<PAGE> 1
=============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________ to __________________
Commission file number 0-14376
ORACLE SYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 94-2871189
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
</TABLE>
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)
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 _____
Number of shares of registrant's common stock outstanding as of February 28,
1994: 285,646,746.
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<PAGE> 2
ORACLE SYSTEMS CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets at February 28, 1994
and May 31, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Statements of Operations for the three months
and nine months ended February 28, 1994 and February 28, 1993 . . . . . . . . . . . 4
Condensed Consolidated Statements of Cash Flows for the nine months
ended February 28, 1994 and February 28, 1993 . . . . . . . . . . . . . . . . . . . 5
Notes to Condensed Consolidated Financial Statements . . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ORACLE SYSTEMS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
February 28, May 31,
1994 1993
---- ----
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . . . $ 254,398 $ 284,560
Short-term cash investments . . . . . . . . . . . . . . . . 69,042 73,215
Trade receivables, net of allowance for doubtful
accounts of $33,376 and $34,634, respectively . . . . . . . 380,889 359,360
Prepaid and refundable income taxes . . . . . . . . . . . . 47,318 49,157
Other current assets . . . . . . . . . . . . . . . . . . . . 87,844 76,015
---------- ----------
Total current assets . . . . . . . . . . . . . . . . . . 839,491 842,307
--------- ---------
LONG-TERM CASH INVESTMENTS . . . . . . . . . . . . . . . . . . . 8,538 31,276
PROPERTY, net . . . . . . . . . . . . . . . . . . . . . . . . . . 341,626 189,238
COMPUTER SOFTWARE DEVELOPMENT COSTS, net of
accumulated amortization of $100,118 and
$71,546, respectively . . . . . . . . . . . . . . . . . . . 100,849 101,580
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . 38,200 19,619
----------- -----------
Total assets . . . . . . . . . . . . . . . . . . . . . . $1,328,704 $1,184,020
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable to banks . . . . . . . . . . . . . . . . . . . $ 1,068 $ 1,530
Current maturities of long-term debt . . . . . . . . . . . . 6,624 9,154
Accounts payable . . . . . . . . . . . . . . . . . . . . . . 90,469 72,863
Income taxes . . . . . . . . . . . . . . . . . . . . . . . 57,979 49,729
Accrued compensation and related benefits . . . . . . . . . 85,945 103,099
Customer advances and unearned revenues . . . . . . . . . . 187,714 193,211
Value added tax and sales tax payable . . . . . . . . . . . 26,301 31,192
Other accrued liabilities . . . . . . . . . . . . . . . . . 102,924 90,565
----------- -----------
Total current liabilities . . . . . . . . . . . . . . . 559,024 551,343
----------- -----------
LONG-TERM DEBT . . . . . . . . . . . . . . . . . . . . . . . . . 84,072 86,380
OTHER LONG-TERM LIABILITIES . . . . . . . . . . . . . . . . . . . 10,974 10,035
DEFERRED INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . 20,901 8,223
STOCKHOLDERS' EQUITY . . . . . . . . . . . . . . . . . . . . . . 653,733 528,039
----------- -----------
Total liabilities and stockholders' equity . . . . . . . $1,328,704 $1,184,020
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 4
ORACLE SYSTEMS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND NINE MONTHS ENDED FEBRUARY 28, 1994 AND 1993
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
February 28, February 28,
----------------------- ------------------------
1994 1993 1994 1993
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES:
Licenses and other . . . . . . . . . . . . . $276,488 $221,461 $ 745,481 $ 598,947
Services . . . . . . . . . . . . . . . . . . 206,302 148,634 587,533 431,206
-------- -------- ---------- ----------
Total revenues . . . . . . . . . . . . . 482,790 370,095 1,333,014 1,030,153
-------- -------- ---------- ----------
OPERATING EXPENSES:
Sales and marketing . . . . . . . . . . . . 172,738 149,979 503,624 455,040
Cost of services. . . . . . . . . . . . . . 127,408 83,776 343,784 248,118
Research and development. . . . . . . . . . 48,496 38,252 140,929 102,713
General and administrative. . . . . . . . . 30,278 30,259 94,131 88,815
