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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, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-14376
Oracle Systems Corporation
(Exact name of registrant as specified in its charter)
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Delaware 94-2871189
(State or other jurisdiction of incorporation or organization) (I.R.S. employer identification number)
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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 $.01 PER SHARE
PREFERRED STOCK PURCHASE RIGHTS
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
-----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ X ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of June 30, 1994 was $8,274,092,550. This calculation does not
reflect a determination that persons are affiliates for any other purposes.
Number of shares of common stock outstanding as of June 30, 1994: 286,439,008.
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 10, 1994.
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ORACLE SYSTEMS CORPORATION
1994 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
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PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . 9
Item 4A. Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . 14
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . 21
PART III
Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . 22
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . . 22
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . 22
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K . . . . . . . . . . . . . . . . . 23
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
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PART I
ITEM 1. BUSINESS
The Company designs, develops, markets, and supports computer software products
with a wide variety of uses, including database management and network
products, applications development productivity tools, and end user
applications. The Company's principal product, the ORACLE relational database
management system ("DBMS"), is a SQL-based, relational database management
system that runs on a broad range of computers, including massively parallel,
mainframes, minicomputers, workstations, and personal computers. The Company
also offers consulting, education, support, and systems integration services in
support of its customers' use of its software products.
The Company was incorporated on October 29, 1986 in connection with a
reincorporation of the Company's predecessor in Delaware, which was completed
on March 12, 1987. The Company's principal operating subsidiary, Oracle
Corporation, a California corporation, was incorporated in June 1977. Unless
the context otherwise requires, the "Company" or "Oracle" refers to Oracle
Systems Corporation, its predecessor and its subsidiaries. The Company
maintains its executive offices and principal facilities at 500 Oracle Parkway,
Redwood City, California 94065. Its telephone number is (415) 506-7000.
BACKGROUND
Computer software can be classified into two broad categories: system software
and applications software. System software includes (1) operating systems,
which control the computer hardware, (2) compilers and interpreters, which
translate programs into a form that can be executed by a computer, (3)
communications software, which permits computers to send data across a network,
and (4) database management systems, which are used to create, retrieve, and
modify data stored in computers. Applications software automates the
performance of specific business functions such as payroll processing, general
ledger accounting, and inventory control.
Database management systems software permits multiple users and applications to
access data concurrently while protecting the data against user and program
errors and against computer and network failures. Database management systems
are used to support the data access and data management requirements of
transaction processing and decision-support systems.
There are several types of database management systems software: hierarchical,
network, relational, and object oriented. Hierarchical, network, and
relational DBMSs have been widely used to support diverse applications in
business, engineering, manufacturing, government, and other applications
domains. Object oriented DBMS software is an emerging software technology that
may permit more complex data structures to be accessed by applications
programs, although such object oriented systems have not yet been proven in
many commercial environments.
In both hierarchical and network DBMS structures, users must know how and where
their data is stored, navigate through the database system, and access that
data step-by-step according to predefined sequences. Consequently, such DBMSs
are not well suited to answering inquiries that were unanticipated by the
programmer when the applications were created and therefore not specifically
predefined in the database structure. Also, developing and maintaining
applications with such systems is time-consuming because the applications
program must be aware of the data storage structure. Despite these
limitations, hierarchical and network DBMSs, which have been available since
the 1960's, have been used for many large-scale business data processing
applications running on large mainframe computers.
In 1970, International Business Machines Corporation ("IBM") published a
proposed theoretical model for a relational DBMS. The comparative advantage of
a relational DBMS is that users need not know how or where their data is stored
in the computer. To access data, users simply specify what data they desire,
not how to retrieve it. Relational systems navigate automatically to the data,
making database information readily accessible by users of all experience
levels. Regardless of how the data is actually stored in the computer memory,
the results of database queries are always presented to users in familiar,
two-dimensional tables of rows and columns of data. Relational DBMSs therefore
have been widely used for management information and decision-support systems
which require flexible access to data. Because they facilitate applications
development and maintenance, relational DBMSs also have become widely used in
mid-range and low-end transaction processing environments. As their
performance and
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reliability have improved, relational DBMSs increasingly have been chosen to
support mission-critical data processing applications.
Object oriented DBMSs are designed to support applications with "advanced" data
management requirements, such as those of certain engineering applications
which historically have not been able to use DBMSs. As compared with
relational DBMSs, object oriented DBMSs permit more complex data structures to
be defined and accessed by applications programs. However, currently available
object oriented systems provide limited capabilities for the ad hoc data access
requirements of decision support systems, and have insufficient performance and
reliability for most business transaction processing applications.
Nevertheless, the Company believes that object oriented techniques can be
incorporated into existing relational DBMSs without sacrificing upward
compatibility and the advantages of existing relational DBMSs. Merging object
oriented capabilities with existing relational DBMSs would further broaden the
applicability of relational DBMSs while providing the reliability, performance
and flexibility that have been lacking in the object oriented DBMSs now
available. While the Company plans to incorporate object oriented technologies
into future versions of the ORACLE relational DBMS, no assurance can be given
that the Company will be able to do so successfully or in a timely fashion as
compared to competitive object oriented DBMSs.
PRODUCT DEVELOPMENT HISTORY
In 1976, IBM published the specifications for a simple, English-like command
language called SQL (pronounced "sequel"), with which users define, retrieve,
manipulate, and control data stored in a relational DBMS. In 1977, the Company
was formed to develop a relational DBMS using IBM's published specifications
for the SQL language. Two years later, in June 1979, the Company introduced
the ORACLE relational DBMS, the first commercially available relational DBMS.
IBM's first relational product, SQL/DS, was released in February 1982. In
1985, IBM announced DB2, its second relational DBMS product, and its second
product to implement SQL. SQL has become the industry standard command
language for relational DBMS products. In October 1986, the American National
Standards Institute ("ANSI") approved a standard definition for the SQL command
language, which was also adopted by the International Standards Organization
("ISO"). The SQL standard was updated with additional capabilities in 1989,
and a second enhanced standard ("SQL2") was finalized in 1992.
Since 1979, the Company has released several new versions of the ORACLE
relational DBMS, each of which contained performance and functional
enhancements. In 1992, the Company introduced Version 7 of the ORACLE
relational DBMS ("ORACLE7"), which was developed to improve the ability of the
Oracle relational DBMS to support large numbers of users and higher rates of
transaction processing, to provide server automation features such as
DBMS-enforced data integrity requirements and to permit multiple computers
running DBMSs of ORACLE and other vendors to cooperatively share data with
other computers across a communications network.
PRODUCTS
The Company's products are contained within three product families: Cooperative
Server Technology, Cooperative Development Environment, and End User
Applications.
Cooperative Server Technology
The Company's Cooperative Server Technology ("CST") products consist of an
integrated set of cooperative-server database and network products. The
principal product is the ORACLE relational DBMS. The ORACLE relational DBMS
gives users the ability to define, retrieve, manipulate, and control data
stored on multiple computers, using the industry standard SQL language. The
ORACLE relational DBMS provides features to support the operational
requirements of on-line transaction processing ("OLTP") environments for high
systems availability and performance. The Oracle relational DBMS provides
optional parallel server technology that further extends the scalability and
availability of CST products by allowing multiple, loosely coupled or clustered
machines to cooperatively access a logical database spread across multiple
disks. Furthermore, Version 7.1 of the ORACLE DBMS provides optional parallel
query capabilities that enable fast searching of large amounts of data for
large-scale decision support and information warehouse applications. In
addition, the ORACLE relational DBMS includes additional capabilities that
allow the DBMS to enforce business policies and data integrity rules. The
ORACLE relational DBMS also permits transparent data sharing across a
communications network, so that applications programs and users can access data
without knowing or specifying the location of the data within the network.
Applications developed with the ORACLE relational DBMS are portable to a wide
variety of hardware and operating system environments, and can
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be redeployed in different environments with little or no change. For a
description of the Company's network products, see "Product Features--
Cooperative and Distributed Processing Capabilities."
Cooperative Development Environment
The Company's Cooperative Development Environment ("CDE") products consist of
an integrated family of applications development productivity tools, CASE
products and document automation products. CDE increases programmer
productivity and allows non-programmers to design, develop, and maintain their
own applications. Applications built with CDE are open and can access data
stored in the ORACLE relational DBMS as well as certain other competitors'
databases. Applications developed with CDE are portable across different
graphical user interfaces, and can incorporate image, sound and voice
multimedia objects.
End User Applications Products
The Company's Oracle Financial products consist of an integrated family of end
user accounting applications products that use the ORACLE relational DBMS and
Oracle's development and decision support tools to provide full-function end
user accounting systems, as well as a similar family of accounting products for
government end users called Oracle Government Financials. The Company also
offers Oracle Manufacturing products, which provide manufacturing companies
with planning and control tools, and Oracle Human Resources products, which
provide users with personnel management tools. The Oracle end user applications
products can be integrated with a customer's existing accounting systems or
other Oracle applications products.
PRODUCT FEATURES
The Company believes that the principal competitive strengths of the ORACLE
relational DBMS are its high performance and availability for OLTP
applications, its cooperative and distributed processing capabilities, its
declarative and procedural data integrity features, its ability to support
tightly and loosely coupled parallel processing platforms, its broad
portability across different computer hardware and operating systems, and its
compatibility with the SQL command language.
High Performance and Availability for OLTP Environments
The Company participates in the on-line transaction processing market with the
ORACLE relational DBMS, which provides the high performance, high availability
and large database support that customers with OLTP environments demand. The
ORACLE relational DBMS has repeatedly established new transaction processing
performance records on industry standard performance measurement tests
("benchmarks") conducted on a variety of hardware platforms. The ORACLE
relational DBMS also has the ability to support environments which require
simultaneous OLTP and query access. This capability allows organizations to
use the same data to operate and manage their business. High availability
allows on- line back-up and recovery to maximize system availability even
during routine maintenance operations without degrading normal OLTP
performance.
Cooperative and Distributed Processing Capabilities
The ORACLE relational DBMS works with the Company's SQL*Net product to connect
applications using the ORACLE relational DBMS on different computers running
under different operating systems and using different network communications
protocols. SQL*Net supports a client/server architecture, allowing an
application using the ORACLE relational DBMS and running on one machine to
access remote databases on other machines running the ORACLE relational DBMS
anywhere within a communications network.
SQL*Net also supports a distributed database architecture, where multiple
copies of the ORACLE relational DBMS running on multiple physically separated
computers communicate with one another, permitting applications and users to
view multiple databases as if they were a single database. This distributed
architecture is designed with functionality which makes it suitable for
production OLTP distributed applications. The same non-procedural SQL language
commands that are used to access data in a single database are used to access
data in a distributed database, and the applications and users need not know or
specify the location of the data. Version 5.1 of the ORACLE relational DBMS,
when introduced in 1986, was among the first commercial relational DBMSs to
support
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queries (retrieval) of data from a distributed database. ORACLE7 extends this
distributed database architecture with distributed update transactions and data
replication facilities.
The Company's Oracle Open Gateway products (Oracle Transparent Gateways, Oracle
Procedural Gateways and Oracle Procedural Developer's Kit) allow non-ORACLE
DBMSs to be integrated into a distributed database environment. Users can
employ the SQL language to access data stored in other relational DBMSs such as
IBM's DB2 as well as data stored in older hierarchical DBMSs or file systems.
The Company believes that the ability to access data from non-ORACLE DBMSs from
applications using the ORACLE relational DBMS is attractive to customers
because it preserves an organization's investment in existing application
systems, and also makes it easier to migrate existing applications and develop
new applications using the ORACLE relational DBMS.
Declarative and Procedural Data Integrity Features
ORACLE7 provides advanced capabilities for centrally defining business policies
and data integrity rules within a database, and for automatic enforcement of
those policies and rules by the DBMS. Simple data integrity rules, such as a
requirement that data values in one table match values stored in another, can
be specified declaratively (non-procedurally) using industry standard SQL
commands. More complex business policies can be encapsulated in "stored
procedures" and "database triggers," which are collections of SQL language
statements and procedural logic statements that are stored in a database and
executed implicitly when other database changes occur.
Support for Tightly and Loosely-Coupled Parallel Processing Platforms
The Parallel Server configuration of ORACLE7 permits multiple computers using a
common operating system to access a single database stored on shared disk
devices. The ORACLE Parallel Server runs on hardware platforms comprised of a
small number of large processors ("clusters") as well as massively parallel
platforms comprised of hundreds or thousands of small processors, where the
processors do not share access to common main memory. The Company believes
that hardware clusters and massively parallel platforms are attractive
alternatives to traditional mainframe computers, because they can provide
exceptionally high performance at significantly lower cost than mainframe
systems. The Company also believes that the ability of the Oracle Parallel
Server configuration of ORACLE7 to exploit hardware clusters and massively
parallel platforms for OLTP applications gives the Company a significant
competitive strength with respect to other DBMS suppliers.
Portability Across Computer Hardware and Operating Systems
The ORACLE relational DBMS was designed and written to make it
adaptable--"portable"--to most computer hardware and operating systems, while
optimizing and taking full advantage of the unique functional and performance
capabilities of each platform. All implementations of the ORACLE relational
DBMS--massively parallel, mainframes, minicomputers, workstations, and personal
computers--are functionally identical, although the performance, size of
database and complexity of applications may be limited by the capacity of the
computer on which the ORACLE relational DBMS is running. The portability of
the ORACLE relational DBMS makes it possible for customers to use different
sizes of computers from different vendors but still use the same database
management software on all of their machines. This allows customers to migrate
to the most cost effective hardware platforms and protects their investment in
hardware technology by allowing them to take advantage of new hardware
innovations. The Company has ported the ORACLE relational DBMS to over 100
distinct computer hardware and operating system environments.
