share:
As reported.......................................... $ 1.22 $ 0.90
Pro forma............................................ $ 1.10 $ 0.86


The effects of applying SFAS No. 123 on pro forma disclosures of net income
and earnings per share for fiscal 1997 and 1996 are not likely to be
representative of the pro forma effects on net income and earnings per share
in future years.

7. INCOME TAXES

The following is a geographical breakdown of the Company's income before
taxes:



YEAR ENDED MAY 31,
------------------------------
1997 1996 1995
---------- -------- --------
(IN THOUSANDS)

Domestic................................ $ 952,131 $680,172 $526,815
Foreign................................. 331,396 239,338 132,167
---------- -------- --------
Total................................. $1,283,527 $919,510 $658,982
========== ======== ========

The provision for income taxes consists of the following:


YEAR ENDED MAY 31,
------------------------------
1997 1996 1995
---------- -------- --------
(IN THOUSANDS)

Current Payable:
Federal............................... $ 318,976 $253,514 $189,012
State................................. 55,387 42,738 31,831
Foreign............................... 169,080 109,712 108,695
---------- -------- --------
Total current....................... 543,443 405,964 329,538
---------- -------- --------
Deferred Payable (Prepaid):
Federal............................... (53,480) (67,865) (63,398)
State................................. (11,136) (8,129) (4,282)
Foreign............................... (16,757) (13,739) (44,394)
---------- -------- --------
Total deferred...................... (81,373) (89,733) (112,074)
---------- -------- --------
Total................................. $ 462,070 $316,231 $217,464
========== ======== ========


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:


45


ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)




YEAR ENDED MAY 31,
----------------------------
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)

Tax provision at statutory rate........... $449,234 $321,829 $230,643
Tax credits............................... (13,455) (692) (4,600)
Tax benefit of exempt FSC income.......... (22,130) (20,831) (16,368)
State tax, net of federal benefit......... 31,632 22,800 17,308
Foreign taxes provided at rates other than
the U.S. statutory rate.................. (6,538) (10,373) (8,575)
Foreign losses not tax benefited.......... 13,335 8,396 4,104
Other..................................... 9,992 (4,898) (5,048)
-------- -------- --------
Provision for income taxes................ $462,070 $316,231 $217,464
======== ======== ========


The components of the deferred tax assets and liabilities, as reflected on the
balance sheet, consist of the following:



YEAR ENDED MAY 31,
-----------------------------
1997 1996 1995
--------- -------- --------
(IN THOUSANDS)

Deferred Tax Liabilities:
Capitalized software development costs. $ (40,506) $(34,858) $(33,681)
Other tax liabilities.................. (793) (16,319) (27,450)
--------- -------- --------
Total deferred tax liabilities....... (41,299) (51,177) (61,131)
Deferred Tax Assets:
Reserves and accruals.................. 121,616 74,802 45,990
Differences in timing of revenue recog-
nition................................ 104,561 51,366 47,698
Foreign earnings deemed repatriated.... 25,400 49,325 22,938
Net operating loss carryovers.......... 24,935 16,417 19,516
Depreciation and amortization.......... 65,368 29,670 6,294
Other tax assets....................... 21,944 40,381 30,939
--------- -------- --------
Total deferred tax assets............ 363,824 261,961 173,375
Valuation allowance.................... (8,784) (7,815) (4,243)
--------- -------- --------
Net.................................. $ 313,741 $202,969 $108,001
--------- -------- --------
Recorded as:
Prepaid and refundable income taxes.... $ 274,366 $171,560 $135,491
Deferred income taxes.................. (7,402) (9,207) (27,490)
Other assets........................... 46,777 40,616 --
--------- -------- --------
$ 313,741 $202,969 $108,001
========= ======== ========


The Company provides United States income taxes on the earnings of foreign
subsidiaries unless they are considered permanently invested outside the
United States. As of May 31, 1997, the cumulative amount of earnings upon
which United States income taxes have not been provided are approximately
$35,183,000. At May 31, 1997, the unrecognized deferred tax liability for
these earnings is approximately $8,477,000.

Certain foreign subsidiaries of the Company have net operating loss
carryforwards at May 31, 1997, totaling approximately $61,430,000, which may
be used to offset future taxable income. The carryforwards expire at various
dates; $1,555,000 in 2000, $4,573,000 in 2001, $31,507,000 in 2002, $3,901,000
in 2003, $4,132,000 in 2004, and the remaining balance has no expiration. As
of May 31, 1997, the Company has recorded a gross

46


ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

deferred tax asset related to the loss carryforwards of $24,935,000, and a
related valuation allowance of $8,784,000. At May 31, 1996 and 1995, the
deferred assets were $16,417,000 and $19,516,000, respectively, and the related
valuation allowance attributed to loss carryforwards were $7,815,000 and
$4,243,000, respectively.

8. SEGMENT INFORMATION

The Company operates in one industry segment: the development and marketing of
computer software and related services. The Company's products are marketed
internationally through the Company's subsidiaries and through distributors.
Intercompany revenues are generally based on a sublicense fee, representing a
percentage of license and support revenues generated by non-U.S. operations
from their unaffiliated customers.