Provision for settlement of litigation . . -- 24,000 -- 24,000
-------- -------- ---------- ----------
Total operating expenses . . . . . . . . 378,920 326,266 1,082,468 918,686
-------- -------- ---------- ----------
Operating income . . . . . . . . . . . 103,870 43,829 250,546 111,467
OTHER INCOME (EXPENSE), net . . . . . . . . . . 240 1,035 2,062 250
-------- -------- ---------- ----------
Income before provision for income
taxes and cumulative effect of
change in accounting principle . . . . 104,110 44,864 252,608 111,717
PROVISION FOR INCOME TAXES . . . . . . . . . . . 34,362 15,702 83,375 39,101
-------- -------- ---------- ----------
Income before cumulative effect of
change in accounting principle . . . . 69,748 29,162 169,233 72,616
CUMULATIVE EFFECT ON PRIOR YEARS OF
CHANGE IN SOFTWARE REVENUE
RECOGNITION METHOD, NET OF RELATED
INCOME TAX EFFECT (See Note 2) . . . . . . . . -- -- -- (43,470)
-------- -------- ---------- ----------
Net income . . . . . . . . . . . . . . $ 69,748 $ 29,162 $ 169,233 $ 29,146
======== ======== ========== ==========
EARNINGS PER SHARE:
Income before cumulative effect of
change in accounting principle . . . . . . $ 0.24 $ 0.10 $ 0.57 $ 0.25
-------- -------- ---------- ----------
Cumulative effect of change in
accounting principle . . . . . . . . . . . $ 0.00 $ 0.00 $ 0.00 $ (0.15)
-------- -------- -------- --------
Net income . . . . . . . . . . . . . . . . $ 0.24 $ 0.10 $ 0.57 $ 0.10
======== ======== ========== ==========
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING (See Note 5) . . . . . 295,770 294,332 295,905 292,262
======== ======== ========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
ORACLE SYSTEMS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED FEBRUARY 28, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended
February 28,
-----------------------------
1994 1993
---------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . $169,233 $ 29,146
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of accounting change . . . . . . . . . -- 43,470
Depreciation and amortization . . . . . . . . . . . . . 75,296 60,185
Provision for doubtful accounts . . . . . . . . . . . . 22,707 15,407
(Increase) decrease in receivables . . . . . . . . . . . (65,995) 13,671
Decrease in prepaid and refundable income taxes . . . . 1,840 8,460
(Increase) decrease in other current assets . . . . . . (3,595) 10,345
Increase (decrease) in accounts payable . . . . . . . . 19,707 (4,628)
Increase in income taxes . . . . . . . . . . . . . . . 19,458 3,579
Decrease in customer advances and
unearned revenues . . . . . . . . . . . . . . . . . . (1,716) (27,136)
Increase (decrease) in other accrued liabilities . . . . (5,979) 18,268
Increase in other long-term liabilities . . . . . . . . 939 1,089
Increase (decrease) in deferred income taxes . . . . . . 12,709 (4,481)
---------- ---------
Net cash provided by operating activities . . . . . . . . . 244,604 167,375
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) decrease in cash investments . . . . . . . . 26,911 (60,791)
Capital expenditures . . . . . . . . . . . . . . . . . . (197,847) (28,923)
Capitalization of computer software
development costs . . . . . . . . . . . . . . . . . . (27,802) (24,469)
Increase in other assets . . . . . . . . . . . . . . . . (20,619) (99)
---------- ---------
Net cash used for investing activities . . . . . . . . . . . (219,357) (114,282)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments on debt obligations . . . . . . . . . . . . (6,020) (9,538)
Proceeds from common stock issued . . . . . . . . . . . 22,090 19,088
Repurchase of common stock . . . . . . . . . . . . . . . (65,130) (24,630)
---------- ----------
Net cash used for financing activities . . . . . . . . . . . (49,060) (15,080)
---------- ----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH . . . . . . . . . . . . . (6,349) (5,344)
---------- ----------
Net increase (decrease) in cash and
cash equivalents . . . . . . . . . . . . . . . . . . . . . (30,162) 32,669
CASH AND CASH EQUIVALENTS:
Beginning of period . . . . . . . . . . . . . . . . . . . . 284,560 153,283
--------- ---------
End of period . . . . . . . . . . . . . . . . . . . . . . . $254,398 $185,952
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
ORACLE SYSTEMS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. However, the Company believes that the
disclosures are adequate to make the information presented not misleading.