Compatibility with SQL
The ORACLE relational DBMS was the first commercial relational DBMS to use the
SQL command language, which was subsequently used commercially by IBM and other
DBMS vendors. SQL is a non-procedural language, meaning that users specify
database operations in terms of what is to be done, not how to do it. The
ORACLE relational DBMS automatically navigates through the internal storage
mechanism of the computer to locate and then retrieve or modify data as
requested. Because the ORACLE relational DBMS performs the navigation,
applications programs developed with the ORACLE relational DBMS can be written
without regard to database structure. Therefore, applications programs require
little or no modification when the database structure is changed, thus reducing
the costs of software development and maintenance. The Company believes that
the close compatibility of the implementation of SQL in the ORACLE relational
DBMS with both IBM and ANSI/ISO standard SQL is a significant competitive
strength with respect to other DBMS products. Because the ORACLE relational
DBMS
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has been certified by the U.S. Government's National Institute of Standards and
Technology ("NIST") as fully compliant with the 1989 SQL standard, it is
attractive to government agencies and other organizations which choose to
implement standards-based systems. The Company is an active participant in the
industry standards development process, and develops products to comply with
such standards where appropriate. While no assurance can be made that the
ORACLE relational DBMS will fully comply with the SQL92 standard, the Company
plans to incorporate SQL92 into future versions of the ORACLE relational DBMS.
In addition, close compatibility with IBM's SQL makes the ORACLE relational
DBMS an attractive choice for minicomputer, workstation, and personal computer
users who have or intend to use IBM's relational DBMS products for their
mainframes. Through the Company's Oracle Open Gateway products, ORACLE
relational DBMS users can access IBM's DB2 and SQL/DS databases.
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 23%, 21%, and 21%,
of total revenues in fiscal 1994, 1993, and 1992, respectively.
The Company's support services are generally priced based on the level of
support services provided, along with the number of users authorized to access
the Company's software products. Support revenues represented approximately
19% of total revenues in fiscal 1994, 1993, and 1992.
The Company believes that its broad-based service offerings, in conjunction
with its current and planned product offerings, facilitate the transfer of
technology to customers and stimulate demand for the Company's products.
SYSTEMS INTEGRATION
The Company is also in the systems integration business through its subsidiary,
Oracle Complex Systems Corporation ("OCSC"), and certain of its international
subsidiaries. The Company delivers complete information systems by combining
the ORACLE relational DBMS and other Oracle products with various non-Oracle
hardware, communications technologies and software, and with various service
offerings.
MARKETING AND SALES
Direct Sales Organization
In the United States, the Company markets its products and services primarily
through its own direct sales and service organization, Oracle USA. As of May
31, 1994, Oracle USA consisted of 3,124 sales and service employees. Sales and
service groups are based in the Company's headquarters in Redwood City,
California, and in field offices that, as of May 31, 1994, were located in
approximately 35 United States metropolitan areas.
Outside the United States, the Company markets its products primarily through
the sales and service organizations of approximately 50 subsidiaries. As of
May 31, 1994, the international sales and service groups consisted of 5,130
employees. These subsidiaries license and support the Company's products both
within their local countries as well as into a number of other foreign
countries. See Note 8 of Notes to Consolidated Financial Statements for a
summary of operations by geographic region.
The Company faces significant competition in the DBMS marketplace, and
prospective customers often perform a detailed technical evaluation or
benchmark of competitive products as a part of the DBMS selection process.
Technical support is, therefore, a critical element in the Company's sales
process. Consequently, sales representatives typically are teamed with
technical support specialists who can answer
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technical questions, help customers run benchmarks against competitive
products, and develop prototype databases and ORACLE-based applications.
OEMs, VARs, PSIs, ISVs, and Distributors
The Company also markets its products through original equipment manufacturers
("OEMs"), software value-added relicensors ("VARs"), preferred systems
integrators ("PSIs") and independent software vendors ("ISVs") that combine the
ORACLE relational DBMS with computer hardware or software applications packages
for redistribution.
The Company also markets its products through approximately 30 independent
distributors in international territories not covered by its subsidiaries'
direct sales organizations.
Additional Customer Information
Revenues from international customers (including end users and resellers)
amounted to approximately 60%, 63%, and 64% of the Company's total revenues in
fiscal 1994, 1993, and 1992, respectively. See Note 8 of Notes to Consolidated
Financial Statements for a summary of operations by geographic region.
Revenues from most of the Company's international subsidiaries are denominated
in local currencies. As a consequence, if the United States dollar strengthens
against any local currency, the Company's reported revenues from such country
will be adversely affected. The Company's international revenues also are
subject to other risks common to export sales, such as governmental regulation,
political and economic disruptions and the imposition of tariffs and other
trade barriers.
PRODUCT DEVELOPMENT
In order to meet its customers' ever-changing requirements and to expand its
product base, the Company must continue to enhance its existing products and
develop new products. This development requires a continued high level of
research and development expenditures, which were 12% of total revenues during
both fiscal 1994 and fiscal 1993, and 13% during fiscal 1992 (in each case
prior to the effect of amounts capitalized in accordance with Statement of
Financial Accounting Standards No. 86).
Significant areas of product development expenditures include the following:
--enhancing and extending the ORACLE relational DBMS, including
extending its distributed database capability, optimizing its
performance in production applications, adding additional security
features, providing stored procedures and integrity constraints, and
designing object oriented extensions which add the ability to manage
large objects, including voice, graphics, text, and more complex
structures of data;
--developing and enhancing networking software products, including
application development tools for networks and network management
products;
--developing new and enhanced applications development productivity
tools, CASE products and document automation products;
--developing and enhancing end-user applications in the Oracle
Financials, Oracle Government Financials, Oracle Manufacturing, and
Oracle Human Resources product families; and
--porting new versions and releases of the Company's products to the
numerous computer models on which prior versions and releases operate,
as well as extending the Company's products to make effective use of
new hardware technologies.
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COMPETITION
The computer software industry is intensely competitive. The Company competes
with different companies in the various markets it addresses. The principal
independent software vendor competitors in the DBMS marketplace include
Informix Corporation, Sybase Inc., The ASK Group, Inc., which was acquired in
June 1994 by Computer Associates International, Inc., and Progress Software
Corporation. In addition, hardware systems vendors sell or license database
software with which the Company competes, including Digital Equipment
Corporation ("DEC"), in the DEC VAX minicomputer market, and IBM, in the
mainframe market. The Company also competes with various other companies in
its other product areas, including SAP in the financial applications market and
Powersoft Corporation in the development tools market, and system integrators
and consulting organizations in the services marketplace.
In the massively parallel, mainframe, minicomputer and workstation markets, the
Company believes that the most important considerations for end user software
customers are ease of use, product reliability, quality of technical support
and price. With OEM customers, product capabilities are also important. In
the personal computer market, the Company believes that the principal
competitive factors are strength in distribution and marketing, brand name
recognition, price/performance characteristics, reliability, ability to link
with massively parallel, mainframe, minicomputer and workstation DBMSs, and
product integration. The Company believes that it competes favorably in each
of these areas.
PRODUCT AND SERVICES REVENUES
The Company's standard end user license agreement for the Company's products
provides for an initial fee to use the product in perpetuity on a specified
computer. The Company also enters into other license agreement types,
typically with major end user customers, which allow for the use of the
Company's products, usually restricted by the number of program copies, the
number of users, the number of CPUs, or the license term. Fees from licenses
with standard acceptance periods (15 days for commercial customers, and 30 days
for government and telemarketing customers) are recognized as revenue upon
shipment if there are no, or insignificant, post-delivery obligations, and
payment is due within one year. If the acceptance period is longer than
standard, revenues are not recognized until the end of the acceptance period.
In general, the Company's products are priced based on the number of users
authorized to access the programs.
The Company generally receives sublicense fees from distributors, OEMs, VARs,
PSIs, and ISVs based on the revenues generated by the distributor, OEM, VAR,
PSI or ISV. Sublicense fees are typically based on a percentage of the
Company's list price. OEM agreements may include an initial non-refundable
payment (in the form of an initial fee plus advance sublicense fees, some or
all of which is payable upon the signing of the contract) and sublicense fees
based on the value of copies of the Company's products distributed by the OEM.
Agreements with VARs typically include a development license for ORACLE and may
include an initial non-refundable payment as well. License fees are based on
the value of copies of the Company's products distributed by the VAR.
Guaranteed sublicense fees from distributors, OEMs, VARs, PSIs, and ISVs are
recognized as revenue upon shipment if there are no, or insignificant,
post-delivery obligations, and if the terms of the agreement are such that the
payment obligation is noncancellable and nonrefundable, and due within one
year. Non-guaranteed per-copy sublicense fees from distributors, OEMs, VARs,
PSIs, and ISVs are recognized as revenues when they are reported by the
distributor, OEM, VAR, PSI or ISV.
In general, the Company's support services are priced based on the level of
support services provided, along with the number of users authorized to access
the Company's software products. Most customers renew their support
agreements. Support consists of technical support, including telephone
consultation on the use of the products and problem resolution, and system
updates for software products and user documentation. The Company generally
bills support fees at the beginning of each support period, either on an annual
or quarterly basis. Support revenues are recognized ratably over the contract
period.
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Revenue related to consulting and education services to be performed by the
Company are recognized either proportionately over the period during which the
applicable service is to be performed or on a services-performed basis.
The Company's quarterly revenues reflect distinct seasonality. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
PRODUCT PROTECTION
The Company relies on a combination of trade secret, copyright, trademark, and
other proprietary rights laws, license agreements, and technical measures to
protect its rights to its software products. The Company does not own any
issued patents at present, but has 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 90 foreign countries and has additional registrations pending. The Company
also has registered over 30 other trademarks in the United States for other
product names and also has registrations pending for various product names in
the United States and foreign countries.
The Company's products generally are licensed to end users on a "right to use"
basis pursuant to a perpetual license that is nontransferable and that
restricts the use of the products to the customer's internal purposes on either
a single computer or up to a maximum number of users. Although the Company's
license agreements prohibit a customer from disclosing the proprietary
information contained in the Company's products to any other person, it is
technologically possible for competitors of the Company to copy aspects of the
Company's products in violation of the Company's rights. The Company's
massively parallel, mainframe, minicomputer and workstation products are
licensed pursuant to signed license agreements. Consistent with standard
industry practice, the Company's personal computer products generally are
licensed pursuant to "shrink-wrap" licenses that are not signed by the
licensee. The enforceability of such shrink-wrap licenses has not been
conclusively determined by the courts. In addition, the laws of certain foreign
countries do not protect the Company's proprietary rights in its products to
the same extent as do the laws of the United States.
The Company believes that its trade secret, trademark, copyright, and other
proprietary rights are important. However, because of the rapid pace of
technological change in the computer software industry, factors such as the
knowledge, ability, and experience of the Company's personnel, brand
recognition, and ongoing product support may be more significant in maintaining
the Company's competitive advantages.
EMPLOYEES
As of May 31, 1994, the Company employed 12,058 full-time persons, including
8,254 in sales and services, 615 in marketing, 1,757 in research and
development, and 1,432 in general and administrative positions. Of such
employees, 5,022 were located in the United States and 7,036 were employed in
approximately 50 other countries.
None of the Company's employees are represented by a labor union. The Company
has experienced no work stoppages and believes that its employee relations are
good.
ITEM 2. PROPERTIES
The Company currently leases substantially all of its administrative,
marketing, and research and development facilities under long-term operating
leases. The Company owns the land underneath its headquarters buildings, which
are located in Redwood City, California, and as discussed in Note 2 of Notes to
Consolidated Financial Statements, has capitalized certain of these building
leases. In addition,
8
<PAGE> 11
the Company has purchased land to be used for its UK subsidiary's headquarters,
and is in the process of constructing facilities there and at its headquarters
location. The Company also leases space in approximately 50 domestic office
facilities throughout the United States, and approximately 120 office
facilities internationally.
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
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 named as defendants
the Company and certain of its present and former officers and directors.
Plaintiffs in the class action alleged 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 claimed 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 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 provided for payment by
the Company of $23.25 million in five installments to a custodial account for
disbursement upon order of the Court. As of May 31, 1994, all installment
payments had been made. The derivative agreement provided for payment by the
Company of up to $750,000 in attorney's fees if so ordered by the Court.
On May 24, 1994, the Court issued an order approving the class and derivative
settlements. In its order, the Court awarded derivative counsel $525,000 in
attorney's fees and $69,385 in costs, which fees and costs must be paid by the
Company on or before August 9, 1994. On July 5, 1994, the Court dismissed the
class and derivative actions and entered final judgment in both actions.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
9
<PAGE> 12
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Office(s)
- - ---- ---------
<S> <C>
Lawrence J. Ellison President and Chief Executive Officer
James A. Abrahamson Chairman of the Board
Jeffrey O. Henley Executive Vice President and Chief Financial Officer
Raymond J. Lane Executive Vice President and President, Worldwide Operations
Raymond L. Ocampo, Jr. Senior Vice President, General Counsel and Corporate Secretary
Thomas A. Williams Vice President and Corporate Controller
</TABLE>
Mr. Ellison, 49, is one of the Company's founders and has been President and
Chief Executive Officer of the Company since May 1977. He served as Chairman
of the Board from April 1990 to September 1992. Prior to 1977, Mr. Ellison
served as Vice President of Systems Development at Omex Corporation, a
manufacturer of laser recording devices for image processing, and in various
technical positions at Ampex Corporation, Advanced Research Division, an
electronics manufacturer, and Amdahl Corporation, an IBM-compatible computer
manufacturer. Mr. Ellison is also a director of NeXT Computer, Inc., a
computer software company.