The following table presents a summary of operations by geographic region:



YEAR ENDED MAY 31,
--------------------------------
1997 1996 1995
---------- ---------- ----------
(IN THOUSANDS)

Revenues from Unaffiliated Customers:
Domestic operations................... $2,664,962 $1,815,725 $1,234,330
---------- ---------- ----------
International operations:
Europe/Middle East/Africa operations. 1,881,157 1,541,308 1,165,181
Asia Pacific operations.............. 809,604 605,244 385,787
Other Americas operations............ 328,613 261,023 181,580
---------- ---------- ----------
Total international operations...... 3,019,374 2,407,575 1,732,548
---------- ---------- ----------
Consolidated........................... $5,684,336 $4,223,300 $2,966,878
========== ========== ==========
Intercompany revenues:
Domestic operations................... $ 646,389 $ 508,201 $ 365,814
========== ========== ==========
Operating Income (Excluding Acquired
In-Process Research and Development):
Domestic operations................... $ 963,391 $ 714,208 $ 509,716
Europe/Middle East/Africa operations.. 165,919 113,956 86,477
Asia Pacific operations............... 125,811 81,844 49,851
Other Americas operations............. 44,664 45,814 3,677
---------- ---------- ----------
Consolidated........................ $1,299,785 $ 955,822 $ 649,721
========== ========== ==========
Identifiable Assets:
Domestic operations................... $2,894,912 $1,976,487 $1,451,720
Europe/Middle East/Africa operations.. 1,131,723 942,816 667,765
Asia Pacific operations............... 445,930 336,640 230,694
Other Americas operations............. 151,750 101,300 74,338
---------- ---------- ----------
Consolidated........................ $4,624,315 $3,357,243 $2,424,517
========== ========== ==========


9. LITIGATION

The Company is subject to various legal proceedings and claims, either asserted
or unasserted, which arise in the ordinary course of business. While the
outcome of these claims cannot be predicted with certainty, management does not
believe that the outcome of any of these legal matters will have a material
adverse effect on the Company's consolidated results of operations or
consolidated financial position.

47


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 ADJUSTMENT PERIOD
-------------- ------------ ----------- ------------ ----------- ------------

Allowance for Doubtful
Accounts
Year Ended:
May 31, 1995.......... $ 39,777,000 $53,784,000 $(28,011,000) $ 2,178,000 $ 67,728,000
============ =========== ============ =========== ============
May 31, 1996.......... $ 67,728,000 $64,412,000 $(23,229,000) $(3,200,000) $105,711,000
============ =========== ============ =========== ============
May 31, 1997.......... $105,711,000 $92,635,000 $(68,804,000) $(1,702,000) $127,840,000
============ =========== ============ =========== ============


48


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 13, 1997.

ORACLE CORPORATION

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.



SIGNATURE TITLE DATE
--------- ----- ----


Lawrence J. Ellison Chief Executive Officer and August 13, 1997
____________________________________ Chairman of the Board of
Lawrence J. Ellison Directors

Raymond J. Lane President, Chief Operating August 13, 1997
____________________________________ Officer and Director
Raymond J. Lane

Jeffrey O. Henley Executive Vice President, August 13, 1997
____________________________________ Chief Financial Officer and
Jeffrey O. Henley Director

Thomas A. Williams Vice President and Corporate August 13, 1997
____________________________________ Controller
Thomas A. Williams

Jeffrey Berg Director August 13, 1997
____________________________________
Jeffrey Berg

Michael J. Boskin Director August 13, 1997
____________________________________
Michael J. Boskin

Jack Kemp Director August 13, 1997
____________________________________
Jack Kemp

Donald L. Lucas Director August 13, 1997
____________________________________
Donald L. Lucas

Richard A. McGinn Director August 13, 1997
____________________________________
Richard A. McGinn




LOGO
RECYCLED PAPER


ORACLE CORPORATION

INDEX OF EXHIBITS





EXHIBIT # EXHIBIT TITLES
- --------- --------------

4.2 Warrant Purchase Agreement between Oracle Corporation and
Morgan Stanley & Co. Incorporated, as agent for Morgan Stanley
& Co. International Limited dated May 7, 1997.

4.3 Warrant Agreement between Oracle Corporation and BankBoston,
N.A. dated May 12, 1997.

4.4 Warrant Certificate dated May 12, 1997.

4.5 Warrant Purchase Agreement between Oracle Corporation and
Goldman, Sachs & Co. Dated May 14, 1997.

4.6 Warrant Agreement between Oracle Corporation and BankBoston,
N.A. dated May 19, 1997.

4.7 Warrant Certificate dated May 19, 1997.

10.25 Amendment No 1 to 1991 Long-Term Equity Incentive Plan dated
December 9, 1996.

21.01 Subsidiaries of the Registrant.

23.01 Consent of Arthur Andersen LLP.

27.1 Financial Data Schedule.


50