These condensed consolidated financial statements should be read in conjunction
with the financial statements and the notes thereto included in the Company's
Annual Report on Form 10-K for the year ended May 31, 1993.
The unaudited condensed consolidated financial statements included herein
reflect all adjustments (which include only normal, recurring adjustments)
which are, in the opinion of management, necessary to state fairly the results
for the nine month period ended February 28, 1994. The results for the nine
month period ended February 28, 1994 are not necessarily indicative of the
results expected for the full fiscal year.
2. SOFTWARE REVENUE RECOGNITION
Effective June 1, 1992, the Company adopted Statement of Position 91-1,
"Software Revenue Recognition," which addresses the accounting for software
revenues. The Company recorded the cumulative effect of the change in
accounting principle, net of tax, in the amount of $43,470,000 as a non-cash
charge in its statement of operations in the first quarter of fiscal 1993.
3. PROPERTY
In August 1993, to reduce its net facilities costs, the Company purchased $85.1
million of 10.375% mortgage notes due July 31, 1995. These notes are the
obligations of IV Centrum Associates, a real estate limited partnership, which
owns two of the three buildings leased by the Company for its headquarters. In
December 1993, the Company became a 74% limited partner in IV Centrum by making
a capital contribution of approximately $4 million. The Company has the right
to leave the partnership in 1996 and take full title to both buildings without
making further capital contributions. As a result of the note purchases and
capital contribution, the Company has capitalized the two building leases and
the $89.1 million in payments have been classified as property in the
accompanying condensed consolidated balance sheet.
In addition to the above expenditures, during the second quarter of
fiscal 1994, the Company purchased land and construction materials for an
additional facility at its headquarters site for approximately $17 million and
land to be used for its UK subsidiary's headquarters for approximately $31
million.
4. NOTES PAYABLE
In December 1991, the Company entered into an $80 million subordinated debt
agreement with Nippon Steel Corporation ("NSC"). In connection with this
agreement, the Company also entered into a strategic relationship with NSC to
target major customers and industries in Japan. The subordinated debt
agreement has a final maturity date of December 9, 1998, subject to a one-time
call option that may reduce the maturity to May 1, 1995 if the strategic
relationship is terminated after May 1, 1994. Interest is charged at LIBOR
plus three-quarters of one percent, payable semi-annually in arrears. The
Company is required to maintain certain financial covenants under the
agreement. Additionally, NSC acquired warrant rights to purchase from the
Company an ownership position of up to twenty-five percent of Oracle
Corporation Japan, an indirect wholly owned subsidiary of the Company.
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<PAGE> 7
The exercise price for the warrants is based on a $400 million valuation of
Oracle Corporation Japan if shares are purchased prior to May 1, 1994. If NSC
does not exercise this option, it may select other options to purchase an
ownership in Oracle Corporation Japan of up to twenty-five percent at fair
market value prior to December 1, 1998, subject to potential extensions. NSC
has also agreed not to acquire shares of Oracle Corporation Japan beyond the
twenty-five percent interest, nor any shares of the Company, subject to certain
exceptions.
5. EARNINGS PER SHARE
On October 11, 1993, the Company effected a two-for-one stock split in the form
of a 100% common stock dividend distributed November 8, 1993 to stockholders of
record as of October 22, 1993. All per share data and numbers of common
shares, where appropriate, have been retroactively adjusted to reflect the
stock split.
Earnings per share was computed based on the weighted average number of common
and common equivalent shares outstanding during the period. Common equivalent
shares are calculated using the treasury stock method, and represent shares
issuable upon the exercise of outstanding stock options.