Mr. Abrahamson, 61, has been Chairman of the Board since September 1992. Prior
to joining the Company, he served as Executive Vice President for Corporate
Development and, subsequently, President of the Transportation Sector for
Hughes Aircraft Company from October 1989 to September 1992. Mr. Abrahamson
directed the Strategic Defense Initiative from April 1984 until he retired from
the United States Air Force in January 1989 at the rank of Lieutenant General.
Mr. Abrahamson is also a director of Western Digital Corporation, a
semi-conductor company.
Mr. Henley, 49, has been Executive Vice President and Chief Financial Officer
of the Company since March 1991. Before 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. Prior to August 1986, he was
Executive Vice President and Chief Financial Officer at Saga Corporation, a
diversified food service company, and he held various finance positions at
Memorex Corporation and Fairchild Camera and Instrument Corporation. Mr.
Henley is also a director of Tricord, Inc., a computer hardware company.
Mr. Lane, 47, has been Executive Vice President of the Company and President of
Worldwide Operations since October 1993. 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 was a Senior Vice President and Managing
Partner of the Worldwide Information Services Group at Booz-Allen & Hamilton
from July 1986 to May 1992. He served on the Booz-Allen & Hamilton's Executive
Committee from April 1987 to May 1992, and its Board of Directors from April
1985 to April 1988, and from April 1991 to May 1992. From October 1983 to June
1986 he served as Managing Partner of Booz-Allen & Hamilton's Southwest Region,
and from April 1980 to October 1983 he served as Principal of the Information
Systems Practice in the western United States. From 1977 to 1980, Mr. Lane
was a Division Vice President for EDS. Prior to 1977, he held various product
and marketing positions at IBM. Mr. Lane is also a director of Cadence Designs
Systems, a computer software company, and a member of the Board of Trustees of
Carnegie Mellon University.
Mr. Ocampo, 41, has been Senior Vice President, General Counsel and Corporate
Secretary of the Company since October 1992. He was Vice President, General
Counsel and Corporate Secretary from September 1990 to September 1992. He
served as General Counsel, Legal Operations from July 1989 to August 1990, and
as Associate General Counsel from July 1986 to June 1989. Mr. Ocampo was an
10
<PAGE> 13
attorney specializing in antitrust and complex litigation from June 1976 to
July 1986, and taught at Hastings College of the Law from August 1977 to May
1983.
Mr. Williams, 42, has been a Vice President of the Company since October 1990
and Corporate Controller since May 1989. In the fourteen years prior to joining
Oracle, Mr. Williams held various positions in the Audit Division of Arthur
Andersen & Co., an international public accounting firm, including Partner from
September 1987 to May 1989.
11
<PAGE> 14
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock has been traded in the over-the-counter market and
the NASDAQ National Market System since the Company's initial public offering
in 1986. According to records of the Company's transfer agent, the Company had
approximately 3,300 stockholders of record as of May 31, 1994. 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 of the Company's Common Stock in each of the
Company's last eight fiscal quarters.
<TABLE>
<CAPTION>
Low High
Sale Sale
Price Price
----- -----
<S> <C> <C>
Fiscal 1993:
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7.00 $ 9.57
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . 8.69 12.38
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . 9.44 18.19
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . 15.63 22.32
Fiscal 1994:
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19.88 $ 28.44
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . 23.81 33.00
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . 27.25 37.75
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . 26.25 35.88
</TABLE>
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 have been retroactively
adjusted to reflect the stock split.
The Company's policy has been to reinvest earnings to fund future growth.
Accordingly, the Company has not paid dividends and does not anticipate
declaring dividends on its Common Stock in the foreseeable future. If the
Company is not in compliance with the financial covenants of its financing
agreement with Nippon Steel Corporation, then the Company is restricted from
making dividend payments by this agreement. The Company is in compliance with
these covenants. See Note 4 of Notes to Consolidated Financial Statements.
12
<PAGE> 15
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended May 31,
------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Revenues $2,001,147 $1,502,768 $1,178,496 $1,027,949 $916,390
Operating income 419,953 216,979 113,663 17,907 135,341
Net income (loss) 283,720 98,256 61,510 (12,401) 80,877
Earnings (loss) per share .96 .34 .22 (.05) .30
Total assets 1,594,984 1,184,020 955,572 857,640 764,198
Short-term debt 6,898 10,684 16,512 180,065 42,501
Long-term debt 82,845 86,380 95,935 17,991 89,129
Stockholders' equity 740,553 528,039 435,034 344,685 336,813
</TABLE>
Effective June 1, 1992, the Company adopted Statement of Position 91-1,
"Software Revenue Recognition," which addresses the accounting for software
revenues. The cumulative effect, net of tax, of the change in accounting
principle was $43,470,000, and was charged against net income in fiscal 1993.
Fiscal 1993 net income and earnings per share before the change in accounting
principle were $141,726,000 and $0.48, respectively.
13
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
In fiscal 1994 and 1993, the Company continued to improve its operating margins
over the corresponding prior year periods due to increases in revenue growth
rates, coupled with lower operating expenses as a percentage of revenues. The
Company's revenue growth rate was 33%, 28% and 15% in fiscal 1994, 1993, and
1992, respectively. Sales and marketing expenses continued to represent the
largest category of operating expenses, though decreasing to 37% of revenues in
fiscal 1994 from 43% in fiscal 1993, and 48% in fiscal 1992. Cost of services
as a percentage of total revenues increased to approximately 25% of revenues in
fiscal 1994, having decreased in fiscal 1993 to 23% from 24% in fiscal 1992.
The Company's investment in research and development was 12% of revenues in
both fiscal 1994 and fiscal 1993, and 13% in fiscal 1992, prior to the impact
of capitalized software development costs. General and administrative expenses
as a percentage of revenues were 7%, 8%, and 9% in fiscal 1994, 1993, and 1992,
respectively. Overall, operating income as a percentage of revenues increased
to 21% in fiscal 1994, from 14% in fiscal 1993, and 10% in fiscal 1992.
Domestic revenues increased 44% and 29% in fiscal 1994 and 1993, respectively,
while international revenues increased 27% in both fiscal 1994 and 1993.
International revenues were negatively affected in both fiscal 1994 and 1993
when compared to the corresponding prior year periods as a result of the
strengthening of the U.S. dollar against the major international currencies.
International revenues expressed in local currency increased by approximately
34% and 28% in fiscal 1994 and 1993, respectively. Revenues from international
customers were approximately 60%, 63%, and 64% of revenues in fiscal 1994,
1993, and 1992, respectively. Management expects that the Company's
international operations will continue to provide a significant portion of
total revenues. However, international revenues will continue to be adversely
affected if the U.S. dollar strengthens against the major international
currencies.
Quarterly revenues reflect distinct seasonality. This seasonality, combined
with uneven changes in sales and marketing expenses, created marked
fluctuations in quarterly results of operations. Similar fluctuations may be
expected in the future, although they will be somewhat mitigated as service
revenues increase as a percentage of total revenues. See "Quarterly Results of
Operations" below.
Effective June 1, 1992, the Company adopted Statement of Position 91-1,
"Software Revenue Recognition," which addresses the accounting for software
revenues. Because it was impracticable to restate prior financial statements,
the Company recorded the cumulative effect of the change in accounting
principle, in the amount of $43,470,000, which is net of an income tax benefit
of $24,452,000, as a non-cash charge in its statement of operations in the
first quarter of fiscal 1993. Additionally, it was not practicable to present
the pro forma effect of the change in accounting principle on the comparative
prior periods.
14
<PAGE> 17
REVENUES:
<TABLE>
<CAPTION>
FY94 Change FY93 Change FY92
---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C>
Licenses and Other $1,163,808 30% $ 895,711 26% $709,227
Percentage of revenues 58.2% 59.6% 60.2%
Services $ 837,339 38% $ 607,057 29% $469,269
Percentage of revenues 41.8% 40.4% 39.8%
Total revenues $2,001,147 33% $1,502,768 28% $1,178,496
</TABLE>
LICENSES AND OTHER REVENUES. During the past three fiscal years, the Company's
customer and product base has broadened as the Company has increased both the
number of channels that it uses to market its products, as well as the number
of computers and operating systems on which its relational DBMS operates, and
as additional software tools and applications products have been introduced.
During this period, there has been a continued increase in the percentage of
licenses for computers utilizing the UNIX operating system and desktop
operating systems. License revenues for software used on computers utilizing
the UNIX operating system increased to 71% of license revenues in fiscal 1994
from 69% in fiscal 1993 and 62% in fiscal 1992. Similarly, license revenues
for use on desktop computers increased from 11% of license revenues in fiscal
1992 to 14% in fiscal 1993 and 17% in fiscal 1994. License revenues for use on
computers utilizing other proprietary operating systems, including DEC
minicomputers, IBM mainframes, and other proprietary minicomputers have
declined from 27% of license revenues in fiscal 1992 to 17% in fiscal 1993 and
12% of license revenues in fiscal 1994.
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 37% and 26%
in fiscal 1994 and 1993, respectively. The Company believes that the strong
revenue growth rate in both fiscal 1994 and fiscal 1993 is due primarily to an
overall increase in market demand for database products, increased market
acceptance of the Company's relational DBMS, and increased penetration in the
financial and manufacturing applications markets.
SERVICES REVENUES. Support, consulting and education services revenues each
increased in fiscal 1994 and 1993 over the corresponding prior year levels.
The Company's support revenues continued to constitute the largest portion of
services revenues, and grew 35% and 27% in fiscal 1994 and 1993, 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 31% in fiscal 1994 and 1993, respectively, as the Company
continued to expand its services toassist customers in the use and
implementation of applications based on the Company's products.
15
<PAGE> 18
OPERATING EXPENSES:
<TABLE>
<CAPTION>
FY94 Change FY93 Change FY92
---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C>
Sales and Marketing $749,796 16% $646,027 14% $566,431
Percentage of revenues 37.5% 43.0% 48.1%
Cost of Services $499,213 44% $346,633 23% $281,562
Percentage of revenues 24.9% 23.1% 23.9%
Research and Development (1) $197,086 35% $146,420 32% $110,641
Percentage of revenues 9.8% 9.7% 9.4%
General and Administrative $135,099 10% $122,709 16% $106,199
Percentage of revenues 6.8% 8.2% 9.0%
Provision for Settlement
of Litigation $ -- * $ 24,000 * $ --
Percentage of revenues 0.0% 1.6% 0.0%
- - -----------------------------
</TABLE>
* Not meaningful
(1) Pursuant to Statement of Financial Accounting Standards No. 86, the Company
capitalized software development costs equal to 1.9%, 2.0%, and 3.5% of total
revenues during fiscal 1994, 1993, and 1992, respectively.
Similar to the trend in international revenues, the Company's international
expenses were favorably affected in both fiscal 1994 and 1993 when compared to
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 internationally, on direct sales through its
own sales force. However, the Company has also began 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 both fiscal 1994 and 1993 when
compared to the corresponding prior years, as a result of higher revenue
levels, and controls over 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
services revenues, cost of services increased to 60% in fiscal 1994, having
decreased to 57% in fiscal 1993 from 60% in fiscal 1992. In fiscal 1994, the
Company's service margins decreased from the prior year, in part, due to a
higher percentage of service revenues being comprised of consulting and
education revenues, which have lower margins than the support business, as well
as the effect of higher headcount levels to support future growth. The service
margins in fiscal 1993 were higher than fiscal 1992 due primarily to the effect
of higher support revenues which had a higher margin than consulting and
education revenues.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses would
have been 12% of total revenues in both fiscal 1994 and fiscal 1993, and 13% of
total revenues in 1992 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
16
<PAGE> 19
33% in fiscal 1994 over fiscal 1993 levels, versus a 16% increase in fiscal
1993 over 1992. The Company capitalized approximately $38,067,000,
$30,647,000, and $41,825,000 of computer software development costs in fiscal
1994, 1993, and 1992, respectively, which represented 16%, 17%, and 27% of
total expenditures for research and development during those respective
periods. Amortization of capitalized software development costs is charged to
sales and marketing expenses and totalled $39,318,000, $23,043,000, and
$14,855,000 in fiscal 1994, 1993, and 1992, 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 1994 and 1993 as compared to
their corresponding prior year periods, reflecting higher revenue levels as
well as controls over 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 in exchange for payments totalling $24,000,000. See Note 9
of Notes to Consolidated Financial Statements for a description of legal
proceedings.
OTHER INCOME (EXPENSE):
<TABLE>
<CAPTION>
FY94 Change FY93 Change FY92
---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C>
Other Income (Expense) $ 3,510 231% $ 1,062 * $(17,533)
Percentage of revenues 0.2% 0.1% (1.5%)
</TABLE>
_____________________________
* Not meaningful
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. In fiscal 1992, non-operating expenses were also affected
by the write-off of certain fees and expenses associated with the originally
proposed financing transaction with Nippon Steel Corporation that was not
consummated.
PROVISION FOR INCOME TAXES:
<TABLE>
<CAPTION>
FY94 Change FY93 Change FY92
---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C>
Provision for Income Taxes $ 139,743 83% $ 76,315 120% $ 34,620
Percentage of revenues 7.0% 5.1% 2.9%
</TABLE>
Effective June 1, 1992, the Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," which requires recognition of
deferred tax liabilities and assets for the expected future tax consequences of
events that have been included in the financial statements or tax returns.
Under this statement, deferred tax liabilities and assets are determined based
on the difference between the financial statement and tax bases of assets and
liabilities, using enacted tax rates in effect for the year in which the
differences are expected to reverse.
The Company's effective tax rates have historically differed from the federal
statutory rate primarily because of tax credits, certain Foreign Sales
Corporation income that is not taxed, state taxes, foreign
17
<PAGE> 20
income taxes provided at rates greater than the federal statutory rate, as well
as foreign losses that could not be utilized. See Note 7 of Notes to
Consolidated Financial Statements.