6. LITIGATION
Refer to Part II, Item 1 for a description of legal proceedings.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
International revenues (including end users and resellers) increased 31% and
24% in the third quarter and first nine months of fiscal 1994, as compared to
the corresponding periods in fiscal 1993, while revenues in the United States
increased 29% and 38% from the third quarter and first nine months of fiscal
1993, respectively. International revenues were negatively affected in fiscal
1994 when compared to the corresponding period of the prior year as a result of
the strengthening of the U.S. dollar against certain major international
currencies. International revenues expressed in local currency increased in
both the third quarter and first nine months of fiscal 1994 by approximately
34%, from the corresponding periods of fiscal 1993. International revenues
constituted approximately 61% and 60% of total revenues in the third quarters
of fiscal 1994 and 1993, respectively, and 61% and 63% of total revenues in the
first nine months of fiscal 1994 and 1993, respectively. Management expects
that the Company's international operations will continue to provide a
significant portion of total revenues. However, international revenues will be
adversely affected if the U.S. dollar continues to strengthen against certain
major international currencies.
<TABLE>
<CAPTION>
REVENUES:
Three Months Ended Nine Months Ended
----------------------------- -----------------------------
Feb 28, Feb 28, Feb 28, Feb 28,
1994 Change 1993 1994 Change 1993
------- ------ ------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Licenses and other $276,488 25% $221,461 $ 745,481 24% $ 598,947
Percentage of revenues 57.3% 59.8% 55.9% 58.1%
Services $206,302 39% $148,634 $ 587,533 36% $ 431,206
Percentage of revenues 42.7% 40.2% 44.1% 41.9%
Total revenues $482,790 30% $370,095 $1,333,014 29% $1,030,153
</TABLE>
7
<PAGE> 8
LICENSES AND OTHER REVENUES. License revenues represent fees earned for
granting customers licenses to use the Company's software products. License
revenues also include revenues from the Company's systems integration business
and other revenues, which include documentation revenues, certain software
development revenues, as well as other miscellaneous revenues. Excluding the
systems integration business, which continues to be phased down, license and
other revenues increased 31% and 32% in the third quarter and first nine months
of fiscal 1994, respectively, when compared to the corresponding periods in
fiscal 1993. The Company believes that the strong revenue growth rate in the
first nine months of fiscal 1994 is primarily due to an overall increase in
market demand for database and tools products, increased market acceptance of
the Company's relational DBMS, as well as increased penetration in the
financial and manufacturing applications markets.
SERVICE REVENUES. Support, consulting and education services revenues each
increased from the corresponding period of fiscal 1993. The Company's support
revenues continued to constitute the largest portion of services revenues, and
grew 37% and 34% in the third quarter and first nine months of fiscal 1994,
respectively, reflecting the continued increase in the installed base of the
Company's products under support contracts. Consulting and education services
likewise grew 41% and 39% in the third quarter and first nine months of fiscal
1994, 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:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------- ----------------------------
Feb 28, Feb 28, Feb 28, Feb 28,
1994 Change 1993 1994 Change 1993
------- ------ ------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Sales and marketing $172,738 15% $149,979 $503,624 11% $455,040
Percentage of revenues 35.8% 40.5% 37.8% 44.2%
Cost of services $127,408 52% $ 83,776 $343,784 39% $248,118
Percentage of revenues 26.4% 22.6% 25.8% 24.1%
Research and development (1) $ 48,496 27% $ 38,252 $140,929 37% $102,713
Percentage of revenues 10.0% 10.3% 10.6% 10.0%
General and administrative $ 30,278 0% $ 30,259 $ 94,131 6% $ 88,815
Percentage of revenues 6.3% 8.2% 7.1% 8.6%
Provision for settlement
of litigation $ -- * $ 24,000 $ -- * $ 24,000
Percentage of revenues * 6.5% * 2.3%
__________________________
</TABLE>
* Not meaningful
(1) Pursuant to Statement of Financial Accounting Standards No. 86, the
Company capitalized software development costs equal to 2.1% and 1.5%
of total revenues during the third quarters of fiscal 1994 and 1993,
respectively, and 2.1% and 2.4% of total revenues in the first nine
months of fiscal 1994 and 1993, respectively.
Similar to the trend in international revenues, the Company's international
expenses were favorably affected in the third quarter and first nine months of
fiscal 1994 when compared to the corresponding periods in the prior year due to
changes in the value of the U.S. dollar against certain major international
currencies.
SALES AND MARKETING EXPENSES. The Company continues to place significant
emphasis, both domestically and
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<PAGE> 9
internationally, on direct sales through its own sales force. However, the
Company has also begun to place more emphasis on marketing its products through
indirect channels in order to increase market share, while reducing
distribution costs. As a percentage of total revenues, sales and marketing
expenses decreased in the third quarter and first nine months of fiscal 1994
when compared to the corresponding periods in fiscal 1993 as a result of higher
revenue levels, and controls over increases in headcount and headcount related
expenses in order to improve the Company's sales margins. 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
service revenues, cost of services was 62% and 56% of revenues in the third
quarters of fiscal 1994 and 1993, respectively, and 59% and 58% of revenues in
the first nine months of fiscal 1994 and 1993, respectively. The Company's
service margins have been negatively affected versus the prior year periods
due, in part, to a higher percentage of service revenues being comprised of
consulting and education revenues, which have lower margins than the support
business, as well as the impact of higher headcount levels to support future
growth.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses for the
third quarters of fiscal 1994 and 1993 would have been 12.0% and 11.8%,
respectively, of revenues 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% from the third quarter of fiscal 1993 and
33% from the first nine months of fiscal 1993 to the corresponding period of
fiscal 1994 (27% and 37% after the adjustment for software capitalization).
The Company capitalized approximately $10,193,000 and $5,491,000 during the
third quarters of fiscal 1994 and 1993, respectively, and $27,802,000 and
$24,470,000 in the corresponding nine month periods. Amortization of
capitalized software development costs is charged to sales and marketing
expenses and totalled $10,710,000 and $5,641,000 in the third quarters of
fiscal 1994 and 1993, respectively, and $28,533,000 and $16,625,000 in the
corresponding nine month periods. The Company expects the amount of
amortization of capitalized software development costs to continue to increase
in fiscal 1994 over fiscal 1993, as a result of the introduction of new
products and the commencement of the related amortization. The Company
believes that research and development expenditures are essential to
maintaining its competitive position and expects these costs to continue to
constitute a significant percentage of revenues.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses as a
percentage of revenues decreased in the third quarter and first nine months of
fiscal 1994 as compared to the corresponding periods in fiscal 1993, reflecting
higher revenue levels and controls over discretionary spending.
PROVISION FOR SETTLEMENT OF LITIGATION. In the third quarter of fiscal 1993,
the Company entered into agreements to settle pending class action and
derivative lawsuits. The agreements provide for payments by the Company of
$24,000,000. The agreements are subject to final court approval (see Part II,
Item 1 for a description of legal proceedings).
OTHER INCOME (EXPENSE):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------- ----------------------------
Feb 28, Feb 28, Feb 28, Feb 28,
1994 Change 1993 1994 Change 1993
------- ------ ------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Other Income (Expense) $ 240 * $ 1,035 $ 2,062 * $ 250
Percentage of revenues 0.0% 0.3% 0.2% 0.0%
- - -----------------------------
* Not meaningful
</TABLE>
Changes in 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 income and
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<PAGE> 10
expense items.
PROVISION FOR INCOME TAXES:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------- ----------------------------
Feb 28, Feb 28, Feb 28, Feb 28,
1994 Change 1993 1994 Change 1993
------- ------ ------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Provision for
Income Taxes $34,362 119% $15,702 $83,375 113% $39,101
Percentage of revenues 7.1% 4.2% 6.3% 3.8%
</TABLE>
The Company's estimated effective tax rate for the third quarter and first nine
months of fiscal 1994 was 33% as compared to a 35% tax rate in the
corresponding periods of fiscal 1993.