NET INCOME AND EARNINGS PER SHARE:
<TABLE>
<CAPTION>
FY94 Change FY93 Change FY92
---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C>
Income before Cumulative
Effect of Change in
Accounting Principle $283,720 100% $141,726 130% $ 61,510
Percentage of revenues 14.2% 9.4% 5.2%
Net Income $ 283,720 189% $ 98,256 60% $ 61,510
Percentage of revenues 14.2% 6.5% 5.2%
Earnings Per Share:
Income before Cumulative
Effect of Change in
Accounting Principle $.96 100% $.48 126% $.22
Net Income $.96 182% $.34 56% $.22
</TABLE>
QUARTERLY RESULTS OF OPERATIONS
Historically, the Company's business has been seasonal, with the Company
generally experiencing a decline in revenues in the first quarter of each
fiscal year from the final quarter of the preceding fiscal year. Because the
first fiscal quarter, which ends in August, is typically a period of slow
business activity in both the United States and Europe, the Company anticipates
that the first quarter of each fiscal year will continue to show relatively
weak operating results as compared to each of the other quarters. Operating
income also has fluctuated significantly from quarter to quarter as the result
of quarterly revenue fluctuations, together with uneven changes in sales and
marketing expenses.
The following table sets forth selected unaudited quarterly information for the
Company's last eight fiscal quarters. The Company believes that all necessary
adjustments (which consisted only of normal recurring adjustments) have been
included in the amounts stated below to present fairly the results of such
periods when read in conjunction with the financial statements and related
notes included elsewhere herein.
<TABLE>
<CAPTION>
Fiscal 1994 Quarter Ended
-------------------------------------------------
Aug. 31 Nov. 30 Feb. 28 May 31
------- ------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Revenues $398,054 $452,170 $482,790 $668,133
Operating income $ 54,755 $ 91,921 $103,870 $169,407
Net income $ 37,360 $ 62,125 $ 69,748 $114,487
Earnings per share $.13 $.21 $.24 $.39
Number of common and common
equivalent shares outstanding 296,012 295,932 295,770 295,220
</TABLE>
18
<PAGE> 21
<TABLE>
<CAPTION>
Fiscal 1993 Quarter Ended
---------------------------------------
Aug. 31 Nov. 30 Feb. 28 May 31
------- ------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Revenues $ 306,889 $353,169 $370,095 $472,615
Operating income $16,033 $51,605 $43,829 $105,512
Net income (loss) $(33,505) $33,489 $29,162 $69,110
Earnings (loss) per share $(.12) $.11 $.10 $.23
Number of common and common
equivalent shares outstanding 290,432 292,024 294,332 295,022
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
FY94 Change FY93 Change FY92
------- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C>
Working Capital $ 393,511 35% $ 290,964 24% $ 234,724
Cash and short-term
investments $ 464,758 30% $ 357,775 103% $ 176,501
Long-term cash investments $ -- * $ 31,276 * --
Cash provided by operating
activities $ 443,451 40% $ 317,483 31% $ 242,320
Cash used for investing
activities $ (269,888) 71% $(158,021) 36% $(116,358)
Cash used for financing
activities $ (51,305) 111% $ (24,271) (68%) $ (76,400)
- - ----------------------------
</TABLE>
* Not meaningful
Working capital increased in both fiscal 1994 and 1993 over the corresponding
prior year periods, primarily due to increased cash flow from operations, which
resulted in higher cash levels.
The Company generated higher positive cash flows from operations in both fiscal
1994 and 1993, primarily due to improved profitability and strong cash
collections.
Cash used for investing activities increased in fiscal 1994 as compared to the
corresponding period of the prior year due primarily to the purchase of
mortgage notes on buildings the Company occupies, partnership interest and the
acquisition of land discussed below, and the acquisition of an additional 60%
ownership of the distribution entity for the Company's products in Italy. Cash
used for investing activities increased in fiscal 1993 over fiscal 1992 due
primarily to investments in short and long term cash investments, which were
partially offset by lower capital spending and lower capitalized computer
software development costs as compared to fiscal 1992. The Company expects to
continue to invest in capital assets and capitalized software development
activities to support its growth.
19
<PAGE> 22
During fiscal 1994, 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 buildings leased
by the Company at its headquarters site. The Company also became a 74% limited
partner in IV Centrum Associates by making a capital contribution of
approximately $4 million.
The Company has the right to leave the partnership in 1996 and take full title
to both buildings without making further capital contributions. As a result of
the note purchases and capital contribution, the Company has capitalized the
two building leases, and the $89.1 million in payments have been classified as
buildings and improvements.
Additionally, during fiscal 1994, the Company entered into an arrangement
whereby it leased an office building adjacent to its headquarters site and
concurrently acquired the land under the building and all outstanding mortgage
notes for a total of $22.1 million. The Company has various options to extend
the lease and to purchase the building at various times during the lease term.
As a result of the land and note purchases, the Company has capitalized the
building lease, and the $22.1 million in payments have been classified as land
and buildings and improvements.
In addition to the above expenditures, in 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.
The Company's Board of Directors has approved the repurchase of up to 12
million shares of Common Stock on the open market to reduce the dilutive effect
of the Company's stock plans. Pursuant to this repurchase program, the Company
purchased 2,765,000 shares of the Company's Common Stock for approximately
$81,157,000 in fiscal 1994, and in fiscal 1993, repurchased a total of
3,207,000 shares of the Company's Common Stock for approximately $43,626,000.
The Company used cash flow from operations to repurchase the Company's Common
Stock, and to invest in working capital and other assets to support its growth.
During fiscal 1994, the Company sold in a private transaction 1,556,500 put
warrants that entitle the holder of each warrant to sell one share of Common
Stock to the Company at a weighted average price of $24.69 per share.
Additionally, the Company purchased in a private transaction 973,000 call
options that entitle the Company to buy one share of Common Stock at a weighted
average price of $31.57 per share. These put warrants and call options expire
in July and August 1995. The amount related to the Company's potential
repurchase obligation under the put warrants ($38,430,000) has been
reclassified from stockholder's equity to put warrants in the accompanying
consolidated balance sheet.
As discussed in Note 4 of Notes to Consolidated Financial Statements, in
December 1991, the Company entered into an $80 million subordinated debt
agreement with Nippon Steel Corporation ("NSC"). In connection with this
agreement, the Company also entered into a strategic relationship with NSC to
target major customers and industries in Japan. The subordinated debt
agreement has a maturity date of December 9, 1998. Interest is charged at
LIBOR plus three-quarters of one percent, payable semi-annually in arrears.
The Company is required to maintain certain financial covenants under the
agreement. NSC has committed to purchase from the Company an ownership
position of up to twenty-five percent of Oracle Corporation Japan, an indirect
wholly owned subsidiary of the Company, in the event that shares in Oracle
Corporation Japan are sold to the public as a part of an initial public
offering. The per share price of the stock would be the same as that offered
in the initial public offering. NSC has agreed not to acquire shares of Oracle
Corporation Japan beyond the twenty-five percent interest, nor any shares of
the Company, subject to certain exceptions.
20
<PAGE> 23
At May 31, 1994, the Company also had outstanding debt of $9,743,000 primarily
in the form of other notes payable and capital leases.
The Company anticipates that current cash balances, as well as anticipated cash
flows from operations, will be sufficient to meet its working capital needs at
least through May 31, 1995.
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.
21
<PAGE> 24
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 10, 1994.
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 10, 1994. 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 10, 1994 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 10, 1994.
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 10, 1994.
22
<PAGE> 25
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
(a)1. Financial Statements
--------------------
The following financial statements are filed as a part of this report:
Report of Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Consolidated Financial Statements:
Balance Sheets as of May 31, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . 28
Statements of Operations for the years ended
May 31, 1994, 1993, and 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Statements of Stockholders' Equity for the years ended
May 31, 1994, 1993, and 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Statements of Cash Flows for the years ended
May 31, 1994, 1993, and 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . 32
(a)2. Financial Statement Schedules
-----------------------------
The following financial statement schedules are filed as a part of this report:
II. Amounts Receivable from Related Parties and Employees . . . . . . . . . . . . . . . . 44
VIII. Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
IX. Short-Term Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
X. Supplementary Income Statement Information . . . . . . . . . . . . . . . . . . . . . . 48
</TABLE>
All other schedules are omitted because they are not required or the required
information is shown in the financial statements or notes thereto.
(a)3. Exhibits
The following exhibits are filed herewith or are incorporated by reference to
exhibits previously filed with the Commission. The Company shall furnish
copies of exhibits for a reasonable fee (covering the expense of furnishing
copies) upon request.
<TABLE>
<CAPTION>
Exhibit
- - --------
Number Exhibit Title
- - ------ -------------
<S> <C>
3.01 (1) Registrant's Restated Certificate of Incorporation, as amended to March 11, 1987.
</TABLE>
23
<PAGE> 26
<TABLE>
<S> <C>
3.02 (4) Certificate of Amendment of Certificate of Incorporation, dated June 30, 1989.
3.03 (1) Registrant's Bylaws, as adopted October 30, 1986.
3.04 (7) Amendment to Registrant's Bylaws, dated January 13, 1989.
3.05 (6) Amendment to Registrant's Bylaws, dated December 3, 1990.
3.06 (6) Certificate of Designation specifying the terms of the Series A Junior Participating Preferred Stock of
Registrant, filed with the Secretary of State of Delaware on December 7, 1990.
3.07 (6) Rights Agreement between Oracle Systems Corporation and the Bank of America, N.T. & S.A., dated December 3, 1990.
3.08 (1) Specimen Certificate of Registrant's Common Stock.
3.09 (15) Certificate of Amendment to Oracle Systems Corporation Certificate of Incorporation, dated November 4, 1993.
3.10 (16) Amendment Number One to Rights Agreement dated December 3, 1990, between Oracle Systems Corporation and the
Bank of America, N.T. & S.A.
3.11 (16) Rights Agreement dated August 1, 1991, between Oracle Systems Corporation and Harris Trust Company of California.
4.07 (11) Note Purchase Agreement among Nippon Steel Corporation, Nippon Steel U.S.A., Oracle Systems Corporation, and Oracle
Corporation, dated December 9, 1991.
4.08 (11) Subordinated Note by and between Oracle Corporation and Nippon Steel U.S.A., dated December 9, 1991.
4.09 (11) Guaranty made by Oracle Systems Corporation in favor of Nippon Steel Corporation, Nippon Steel U.S.A., and any
and all future holders of the Subordinated Note by and between Oracle Corporation and Nippon Steel U.S.A., dated
December 9, 1991.
4.10 (11) Preferred Strategic Relationship Agreement by and among Oracle Systems Corporation, Oracle Corporation,
Oracle Corporation Japan, and Nippon Steel Corporation, dated December 9, 1991.
4.11 (11) Holding Warrant Agreement by and among Oracle Systems Corporation, Oracle Corporation, Oracle Japan Holding,
Inc., Nippon Steel Corporation, and Nippon Steel Europe B.V., dated December 9, 1991.
4.12 (11) Common Stock Warrant Certificate of Oracle Japan Holding, Inc., dated December 9, 1991.
4.13 (11) Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock of Oracle Japan
Holding, Inc., dated December 9, 1991.
4.14 (11) Oracle Japan Warrant Agreement by and among Oracle Systems Corporation, Oracle Corporation, Oracle Japan Holding,
Inc., Nippon Steel Corporation, and Nippon Steel Europe B.V., dated December 9, 1991.
4.15 (11) Common Stock Warrant Certificate of Oracle Corporation Japan, dated December 9, 1991.
4.16 (11) Product Activities Agreement by and among Oracle Systems Corporation, Oracle Corporation, and Nippon Steel
Corporation, dated December 9, 1991.
</TABLE>
24
<PAGE> 27
<TABLE>
<S> <C>
4.17 (11) Integration Agreement among Oracle Systems Corporation, Oracle Corporation, Oracle Corporation Japan, Oracle
Japan Holding, Inc., Nippon Steel Corporation, Nippon Steel U.S.A., and Nippon Steel Europe B.V., dated
December 9, 1991.
4.18 (11) Tax Sharing and Payment Agreement by and between Oracle Systems Corporation, Oracle Corporation, Oracle Japan
Holding, Inc., Nippon Steel Corporation, and Nippon Steel Europe B.V., dated December 9, 1991.
10.01 (2) * Registrant's Stock Option Plan (1985), as amended to date, and related documents.
10.02 (2) * Stock Option Agreement with Lawrence J. Ellison for the purchase of 320,000 shares of the Registrant's Common
Stock, dated October 2, 1986.
10.03 (5) * 1990 Directors' Stock Option Plan as adopted July 30, 1990, and related documents.
10.04 (9) * 1990 Executive Officers' Stock Option Plan as adopted October 15, 1990, and related documents.
10.05 (10)* 1991 Long-Term Equity Incentive Plan, as adopted July 31, 1991.
10.06 (12) * Oracle Systems Corporation Employee Stock Purchase Plan (1992), as adopted August 24, 1992.
10.07 (13)* 1993 Directors' Stock Option Plan as adopted May 24, 1993.
10.08 * Amendment to 1993 Directors' Stock Option Plan as adopted May 31, 1994.
10.09 (4) Lease Agreement for 500 Centrum Plaza Drive by and between Oracle Corporation and Centrum V Associates dated
May 10, 1989.
10.10 (4) Lease Agreement for 400 Centrum Plaza Drive by and between Oracle Corporation and Centrum V Associates dated
May 10, 1989.
10.11 (5) Lease Agreement for 300 Centrum Plaza Drive by and between Oracle Corporation and Centrum V Associates dated
December 11, 1989.
10.12 (5) Lease Agreement for 100 Square by and between Oracle Corporation UK Limited, Oracle Systems Corporation and
Guidefront Limited dated June 8, 1989.