NET INCOME AND EARNINGS PER SHARE:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------- ----------------------------
Feb 28, Feb 28, Feb 28, Feb 28,
1994 Change 1993 1994 Change 1993
------- ------ ------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Income before Cumulative
Effect of Change in
Accounting Principle $69,748 139% $29,162 $169,233 133% $72,616
Percentage of revenues 14.4% 7.9% 12.7% 7.0%
Net Income $69,748 139% $29,162 $169,233 481% $29,146
Percentage of revenues 14.4% 7.9% 12.7% 2.8%
Earnings Per Share:
Income before Cumulative
Effect of Change in
Accounting Principle $ .24 140% $ .10 $ .57 128% $ .25
Net Income $ .24 140% $ .10 $ .57 470% $ .10
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
Nine Months Ended
-------------------------------------
Feb 28, Feb 28,
1994 Change 1993
------- ------ -------
<S> <C> <C> <C>
Working Capital $280,467 9% $256,971
Cash and short-term
investments $323,440 20% $269,961
Long-term cash investments $ 8,538 * $ --
Cash provided by operating
</TABLE>
10
<PAGE> 11
<TABLE>
<S> <C> <C> <C>
activities $ 244,604 46% $ 167,375
Cash used for investing
activities $ (219,404) 92% $ (114,282)
Cash used for
financing activities $ (49,013) 225% $ (15,080)
</TABLE>
* Not Meaningful
As discussed in Note 4 of Notes to Condensed Consolidated Financial Statements,
the Company entered into a subordinated debt agreement with NSC for $80,000,000
in December 1991. In connection with this agreement, the Company also entered
into a strategic relationship with NSC to target major customers and industries
in Japan. The subordinated debt agreement has a final maturity date of December
9, 1998, subject to a one-time call option that may reduce the maturity date to
May 1, 1995 if the strategic relationship is terminated after May 1, 1994. In
certain circumstances, this call option may be extended for an additional one
year period.
At February 28, 1994, the Company also had additional debt of $11,764,000 in
the form of other notes payable and capital leases.
In August 1993, to reduce its net facilities costs, the Company purchased $85.1
million of 10.375% mortgage notes due July 31, 1995. These notes are the
obligations of IV Centrum Associates, a real estate limited partnership, which
owns two of the three buildings leased by the Company for its headquarters. In
December 1993, the Company became a 74% limited partner in IV Centrum by making
a capital contribution of approximately $4 million. The Company has the right
to leave the partnership in 1996 and take full title to both buildings without
making further capital contributions. As a result of the note purchases and
capital contribution, the Company has capitalized the two building leases and
the $89.1 million in payments have been classified as property in the
accompanying condensed consolidated balance sheet.
In addition to the above expenditures, during the second quarter of
fiscal 1994, the Company purchased land and construction materials for an
additional facility at its headquarters site for approximately $17 million, and
land to be used for its UK subsidiary's headquarters for approximately $31
million. In March 1994, the Company paid $23 million for a mortgage note
secured by an office facility near its headquarters site, which the Company has
leased pursuant to a master lease agreement that grants the Company the option
to purchase the office facility. Also, as part of this transaction, and for
nominal consideration, Oracle Real Estate Corporation, a wholly owned
subsidiary of the Company, acquired title to the land underlying the office
facility subject to a ground lease, and the Company acquired a second mortgage
note secured by the office facility. In addition, the Company is currently in
the process of negotiating additional facilities related expenditures,
including the construction of the additional building on its headquarters site,
as well as the first building at the UK headquarters site.
The Company generated incremental positive cash flows from operating activities
in the first nine months of fiscal 1994 over the corresponding period in fiscal
1993, primarily due to improved profitability.
Cash used for investing activities increased during the first nine months of
fiscal 1994 as compared to the corresponding period of the prior year primarily
due to the purchase of the mortgage notes and partnership interest discussed
above, as well as the acquisition of an additional 60% ownership of the
distribution entity for the Company's products in Italy. The Company expects to
continue to invest in capital assets and capitalized software development
activities to support its growth.
The Company has announced plans to repurchase up to 10 million shares of Common
Stock on the open market to reduce the dilutive effect of the Company's stock
plans. During the first nine months of fiscal 1994, the Company repurchased
2,230,000 shares of the Company's Common Stock for approximately $65,130,000.
During fiscal 1993 and through February 28, 1994, the Company had repurchased a
total of 5,437,000 shares for approximately $108,757,000.