10.13 (12) * Letter, dated July 9, 1992, from Oracle Corporation to James A. Abrahamson, and amendment, dated January 6, 1993.
10.14 (14) Loan purchase and sale agreement among Oracle Corporation and Connecticut General Life Insurance Company, dated
August 19, 1993, the related notes, and related documents.
10.15 (15)* 1993 Oracle Corporation Deferred Compensation Plan.
21.01 Subsidiaries of the Registrant.
23.01 Consent of Arthur Andersen & Co.
</TABLE>
__________________________
* 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.
25
<PAGE> 28
(3) Incorporated by reference to the Form S-8 Registration
Statement filed September 15, 1987, File No. 33-16749.
(4) Incorporated by reference to the Form 10-K filed August 25, 1989.
(5) Incorporated by reference to the Form 10-K filed on August 27, 1990.
(6) Incorporated by reference to the Form 8-K filed on December 10, 1990.
(7) Incorporated by reference to the Form 10-Q filed on January 11, 1991.
(8) Incorporated by reference to the Form 10-Q filed on April 12, 1991.
(9) Incorporated by reference to the Form 10-K filed on August 28, 1991.
(10) Incorporated by reference to the Form S-8 Registration
Statement filed December 23, 1991, File No. 33-44702.
(11) Incorporated by reference to the Form 10-Q filed on January 13, 1992.
(12) Incorporated by reference to the Form 10-Q filed on January 7, 1993.
(13) Incorporated by reference to the Form 10-K filed on July 22, 1993.
(14) Incorporated by reference to the Form 10-Q filed on September 23, 1993.
(15) Incorporated by reference to the Form 10-Q filed on January 11, 1994.
(16) Incorporated by reference to the Form 8-A filed on February 28, 1994.
__________________________
(b) Reports on Form 8-K
None.
26
<PAGE> 29
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Oracle Systems Corporation:
We have audited the accompanying consolidated balance sheets of Oracle Systems
Corporation (a Delaware corporation) and subsidiaries as of May 31, 1994 and
1993, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended May 31,
1994. These financial statements and the schedules referred to below are the
responsibility of the company's management. Our responsibility is to express an
opinion on these financial statements and schedules 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 Systems Corporation and
subsidiaries as of May 31, 1994 and 1993, and the results of their operations
and their cash flows for each of the three years in the period ended May 31,
1994, in conformity with generally accepted accounting principles.
As explained in Note 1 to the consolidated financial statements, effective June
1, 1992, the Company changed its method of accounting for software revenues to
comply with the provisions of Statement of Position 91-1, "Software Revenue
Recognition."
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed under Item 14(a)2.
are presented for purposes of complying with the Securities and Exchange
Commission's rules and are not a required part of the basic financial
statements. These schedules have been subjected to the auditing procedures
applied in our audits of the basic financial statements and, in our opinion,
fairly state in all material respects the financial data required to be set
forth therein in relation to the basic financial statements taken as a whole.
/s/ ARTHUR ANDERSEN & CO.
San Jose, California
June 22, 1994
27
<PAGE> 30
ORACLE SYSTEMS CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF MAY 31, 1994 AND 1993
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
May 31,
---------------
1994 1993
---------- ---------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . $ 404,810 $ 284,560
Short-term cash investments . . . . . . . . . . . . . . . . . . . 59,948 73,215
Trade receivables, net of allowance for doubtful
accounts of $39,777 in 1994 and $34,634
in 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . 455,884 359,360
Other receivables . . . . . . . . . . . . . . . . . . . . . . . . 59,785 46,229
Prepaid and refundable income taxes . . . . . . . . . . . . . . . 53,765 49,157
Prepaid expenses and supplies . . . . . . . . . . . . . . . . . . 41,420 29,786
----------- -----------
Total current assets . . . . . . . . . . . . . . . . . . . . . 1,075,612 842,307
LONG-TERM CASH INVESTMENTS . . . . . . . . . . . . . . . . . . . . . . -- 31,276
PROPERTY, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 378,483 189,238
COMPUTER SOFTWARE DEVELOPMENT COSTS, net of
accumulated amortization of $107,087 in 1994 and
$71,546 in 1993 . . . . . . . . . . . . . . . . . . . . . . . . . 100,329 101,580
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,560 19,619
----------- -----------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . $1,594,984 $1,184,020
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable to banks . . . . . . . . . . . . . . . . . . . . . . $ 551 $ 1,530
Current maturities of long-term debt . . . . . . . . . . . . . . . 6,347 9,154
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . 95,799 72,863
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 62,591 49,729
Accrued compensation and related benefits . . . . . . . . . . . . 136,488 103,099
Customer advances and unearned revenues . . . . . . . . . . . . . 227,118 193,211
Value added tax and sales tax payable . . . . . . . . . . . . . . 44,781 31,192
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . 108,426 90,565
----------- -----------
Total current liabilities . . . . . . . . . . . . . . . . . . 682,101 551,343
LONG-TERM DEBT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82,845 86,380
OTHER LONG-TERM LIABILITIES . . . . . . . . . . . . . . . . . . . . . . 12,139 10,035
DEFERRED INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . . 38,916 8,223
PUT WARRANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,430 --
COMMITMENTS (Note 5) . . . . . . . . . . . . . . . . . . . . . . . . . -- --
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value - authorized,
1,000,000 shares; outstanding: none . . . . . . . . . . . . . -- --
Common stock ($.01 par value) and additional paid
in capital - authorized, 400,000,000 shares; outstanding:
286,360,783 shares in 1994 and 284,455,798 shares in 1993 . . 254,500 202,913
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . 488,595 322,429
Accumulated foreign currency translation adjustments . . . . . . . (2,542) 2,697
------------ ------------
Total stockholders' equity . . . . . . . . . . . . . . . . . . 740,553 528,039
----------- -----------
Total liabilities and stockholders' equity . . . . . . . . . . $1,594,984 $1,184,020
========== ==========
</TABLE>
See notes to consolidated financial statements.
28
<PAGE> 31
ORACLE SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MAY 31, 1994, 1993, AND 1992
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Year Ended May 31,
-------------------
1994 1993 1992
----------- ----------- ----------
<S> <C> <C> <C>
REVENUES:
Licenses and other . . . . . . . . . . . . . . . . . . . $1,163,808 $ 895,711 $ 709,227
Services . . . . . . . . . . . . . . . . . . . . . . . . 837,339 607,057 469,269
----------- ---------- ----------
Total revenues . . . . . . . . . . . . . . . . . . . 2,001,147 1,502,768 1,178,496
----------- ---------- ----------
OPERATING EXPENSES:
Sales and marketing . . . . . . . . . . . . . . . . . . 749,796 646,027 566,431
Cost of services . . . . . . . . . . . . . . . . . . . . 499,213 346,633 281,562
Research and development . . . . . . . . . . . . . . . . 197,086 146,420 110,641
General and administrative . . . . . . . . . . . . . . . 135,099 122,709 106,199
Provision for settlement of litigation . . . . . . . . . -- 24,000 --
------------- ----------- --------------
Total operating expenses . . . . . . . . . . . . . . 1,581,194 1,285,789 1,064,833
----------- ---------- ----------
Operating income . . . . . . . . . . . . . . . . . . 419,953 216,979 113,663
----------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest income . . . . . . . . . . . . . . . . . . . . 17,943 13,801 6,165
Interest expense . . . . . . . . . . . . . . . . . . . . (6,871) (8,961) (18,649)
Other expense . . . . . . . . . . . . . . . . . . . . . (7,562) (3,778) (5,049)
------------ ----------- -----------
Total other income (expense) . . . . . . . . . . . . 3,510 1,062 (17,533)
------------ ----------- ----------
Income before provision for income taxes and
cumulative effect of change in accounting principle 423,463 218,041 96,130
PROVISION FOR INCOME TAXES . . . . . . . . . . . . . . . . . 139,743 76,315 34,620
----------- ----------- ----------
Income before cumulative effect of
change in accounting principle . . . . . . . . 283,720 141,726 61,510
CUMULATIVE EFFECT ON PRIOR YEARS OF CHANGE IN
SOFTWARE REVENUE RECOGNITION METHOD, NET
OF RELATED INCOME TAX EFFECT (See Note 1) . . . . . . . . -- (43,470) --
------------- ---------- ------------
Net income . . . . . . . . . . . . . . . . . . . . $ 283,720 $ 98,256 $ 61,510
=========== ========== ==========
EARNINGS PER SHARE:
Income before cumulative effect of change
in accounting principle . . . . . . . . . . . . . . $ .96 $ .48 $.22
Cumulative effect of change in accounting principle . . -- (.14) --
------------- ------------ ------------
Net income . . . . . . . . . . . . . . . . . . . . . . $ .96 $ .34 $.22
============= ============ ===========
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING . . . . . . . . . . . . . . . . . . . 295,734 292,952 285,538
=========== ========== ===========
</TABLE>
See notes to consolidated financial statements.
29
<PAGE> 32
ORACLE SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MAY 31, 1994, 1993, AND 1992
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Common Stock and Additional Accumulated
Paid-In Capital Foreign
--------------- Currency
Number Retained Translation
of Shares Amount Earnings Adjustments Total
--------- ------ -------- ----------- -----
<S> <C> <C> <C> <C> <C>
BALANCES, May 31, 1991 . . . . . 272,594,044 $138,801 $204,302 $ 1,582 $344,685
Common stock issued under
stock option plans, net . . 3,697,240 6,139 -- -- 6,139
Common stock issued under
stock purchase plan . . . . 3,501,876 16,100 -- -- 16,100
Tax benefits from stock plans . . -- 2,890 -- -- 2,890
Foreign currency translation
adjustments . . . . . . . . -- -- -- 3,710 3,710
Net income . . . . . . . . . . . -- -- 61,510 -- 61,510
---------- ------------ ---------- ----------- ----------
BALANCES, May 31, 1992 . . . . . 279,793,160 163,930 265,812 5,292 435,034
Common stock issued under
stock option plans, net . . 4,853,262 11,032 -- -- 11,032
Common stock issued under
stock purchase plan . . . . 3,016,376 20,666 -- -- 20,666
Repurchase of common stock . . . (3,207,000) (1,987) (41,639) -- (43,626)
Tax benefits from stock plans . . -- 9,272 -- -- 9,272
Foreign currency translation
adjustments . . . . . . . . -- -- -- (2,595) (2,595)
Net income . . . . . . . . . . . -- -- 98,256 -- 98,256
---------- ------------ ---------- ----------- ----------
BALANCES, May 31, 1993 . . . . . 284,455,798 202,913 322,429 2,697 528,039
Common stock issued under
stock option plans, net . . 3,265,361 10,868 -- -- 10,868
Common stock issued under
stock purchase plan . . . . 1,404,624 27,844 -- -- 27,844
Reclassification of put warrant
obligations . . . . . . . . -- (1,381) (37,049) -- (38,430)
Repurchase of common stock . . . (2,765,000) (2,078) (79,079) -- (81,157)
Effect of common stock dividend . -- 1,426 (1,426) -- --
Tax benefits from stock plans . . -- 14,908 -- -- 14,908
Foreign currency translation
adjustments . . . . . . . . -- -- -- (5,239) (5,239)
Net income . . . . . . . . . . . -- -- 283,720 -- 283,720
---------- ------------ ---------- ----------- ---------
BALANCES, May 31, 1994 . . . . . 286,360,783 $254,500 $488,595 $ (2,542) $740,553
============ ========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
30
<PAGE> 33
ORACLE SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MAY 31, 1994, 1993, AND 1992
(IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended May 31,
--------------------
1994 1993 1992
-------- --------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $283,720 $ 98,256 $ 61,510
Adjustments to reconcile net income to net cash
provided by operating activities--
Cumulative effect of change in accounting principle -- 43,470 --
Depreciation and amortization 104,563 79,204 65,778
Provision for doubtful accounts 33,830 26,059 32,665
Provision for settlement of litigation -- 24,000 --
Increase in receivables (147,502) (39,186) (4,122)
(Increase) decrease in prepaid and refundable taxes (4,608) 11,553 (1,713)
(Increase) decrease in prepaid expenses and supplies (11,887) 8,652 (1,762)
Increase in accounts payable 23,465 11,339 12,260
Increase in income taxes 30,334 18,539 24,230
Increase in other accrued liabilities 65,632 37,145 37,489
Increase (decrease) in customer advances and
unearned revenues 35,049 (3,460) 13,137
Increase in deferred income taxes 28,752 401 3,655
Increase (decrease) in other non-current liabilities 2,103 1,511 (807)
---------- ---------- ----------
Net cash provided by operating activities 443,451 317,483 242,320
-------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) decrease in cash investments 44,543 (81,273) (23,218)
Capital expenditures (250,650) (41,313) (46,631)
Capitalization of computer software
development costs (38,067) (30,647) (41,825)
Increase in other assets (25,714) (4,788) (4,684)
----------- ---------- ----------
Net cash used for investing activities (269,888) (158,021) (116,358)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments under lines of credit (987) (1,206) (140,122)
Payments of capital leases (7,873) (10,825) (11,556)
Borrowings under notes payable and
long-term debt -- -- 80,410
Payments of notes payable and long-term debt -- (312) (27,371)
Proceeds from common stock issued 38,712 31,698 22,239
Repurchase of common stock (81,157) (43,626) --
---------- ---------- ----------
Net cash used for financing activities (51,305) (24,271) (76,400)
---------- ---------- ----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (2,008) (3,914) 2,240
---------- ----------- ----------
Net increase in cash and cash equivalents 120,250 131,277 51,802
CASH AND CASH EQUIVALENTS:
Beginning of year 284,560 153,283 101,481
--------- -------- ---------
End of year $404,810 $284,560 $153,283
========= ======== ========
</TABLE>
See notes to consolidated financial statements.
31
<PAGE> 34
ORACLE SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
Oracle Systems Corporation designs, develops, markets, and supports computer
software products with a wide variety of uses, including database management
and network products, applications development productivity tools, and end
user applications. The Company also offers consulting, education, support and
systems integration services in support of its customers' use of its software
products.
Basis of Financial Statements
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All intercompany transactions and balances between the
companies have been eliminated.
Certain prior year amounts have been reclassified to conform to the current
year's presentation.
Foreign Currency Translation
In general, the functional currency of a foreign operation is deemed to be the
local country's currency. Consequently, assets and liabilities of operations
outside the United States are translated into United States dollars using
current exchange rates, and the effects of foreign currency translation
adjustments are included as a component of stockholders' equity.
The Company hedges certain portions of its exposure to foreign currency
fluctuations through a variety of strategies and financial instruments,
including the use of forward foreign exchange contracts. At May 31, 1994, the
Company had approximately $107,838,000 of forward foreign exchange contracts
outstanding used to hedge intercompany accounts of certain of its international
subsidiaries, and $54,112,000 of equity hedges outstanding used to hedge the
net assets of certain of its international subsidiaries. Gains and losses
associated with currency rate changes on forward foreign exchange contracts
used to hedge intercompany accounts are recorded currently in income, as they
offset corresponding gains and losses on the foreign currency-denominated
assets and liabilities being hedged. The fair value of foreign currency
contracts is estimated based on the spot rate of the various hedged currencies
as of the end of the period. Net foreign exchange transaction losses and
expenses were $6,589,000, $826,000, and $933,000 in fiscal 1994, 1993, and
1992, respectively, and are included in other income and expense. Net losses
on equity hedges were $2,239,000 in fiscal 1994 and were recorded as a
component of accumulated foreign currency translation adjustments in
stockholders' equity.
As of May 31, 1994, the fair value (and carrying amount) of these foreign
forward exchange contracts were as follows:
<TABLE>
<CAPTION>
Contract Fair
Amount Value
------------ ------------
<S> <C> <C>
Intercompany Account Hedges $107,838,000 $107,842,000
Equity Hedges $ 54,112,000 $ 51,859,000
</TABLE>
Statements of Cash Flows
The Company paid income taxes in the amount of $69,267,000, $32,130,000, and
$7,301,000, and interest expense of $6,887,000, $9,161,000, and $20,318,000
during the fiscal years ended 1994, 1993, and 1992, respectively. In fiscal
1994, 1993, and 1992, the Company received income tax refunds in the amount of
$467,000, $2,378,000 and $23,042,000, respectively. The Company purchased
equipment under capital leases in the amount of $1,702,000, $1,102,000, and
$12,215,000 in fiscal 1994, 1993, and 1992, respectively.
32
<PAGE> 35
Cash and Cash Investments
Substantially all of the Company's cash and cash equivalents at May 31, 1994
consisted of highly liquid investments in time deposits of major world banks
and tax-free municipal securities with original maturities or puts of 90 days
or less. The Company considers such investments to be cash equivalents for
purposes of the statements of cash flows. Short-term cash investments at May
31, 1994 are stated at cost, which approximated market value, and consisted of
tax-exempt municipal securities with original maturities or puts of 91 days or
more. There were no cash investments with maturities greater than one year at
May 31, 1994. No individual investment security equaled or exceeded 2% of
total assets.
The Company will adopt the provisions of SFAS 115, "Accounting for Certain
Investments in Debt and Equity Securities," in the first quarter of fiscal
1995. Adoption of this accounting pronouncement in fiscal 1994 would not have
had a material impact on the Company's results of operations or financial
position.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to concentrations
of credit risk consist primarily of cash investments and trade receivables.
The Company has cash investment policies that limit investments to short term
investment grade securities. The Company performs ongoing credit evaluations
of its customer's financial condition and the risk with respect to trade
receivables is further mitigated by the fact that the Company's customer base
is highly diversified.
Property
Property is stated at cost. Capital leases are recorded at the present value of
the future minimum lease payments at the date of acquisition. Depreciation is
computed using the straight-line method based on estimated useful lives of the
assets which range from three to forty years. Capital leases and leasehold
improvements are amortized over the estimated useful lives or lease terms, as
appropriate.
In fiscal 1994, the Company purchased approximately $2 million in computer
equipment and maintenance services from nCUBE Corporation, the principal
shareholder of which is Lawrence J. Ellison, President and Chief Executive
Officer of the Company, for use for a variety of internal development and
production purposes.
Software Development Costs
The Company capitalizes internally generated software development costs in
compliance with Statement of Financial Accounting Standards No. 86, "Accounting
for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed."
Capitalization of computer software development costs begins upon the
establishment of technological feasibility for the product. Capitalized
software development costs amounted to $38,067,000, $30,647,000, and
$41,825,000 in fiscal 1994, 1993, and 1992, 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. In the second quarter of fiscal 1992,
the Company extended the amortization period of certain capitalized software
development costs from two years to three years to reflect the longer estimated
economic life of certain of its products. The effect of this change in
estimate was to reduce amortization expense by approximately $6,000,000 in
fiscal 1992. Amortization amounted to $39,318,000, $23,043,000, and
$14,855,000 for the fiscal years ended May 31, 1994, 1993, and 1992,
respectively, and is included in sales and marketing expenses.
Long Term Debt
Based on the borrowing rates currently available to the Company for loans
similar in terms and average maturities, the stated value of long term debt
approximated market value at May 31, 1994.
33
<PAGE> 36
Revenue Recognition
The Company generates several types of revenue including the following:
License and Sublicense Fees. The Company's standard end user license agreement
for the Company's products provides for an initial fee to use the product in
perpetuity on a specified computer. The Company currently offers either CPU
based or user based pricing for most products, depending on the platform. The
Company also enters into other license agreement types, typically with major
end user customers, which allow for the use of the Company's products, usually
restricted by the number of program copies, the number of users, the number of
CPUs, or the license term. Fees from licenses with standard acceptance periods
(15 days for commercial customers, and 30 days for government and telemarketing
customers) are recognized as revenue upon shipment if there are no, or
insignificant, post-delivery obligations, and payment is due within one year.
If the acceptance period is longer than standard, revenues are not recognized
until the end of the acceptance period. The Company provides for sales returns
based on historical rates of return.
The Company generally receives sublicense fees from resellers based on the
revenues generated by the reseller. Sublicense fees from resellers are
typically based on a percentage of the Company's list price. Reseller
agreements may include an initial non-refundable payment (in the form of an
initial fee plus advance sublicense fees, some or all of which is payable upon
the signing of the contract) and sublicense fees based on the value of copies
of the Company's products distributed by the reseller. Guaranteed sublicense
fees from resellers are recognized as revenue upon shipment if there are no, or
insignificant, post-delivery obligations, and if the terms of the agreement are
such that the payment obligation is noncancellable and nonrefundable, and due
within one year. Non-guaranteed per-copy sublicense fees from resellers are
recognized as revenue when they are reported by the reseller.
Support Agreements. Support agreements generally call for the Company to
provide technical support and certain software updates to customers. Revenue
on support and software update rights is recognized ratably over the term of
the support agreement, and is included in services revenue in the accompanying
statement of operations.
Consulting and Education Services. The Company provides consulting and
education services to its customers; revenue from such services is generally
recognized as the services are performed.
Effective June 1, 1992, the Company adopted Statement of Position 91-1,
"Software Revenue Recognition," which addresses the accounting for software
revenues. The Company recorded the cumulative effect of the change in
accounting principle, in the amount of $43,470,000, which is net of an income
tax benefit of $24,452,000, as a non-cash charge in its statement of
operations in the first quarter of fiscal 1993.
Income Taxes
Effective June 1, 1992, the Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes, " (SFAS 109) which requires
recognition of deferred tax liabilities and assets for the expected future tax
consequences of events that have been included in the financial statements or
tax returns. Under this statement, deferred tax liabilities and assets are
determined based on the difference between the financial statement and tax
bases of assets and liabilities, using enacted tax rates in effect for the year
in which the differences are expected to reverse. The cumulative effect of
adopting SFAS 109 as of June 1, 1992 was not material.
Deferred income taxes are provided for timing differences in recognizing
certain income, expense, and credit items for financial reporting purposes and
tax reporting purposes. Such deferred income taxes primarily relate to the
methods of accounting for capitalized software development costs, the timing of
recognition of certain revenue items, and the timing of the deductibility of
certain reserves and accruals for income tax purposes. Tax credits reduce the
provision for income taxes when considered to be realizable.
Earnings Per Share
On 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.
34
<PAGE> 37
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.
2. PROPERTY
Property consists of:
<TABLE>
<CAPTION>
Year Ended May 31,
------------------
1994 1993
----- -----
(in thousands)
<S> <C> <C>
Computer equipment . . . . . . . . . . . . . . . . . . . . . . . . . . $235,237 $199,346
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . 85,772 69,301
Automobiles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,202 9,313
Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . 191,048 72,919
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93,757 39,667
---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 614,016 390,546
Accumulated depreciation and amortization . . . . . . . . . . . . . . . (235,533) (201,308)
--------- ---------
Property, net . . . . . . . . . . . . . . . . . . . . . . . . . . $378,483 $189,238
========= =========
</TABLE>
During fiscal 1994, 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 buildings leased
by the Company at its headquarters site. The Company also became a 74% limited
partner in IV Centrum Associates by making a capital contribution of
approximately $4 million. The Company has the right to leave the partnership
in 1996 and take full title to both buildings without making further capital
contributions. As a result of the note purchases and capital contribution, the
Company has capitalized the two building leases, and the $89.1 million in
payments have been classified as buildings and improvements.
Additionally, during fiscal 1994, the Company entered into an arrangement
whereby it leased an office building adjacent to its headquarters site and
concurrently acquired the land under the building and all outstanding mortgage
notes for a total of $22.1 million. The Company has various options to extend
the lease and to purchase the building at various times during the lease term.
As a result of the land and note purchases, the Company has capitalized the
building lease, and the $22.1 million in payments have been classified as land
and buildings and improvements.
In addition to the above expenditures, during 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.
Leased equipment under capital leases included in property at May 31, 1994 and
1993 was $43,581,000 and $48,789,000, respectively. Accumulated amortization of
leased equipment at such dates was $32,898,000 and $29,762,000, respectively.
As of May 31, 1994, future minimum annual lease payments under capital leases
together with their present value were:
<TABLE>
<CAPTION>
Year Ended May 31, (in thousands)
------------------
<S> <C>
1995 . . . . . . . . . . . . . . . . . . . . . . $ 7,090
1996 . . . . . . . . . . . . . . . . . . . . . . 2,377
1997 . . . . . . . . . . . . . . . . . . . . . . 577
1998 . . . . . . . . . . . . . . . . . . . . . . 26
---------
Total minimum lease payments . . . . . . . 10,070
Amounts representing interest . . . . . . . . . (1,022)
----------
Present value of minimum lease payments . . $ 9,048
=========
</TABLE>
35
<PAGE> 38
3. NOTES PAYABLE
At May 31, 1994 and 1993, the Company had unsecured short-term borrowings from
banks which were payable on demand in the amounts of $551,000 and $1,530,000,
respectively. Interest on the borrowings outstanding at May 31, 1994 range
from 6% to 19%.
4. LONG-TERM DEBT
Long-term debt consists of:
<TABLE>
<CAPTION>
Year Ended May 31,
------------------
1994 1993
---- ----
(in thousands)
<S> <C> <C>
Subordinated debt . . . . . . . . . . . . . . . . . . . . . . . . $80,000 $80,000
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144 168
Capital lease obligations (See Note 2) . . . . . . . . . . . . . . 9,048 15,366
------- ---------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89,192 95,534
Current maturities . . . . . . . . . . . . . . . . . . . . . . . . (6,347) (9,154)
--------- ---------
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . $82,845 $86,380
======== ========
</TABLE>
In December 1991, the Company entered into an $80 million subordinated debt
agreement with Nippon Steel Corporation ("NSC"). In connection with this
agreement, the Company also entered into a strategic relationship with NSC to
target major customers and industries in Japan. The subordinated debt
agreement has a maturity date of December 9, 1998. Interest is charged at
LIBOR plus three-quarters of one percent, payable semi-annually in arrears.
The Company is required to maintain certain financial covenants under the
agreement. NSC has committed to purchase from the Company an ownership
position of up to twenty-five percent of Oracle Corporation Japan, an indirect
wholly owned subsidiary of the Company, in the event that shares in Oracle
Corporation Japan are sold to the public as a part of an initial public
offering. The per share price of the stock would be the same as that offered
in the initial public offering. NSC has agreed not to acquire shares of Oracle
Corporation Japan beyond the twenty-five percent interest, nor any shares of
the Company, subject to certain exceptions.
As of May 31, 1994, maturities of long-term debt (excluding capital lease
obligations - See Note 2) are:
<TABLE>
<CAPTION>
Year Ended May 31, (in thousands)
------------------
<S> <C>
1995 . . . . . . . . . . . . . . . . . . . . . . $24
1996 . . . . . . . . . . . . . . . . . . . . . . 26
1997 . . . . . . . . . . . . . . . . . . . . . . 29
1998 . . . . . . . . . . . . . . . . . . . . . . 31
1999 . . . . . . . . . . . . . . . . . . . . . . 80,034
--------
Total . . . . . . . . . . . . . . . . . . . $80,144
========
</TABLE>
5. COMMITMENTS
Facilities and certain furniture and equipment are leased under operating
leases. The Company has pledged land, having an original cost of approximately
$16,000,000, as security for the mortgage loans covering one of the buildings
at the Company's headquarters site.