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The Company anticipates that its current cash balances, as well as anticipated
cash flows from operations, will be sufficient to meet its working capital
needs at least through the next twelve months.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Class action and derivative lawsuits were filed in the United States District
Court, Northern District of California, on and after March 29, 1990. The class
actions were brought by and on behalf of purchasers of the Common Stock of the
Company (and purchasers of call options for the Company's Common Stock) during
the period July 11, 1989 through September 26, 1990, and name as defendants the
Company and certain of its present and former officers and directors.
Plaintiffs in the class action allege that during the class period the
defendants violated federal securities laws and state common law by
artificially inflating the price of the Company's Common Stock (and call
options for the Company's Common Stock) through alleged misrepresentations and
nondisclosures regarding the Company's actual and prospective financial
condition. The derivative lawsuits were brought by Company stockholders,
allegedly on behalf of the Company, against certain of the Company's present
and former officers and directors. The derivative suit claims that these
officers and directors breached their fiduciary duties to the Company and its
stockholders through similar alleged misrepresentations and nondisclosures, and
by selling the Company's securities while allegedly in possession of material
nonpublic information. Collectively, the plaintiffs in the suits sought
compensatory and other damages and disgorgement of profits from the individual
defendants. The plaintiffs in the derivative suit also sought to order a new
election of directors of the Company. An action against the Company's
independent auditors, containing allegations related to those alleged in the
class action, was filed on April 2, 1991 and was consolidated with the pending
class action and derivative lawsuits. The Court has conditionally certified a
plaintiff class consisting of purchasers of Common Stock (and call options for
the Common Stock) of the Company during the period from July 11, 1989 through
September 26, 1990.
On February 1, 1993, all parties entered into agreements to settle the class
action and derivative lawsuits. The class agreement provides for payment by
the Company of $23.25 million in five equal installments of $4.65 million. The
first installment was paid in February 1993, the second installment was paid in
June 1993, the third installment was paid in October 1993 and the fourth
installment was paid in January 1994. Payments have been made to a custodial
account for disbursement upon order of the Court. The remaining installment
will be paid on April 15, 1994. The derivative agreement provides for payment
by the Company of up to $750,000 in attorney's fees if so ordered by the Court.
On August 9, 1993, the Court found that the class settlement was "reasonable,"
but declined to rule on the derivative settlement until after a special
committee of the Company's Board had been advised by independent counsel
regarding the proposed derivative settlement. Because approval of the class
action settlement is contingent upon the approval of the derivative settlement
under the terms of the settlement agreements, the Court did not approve the
class settlement. The Court stated that it was prepared to approve the class
settlement if the Company were to waive the approval contingency. The parties
have agreed to extend to April 8, 1994, the Company's time within which to
waive the approval contingency should it choose to do so. In the interim, a
special committee was formed which retained independent counsel to review the
proposed derivative settlement. Upon completion of the independent counsel's
review, the special committee submitted a report to the Court on November 5,
1993 recommending that the settlement be approved as reasonable. On November
19, 1993, the Court held a status conference to consider the special
committee's report and took the matter under submission.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.09 Amendment Number One to Rights Agreement dated December 3, 1990,
between Oracle Systems Corporation and the Bank of America, N.T.
& S.A., 8-A filed with Securities and Exchange Commission on
February 28, 1994, File No. 000-14376.
3.10 Rights Agent Agreement dated August 1, 1991 between Oracle Systems
Corporation and Harris Trust Company of California, which is
incorporated by reference to the Form 8-A filed with the
Securities and Exchange Commission on February 28, 1994, File No.
000-14376.
(b) Reports on Form 8-K
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Oracle
Systems Corporation has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
ORACLE SYSTEMS CORPORATION
Dated: April 1, 1994
By: Lawrence J. Ellison
-----------------------------
Lawrence J. Ellison,
President and
Chief Executive Officer
Dated: April 1, 1994 By: Jeffrey O. Henley
-----------------------------
Jeffrey O. Henley,
Executive Vice
President and Chief Financial
Officer
Dated: April 1, 1994 By: Thomas A. Williams
-----------------------------
Thomas A. Williams,
Chief Accounting Officer
14