36
<PAGE> 39
As of May 31, 1994, future minimum annual lease payments (excluding the lease
payments related to capitalized facilities discussed in Note 2) are as follows:
<TABLE>
<CAPTION>
Year Ended May 31, (in thousands)
------------------
<S> <C>
1995 . . . . . . . . . . . . . . . . . . . . . . . . $71,662
1996 . . . . . . . . . . . . . . . . . . . . . . . . 58,003
1997 . . . . . . . . . . . . . . . . . . . . . . . . 45,090
1998 . . . . . . . . . . . . . . . . . . . . . . . . 37,853
1999 . . . . . . . . . . . . . . . . . . . . . . . . 32,922
Thereafter . . . . . . . . . . . . . . . . . . . . . 81,165
---------
Total . . . . . . . . . . . . . . . . . . . . . . $326,695
========
</TABLE>
Rent expense was $105,041,000, $104,796,000, and $91,561,000 for fiscal years
1994, 1993, and 1992, respectively. Rent expense in fiscal 1994, 1993, and
1992 is net of sublease income of approximately $2,366,000, $2,693,000, and
$2,265,000, respectively.
6. STOCKHOLDERS' EQUITY
Stock Option Plans
The Company's 1985 Stock Option Plan provides 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 to purchase up to 46,671,248 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 to five years), and generally expire ten years from the date
of grant. As of May 31, 1994, options to purchase 3,719,468 shares were
outstanding, of which 2,982,024 shares were vested. As of May 31, 1994, 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 4,280,000 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, 1994, options to purchase 1,692,900 shares of Common
Stock were outstanding, of which 428,850 shares were vested. Options for
962,795 shares were available for future grant under these plans at May 31,
1994.
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
10,000,000 shares of Common Stock were reserved for issuance, generally are
granted at not less than fair market value, become exercisable as established
by the Board (generally ratably over four years), and generally expire ten
years from the date of grant. An additional 8,000,000 shares of Common Stock
were reserved for issuance under the plan in fiscal 1994. As of May 31, 1994,
options to purchase 11,083,038 shares of Common Stock were outstanding, of
which 2,419,912 shares were vested. Options for 6,142,908 shares were
available for future grant under the plan at May 31, 1994. To date, the
Company has not issued any stock purchase rights, stock appreciation rights or
long-term performance awards under this plan.
In fiscal 1993, the Company's Board of Directors adopted the 1993 Directors
Stock Option Plan (the "1993 Directors Plan") which provides for the issuance
of non-qualified stock options to outside directors. Under the terms of this
plan, options to purchase 1,000,000 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
37
<PAGE> 40
and nondiscretionary. The plan provides for initial stock option grants of
10,000 shares to each individual who was an outside director on May 24, 1993.
In addition, the Chairman of the Executive Committee of the Company's Board of
Directors was automatically granted options to purchase 80,000 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 25,000 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 7,500 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 17,500
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, 1994, options to purchase
175,000 shares of common stock were outstanding, of which 27,500 were vested.
Options for 825,000 shares were available for future grant under this plan at
May 31, 1994.
The Company, at its discretion, may accelerate the exercisability of an option.
In such cases, the Company has the right to repurchase shares issued upon the
exercise of options that were not exercisable under the original schedule at
the exercise price paid by the stockholder should the stockholder leave the
Company prior to the scheduled vesting date. As of May 31, 1994, there were no
shares of outstanding Common Stock subject to such repurchase rights.
The following table summarizes stock option plan activity:
<TABLE>
<CAPTION>
Shares Under Option
Option Prices
------ ------
<S> <C> <C>
Balance, May 31, 1991 17,264,716 $ 0.02 - $12.32
Granted 5,028,900 4.32 - 10.32
Exercised (3,683,440) 0.02 - 6.75
Canceled (654,358) 0.91 - 11.69
-------------
Balance, May 31, 1992 17,955,818 $ 0.08 - $12.32
Granted 5,123,300 4.57 - 21.82
Exercised (4,830,900) 0.08 - 12.32
Canceled (1,075,566) 0.24 - 17.38
------------
Balance, May 31, 1993 17,172,652 $ 0.16 - $21.82
Granted 4,669,600 20.56 - 36.12
Exercised (3,265,361) 0.16 - 19.69
Canceled (1,906,485) 0.23 - 34.38
------------
Balance, May 31, 1994 16,670,406 $ 0.23 - $36.12
============
</TABLE>
Non-Plan Options
In addition to the above option plans, non-qualified stock options to purchase
320,000 common shares were outstanding and vested as of May 31, 1994 at an
exercise price of $0.98.
As of May 31, 1994, the Company had reserved 24,921,109 shares of Common Stock
for the exercise of options.
Stock Purchase Plan
In October 1987, the Company adopted an Employee Stock Purchase Plan (the "1987
Purchase Plan"), and reserved 16,000,000 shares of Common Stock for issuance
thereunder. In September 1992, the plan was amended to reserve an additional
500,000 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 184,698 shares remaining became
available for issuance under the 1992 Purchase Plan.
In August 1992, the Company adopted the Employee Stock Purchase Plan (1992)
(the "1992 Purchase Plan"), and reserved 4,000,000 shares of Common Stock for
issuance thereunder. An additional 4,000,000 shares of Common
38
<PAGE> 41
Stock were reserved for issuance under the plan in fiscal 1994. Under the
stock purchase plan, the Company's employees may purchase shares of Common
Stock at a price per share that is 85% of the lesser of the fair market value
as of the beginning or the end of the semi-annual option period. Through May
31, 1994, 2,631,260 shares had been issued and 5,553,438 shares are reserved
for future issuances under this plan.
Shareholder Rights Plan
On December 3, 1990, the Board adopted a Shareholder Rights Plan. Pursuant to
the Plan, the Company distributed Preferred Stock Purchase Rights as a dividend
at the rate of one-half 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-two thousandth of a share of the Company's Series
A Junior Participating Preferred Stock at a price of $125.00 per one-two
thousandth share, subject to adjustment. However, if (i) after the
Distribution Date the Company is acquired in certain types of transactions, or
(ii) any person or group (with certain exceptions) acquires beneficial
ownership of 20% of the Company's Common Stock, then holders of Rights (other
than the 20% holder) will be entitled to receive upon exercise of the Right,
Common Stock of the Company (or in the case of acquisition of the Company,
Common Stock of the acquiror) having a market value of two times the exercise
price of the Right.
The Company is entitled to redeem the Rights, for $.001 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-two thousandth share of Series A Junior
Participating Preferred Stock, for each Right, under certain circumstances.
The Company also has the ability to amend the Rights, subject to certain
limitations.
Put Warrants
During fiscal 1994, the Company sold 1,556,500 put warrants that entitle the
holder of each warrant to sell one share of Common Stock to the Company at a
weighted average price of $24.69 per share. Additionally, the Company
purchased 973,000 call options that entitle the Company to buy one share of
Common Stock at a weighted average price of $31.57 per share. These put
warrants and call options expire in July and August 1995. The amount related
to the Company's potential repurchase obligation under the put warrants
($38,430,000) has been reclassified from stockholder's equity to put warrants
in the accompanying consolidated balance sheet.
7. INCOME TAXES
Effective June 1, 1992, the Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes." The comparative income tax
data provided in this footnote for the year ended May 31, 1992 is presented
under the provisions of APB 11.
The following is a geographical breakdown of the Company's income before taxes
and before cumulative effect of change in accounting principle:
39
<PAGE> 42
<TABLE>
<CAPTION>
Year Ended May 31,
-------------------
(in thousands)
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Domestic $306,426 $135,029 $38,430
Foreign 117,037 83,012 57,700
--------- ---------- --------
Total $423,463 $218,041 $96,130
======== ======== =======
</TABLE>
The provision for income taxes, excluding the tax effect of the cumulative
effect of change in accounting principle in fiscal 1993, consists of the
following:
<TABLE>
<CAPTION>
Year Ended May 31,
-------------------
(in thousands)
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Current Payable:
Federal $50,282 $27,420 $19,249
State 11,423 3,915 454
Foreign 50,620 43,142 27,720
--------- --------- --------
Total current 112,325 74,477 47,423
-------- --------- --------
Deferred Payable (Prepaid):
Federal 30,971 525 (13,718)
State 97 1,673 226
Foreign (3,650) (360) 689
---------- ---------- -----------
Total deferred 27,418 1,838 (12,803)
---------- ---------- ---------
Total $139,743 $76,315 $34,620
======== ======== ========
</TABLE>
The provision for income taxes differs from the amount computed by applying the
federal statutory rate to the Company's income before taxes and before the
cumulative effect of change in accounting principle as follows:
<TABLE>
<CAPTION>
Year Ended May 31,
------------------
(in thousands)
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Tax provision at statutory rate $148,212 $74,134 $32,684
Tax credits (5,219) (5,365) (4,048)
Tax benefit of exempt FSC income (12,666) (9,533) (6,682)
State tax, net of federal benefit 7,488 3,688 680
Foreign taxes provided at rates other than
the U.S. statutory rate 284 (7,538) 5,843
Foreign losses not tax benefited 1,347 4,788 2,950
Alternative minimum tax -- -- 1,340
Other 297 16,141 1,853
----------- -------- ---------
Provision for income taxes $139,743 $76,315 $34,620
======== ======= =======
</TABLE>
40
<PAGE> 43
The components of the deferred tax assets and liabilities, as reflected on the
balance sheet, consist of the following:
<TABLE>
<CAPTION>
Year Ended May 31,
------------------
(in thousands)
1994 1993
---- ----
<S> <C> <C>
Deferred Tax Liabilities:
Capitalized software development costs $(28,170) $(30,026)
State taxes (6,364) (2,917)
Depreciation and amortization -- (2,490)
Other tax liabilities (19,042) (22,952)
-------- --------
Total Deferred Tax Liabilities (53,576) (58,385)
Deferred Tax Assets:
Reserves and accruals 31,302 28,618
Tax credit carryforwards -- 30,601
Differences in timing of revenue recognition 24,651 34,148
Foreign earnings deemed repatriated 11,169 3,052
Net operating loss carryovers 6,119 10,347
Depreciation and amortization 526 --
Other tax assets 10,537 --
------ -----------
Total Deferred Tax Assets 84,304 106,766
Valuation Allowance (15,879) (7,447)
-------- -------
Net Deferred Tax Asset $14,849 $40,934
-------- -------
Recorded as:
Prepaid and refundable income taxes $53,765 $49,157
Deferred income taxes (38,916) (8,223)
-------- --------
$14,849 $40,934
======== =======
</TABLE>
There was no valuation allowance recorded at May 31, 1992. The components of
the deferred (prepaid) income tax provision, as reflected in the fiscal 1992
income statement, consist of the following:
<TABLE>
<CAPTION>
Year Ended May 31,
------------------
(in thousands)
1992
----
<S> <C>
Tax credit carryforwards $(17,971)
Capitalized software development costs 8,392
Differences in timing of revenue recognition 202
Reserves and accruals (154)
Depreciation and amortization (118)
Other (3,154)
-----------
Total $(12,803)
=========
</TABLE>
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, 1994, the cumulative amount of earnings upon which
United States income taxes have not been provided are approximately
$14,332,000. At May 31, 1994, the unrecognized deferred tax liability for
these earnings is approximately $3,583,000.
Certain foreign subsidiaries of the Company have net operating loss
carryforwards at May 31, 1994, totaling approximately $16,100,000, which may be
used to offset future taxable income. The carryforwards expire at various
41
<PAGE> 44
dates; $3,000 in 1997, $8,623,000 in 1998, $5,170,000 in 1999, and the
remaining balance has no expiration. As of May 31, 1994, the Company has
recorded a gross deferred tax asset related to the loss carryforwards of
$6,119,000, and a related valuation allowance of $1,119,000. At May 31, 1993,
the deferred asset and the related valuation allowance attributed to loss
carryforwards were $10,347,000 and $7,447,000, respectively.
As of May 31, 1993, the Company had, for tax purposes, tax credit carryforwards
totaling $30,601,000. At May 31, 1994 there were no credit carryforwards.
8. SEGMENT INFORMATION
The Company operates in one industry segment: the development and marketing of
computer software and related services. The Company's products are marketed
internationally through the Company's subsidiaries, with the principal
subsidiaries located in continental Europe, the United Kingdom, Canada,
Australia, Asia, the Middle East and Latin America, and 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:
<TABLE>
<CAPTION>
Year Ended May 31,
------------------
1994 1993 1992
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Revenues from unaffiliated customers:
Domestic operations . . . . . . . . . . . . . . . . $ 814,920 $ 574,853 $ 449,466
---------- ---------- -----------
International operations-
European operations . . . . . . . . . . . . . . . 800,373 676,021 558,267
Other international operations . . . . . . . . . . 385,854 251,894 170,763
----------- ------------ ------------
Total international operations . . . . . . . . . 1,186,227 927,915 729,030
---------- ------------ ------------
Consolidated . . . . . . . . . . . . . . . . . . . . . . $2,001,147 $1,502,768 $1,178,496
========== =========== ===========
Intercompany revenues:
Domestic operations . . . . . . . . . . . . . . . . $ 255,132 $ 183,714 $ 139,953
========== =========== ============
Operating income:
Domestic operations . . . . . . . . . . . . . . . . $ 309,362 $ 142,238 $ 54,023
European operations . . . . . . . . . . . . . . . . 76,053 58,687 51,894
Other international operations . . . . . . . . . . . 34,538 16,054 7,746
------------ ------------- ------------
Consolidated . . . . . . . . . . . . . . . . . . . . . . $ 419,953 $ 216,979 $ 113,663
========== =========== ============
Identifiable assets:
Domestic operations . . . . . . . . . . . . . . . . $ 893,563 $ 695,325 $ 533,054
European operations . . . . . . . . . . . . . . . . 514,459 359,043 330,452
Other international operations . . . . . . . . . . . 186,962 129,652 92,066
---------- ------------- ------------
Consolidated . . . . . . . . . . . . . . . . . . . . . . $1,594,984 $1,184,020 $ 955,572
========== =========== ===========
</TABLE>
Domestic revenues from unaffiliated customers include certain export sales.
The following table presents a summary of total revenues generated by
geographic region after adjustments to include such export sales based on the
location of the customer:
<TABLE>
<CAPTION>
Year Ended May 31,
------------------
1994 1993 1992
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Domestic revenues . . . . . . . . . . . . . . . . . $ 799,654 $ 553,480 $ 429,026
European revenues . . . . . . . . . . . . . . . . . 803,703 686,569 568,828
Other international revenues . . . . . . . . . . . . 397,790 262,719 180,642
----------- ----------- -----------
Total revenues . . . . . . . . . . . . . . . . . $2,001,147 $1,502,768 $1,178,496
========== ========== ==========
</TABLE>
42
<PAGE> 45
9. LITIGATION
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 named as defendants
the Company and certain of its present and former officers and directors.
Plaintiffs in the class action alleged 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 claimed 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 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 provided for payment by
the Company of $23.25 million in five installments to a custodial account for
disbursement upon order of the Court. As of May 31, 1994, all installment
payments had been made. The derivative agreement provided for payment by the
Company of up to $750,000 in attorney's fees if so ordered by the Court.
On May 24, 1994, the Court issued an order approving the class and derivative
settlements. In its order, the Court awarded derivative counsel $525,000 in
attorney's fees and $69,385 in costs, which fees and costs must be paid by the
Company on or before August 9, 1994. On July 5, 1994, the Court dismissed the
class and derivative actions and entered final judgment in both actions.
The Company is also a party to other claims arising during the normal course of
business, the outcome of which, in the opinion of management, will not have a
material adverse effect on either the Company's consolidated results of
operations or consolidated financial position.
43
<PAGE> 46
Schedule II
ORACLE SYSTEMS CORPORATION
AMOUNTS RECEIVABLE FROM
RELATED PARTIES AND EMPLOYEES
<TABLE>
<CAPTION>
Balance at Balance
Beginning at End
of Period Additions Deductions of Period (7)
--------- --------- ---------- -------------
<S> <C> <C> <C> <C>
Year Ended May 31, 1992:
Mike Fields (1) $500,000 -- $(107,978) $392,022
Geoff Squire (2) $498,750 -- -- $498,750
George Koch (3) -- $100,000 -- $100,000
Terrence Garnett (4) -- $185,000 -- $185,000
Year Ended May 31, 1993:
Mike Fields $392,022 -- $(392,022) --
Geoff Squire $498,750 -- $(498,750) --
George Koch $100,000 -- -- $100,000
Terrence Garnett $185,000 -- -- $185,000
James Abrahamson (5) -- $500,000 $(125,000) $375,000
Year Ended May 31, 1994:
George Koch $100,000 -- $(100,000) --
Terrence Garnett $185,000 -- $(185,000) --
James Abrahamson $375,000 -- $(125,000) $250,000
Barry Ariko (6) -- $500,000 $(246,000) $254,000
</TABLE>
(1) The Company loaned Mr. Fields $143,000 on May 31, 1990 in the form of
a secured promissory note, due in May 1991, for the purpose of
covering the cost of relocating his primary residence. In June 1991,
the Company converted this note as well as other borrowings made
during the year into a $500,000 promissory note, secured by all of Mr.
Fields' personal property as well as stock options of Oracle Systems
Corporation.
Mr. Fields terminated his employment with the Company effective May
31, 1992. Outstanding amounts due to Mr. Fields for bonuses and
commissions, as well as the unrealized value of vested stock options,
were used to reduce the outstanding amount of principal and accrued
interest under the note to $392,022 as of May 31, 1992. The Company
forgave the remaining balance ratably during fiscal 1993, based on the
requirement that Mr. Fields not become an employee of a competitor of
the Company.
(2) The Company loaned Mr. Squire $498,750 on October 10, 1989 in the form
of an unsecured non-interest bearing promissory note to enable Mr.
Squire to exercise stock options for shares of the Company's Common
Stock. The original note was due and payable on May 31, 1991. In
August 1991, the Company
44
<PAGE> 47
and Mr. Squire agreed to amend the note to extend the due date of the
note to May 31, 1992 (or until earlier termination of Mr. Squire's
employment), to secure the note with shares of the Company's Common
Stock and to provide for interest at 8% per annum. In August 1992,
the Company and Mr. Squire agreed to amend the note to extend the due
date of the note to May 31, 1993, and to make interest applicable only
to that portion of the principal amount relating to vested stock
options. Mr. Squire repaid his outstanding loan in full during
fiscal 1993. Mr Squire terminated his employment with the Company
effective October 28, 1993.
(3) The Company loaned Mr. Koch $100,000 on July 1, 1991 in the form of a
secured interest bearing note, proceeds of which were issued for the
purpose of covering the cost of relocating his primary residence. The
note was secured by all of his personal property as well as stock
options of the Company. Interest accrued at 8% per annum, and the
principal and accrued interest were to be due in July 1996. In the
event that Mr. Koch exercised options and sold any resulting Company
stock prior to repayment in full, 100% of the net proceeds were to be
paid to the Company in repayment of the principal and accrued
interest. Mr. Koch repaid his outstanding loan in full during fiscal
1994.
(4) The Company loaned Mr. Garnett $185,000 on October 21, 1991 in the
form of a secured interest bearing note, proceeds of which were issued
for the purpose of covering the cost of relocating his primary
residence. The note was secured by stock options of the Company.
Interest accrued at 8% per annum, and the principal and accrued
interest were to be due on October 21, 1995. In the event that Mr.
Garnett exercised options and sold any resulting Company stock prior
to repayment in full, 50% of the net proceeds were to be paid to the
Company in repayment of the principal and accrued interest. Mr.
Garnett repaid his loan in full during fiscal 1994.
(5) The Company loaned Mr. Abrahamson $500,000 on October 23, 1992 in the
form of an unsecured interest bearing note, proceeds of which were
issued for the purpose of covering the cost of relocating his primary
residence. The note accrues interest at 7% per annum. The principal
and interest are due on May 31, 1996, provided, however, that if Mr.
Abrahamson remains employed by the Company, $125,000 of the principal
amount of the loan together with any accrued interest will be forgiven
on each of May 31,1993, May 31, 1994, May 31, 1995 and May 31, 1996.
In the event that Mr. Abrahamson voluntarily terminates his employment
with the Company, or is terminated for good cause, the outstanding
principal and any accrued interest will become immediately due and
payable. If Mr. Abrahamson is terminated for the convenience of the
Company, then the outstanding principal and accrued interest will be
forgiven in full.
(6) The Company loaned Mr. Ariko $500,000 on April 13, 1994 in the form of
a secured interest bearing note. The note is secured by stock and
options of the Company as well as other securities held by Mr. Ariko.
The note accrues interest at 8% per annum, and the principal and
accrued interest are due and payable on January 31, 1995. In the
event that Mr. Ariko exercises options and sells any Company stock
prior to repayment in full, 50% of the net proceeds from such sale
shall be paid to Oracle in repayment of the principal and accrued
interest. If Mr. Ariko's employment with the Company terminates, the
principal and all the accrued interest will become immediately due and
payable in full. Mr. Ariko repaid $246,000 of his outstanding balance
during fiscal 1994.
(7) Excludes two notes totalling $225,000 at May 31, 1994 entered into
between the Company and two employees who are not officers of the
Company or members of the Company's Executive Management Committee,
proceeds of which were issued for the purpose of covering the cost of
relocating each of the individual's primary residence.
45
<PAGE> 48
Schedule VIII
ORACLE SYSTEMS CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at Additions Balance at
Beginning Charged Translation End of
Classification of Period to Operations Writeoffs Adjustments Period
- - -------------- ----------- --------------- ----------- ------------- --------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful Accounts
Year Ended:
May 31, 1992 $50,407,000 $32,665,000 $(37,913,000) $ 123,000 $45,282,000
----------- ----------- ------------- ---------- -----------
May 31, 1993 $45,282,000 $26,059,000 $(36,161,000) $(546,000) $34,634,000
----------- ----------- ------------- --------- -----------
May 31, 1994 $34,634,000 $33,830,000 $(28,400,000) $(287,000) $39,777,000
----------- ----------- ------------- ---------- -----------
</TABLE>
46
<PAGE> 49
Schedule IX
ORACLE SYSTEMS CORPORATION
SHORT-TERM BORROWINGS
(dollars in thousands)
<TABLE>
<CAPTION>
Weighted
Maximum Average Average
Weighted Amount Amount Interest
Balance Average Outstanding Outstanding Rate
Category of Aggregate at End Interest During During the During the
Short-Term Borrowings of Period Rate the Period Period(1) Period(2)
- - --------------------- --------- ---- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
May 31, 1992:
Short-term borrowings
from banks $ 2,812 5.7% $164,553 $ 58,272 10.2%
========== ==== ======== ========= =====
May 31, 1993:
Short-term borrowings
from banks $ 1,530 10.3% $ 4,830 $ 2,728 8.6%
========== ===== ========= ========= ====
May 31, 1994:
Short-term borrowings
from banks $ 551 10.4% $ 3,991 $ 1,999 11.2%
========== ===== ========= ========== =====
</TABLE>
(1) In fiscal 1994 and 1993, average borrowings were determined based on the
quarter-end amounts outstanding. In fiscal 1992, average borrowings were
determined based on the month-end amounts outstanding.
(2) The weighted average interest rate during the period represents the total
short-term interest expense divided by the average amount outstanding during
the period.
47
<PAGE> 50
Schedule X
ORACLE SYSTEMS CORPORATION
SUPPLEMENTARY INCOME STATEMENT INFORMATION
Charged to costs and expenses
Year ended May 31,
<TABLE>
<CAPTION>
Item 1994 1993 1992
- - ---- ---- ---- ----
<S> <C> <C> <C>
Advertising expense $ 27,227,000 $18,226,000 $23,306,000
============ =========== ===========
</TABLE>
48
<PAGE> 51
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on July 27, 1994.
ORACLE SYSTEMS CORPORATION
By: LAWRENCE J. ELLISON
-------------------
Lawrence J. Ellison,
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.
<TABLE>
<CAPTION>
NAME/TITLE DATE
---------- ----
<S> <C>
CHIEF EXECUTIVE OFFICER AND DIRECTOR
LAWRENCE J. ELLISON July 27, 1994
-------------------
Lawrence J. Ellison
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
JEFFREY O. HENLEY July 27, 1994
-----------------
Jeffrey O. Henley
CHIEF ACCOUNTING OFFICER
THOMAS A. WILLIAMS July 27, 1994
------------------
Thomas A. Williams
CHAIRMAN OF THE BOARD OF DIRECTORS
JAMES A. ABRAHAMSON July 27, 1994
-------------------
James A. Abrahamson
DIRECTORS
DONALD L. LUCAS July 27, 1994
---------------
Donald L. Lucas
MICHAEL J.BOSKIN July 27, 1994
----------------
Michael J. Boskin
JOSEPH B. COSTELLO July 27, 1994
------------------
Joseph B. Costello
DELBERT W. YOCAM July 27, 1994
----------------
Delbert W. Yocam
</TABLE>
49
<PAGE> 52
ORACLE SYSTEMS CORPORATION
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT # EXHIBIT TITLES PAGE
- - --------- -------------- ----
<S> <C> <C>
10.07 Amendment to 1993 Directors' Stock Option Plan as adopted May 31, 1994. 51
21.01 Subsidiaries of the Registrant. 52
23.01 Consent of Arthur Andersen & Co. 54
</TABLE>
50
<PAGE> 1
Amendment to 1993 Directors' Stock Option Plan
Section 5(b)(iii) of the 1993 Directors' Stock Option Plan (the "Plan")
is hereby amended to read in full as follows:
(iii) Each individual who becomes an Outside Director
after May 24, 1993, as of the date on which such
person becomes an Outside Director shall be granted
automatically an Option to purchase 25,000 shares.
Section 5(c)(i) of the Plan is hereby amended to read in full as
follows:
(i) On May 31 of each year after May 31, 1993, each
Outside Director shall be granted automatically an
option to purchase 7,500 shares provided that on such
date the Outside Director has served on the Board for
at least six months.
Section 5(c)(ii) of the Plan is hereby amended to read in full as
follows:
(ii) In addition to the Option described in Section
5(c)(i), on May 31 of each year commencing May 31,
1994, each Outside Director that is a Chairman of a
Significant Committee or Significant Committees shall
be granted automatically an Option to purchase 17,500
shares provided that on such date the Outside
Director has served as a Chairman of any such
Significant Committee for at least one year.
51
<PAGE> 1
Oracle Systems Corporation
Federal I.D. # 94-2871189
As of 5/31/93
List of Entities:
<TABLE>
<CAPTION>
Subsidiary Country of
Incorporation
<S> <C>
Oracle Systems Corporation United States
Oracle Corporation United States
Oracle (Barbados) Foreign Sales Corporation United States
Oracle Credit Corporation United States
Oracle Real Estate Corporation United States
Oracle China, Inc. United States
Oracle Taiwan, Inc. United States
Oracle Complex Systems Corporation United States
Falcon Systems, Inc. United States
Oracle Japan Holding, Inc. United States
India Holdings, Inc. United States
RSIB, Inc. United States
Oracle Datenbanksysteme Ges.m.b.H. Austria
Oracle Belgium N.V. Belgium
Oracle Danmark A/S Denmark
Oracle Deutschland GmbH Germany
Oracle Finland OY Finland
Oracle France S.A. France
Oracle Hellas S.A. (Greece) Greece
Oracle Hungary Kft. Hungary
Oracle Europe Manufacturing Holdings Ltd. (Ireland) Ireland
Oracle Europe Manufacturing Limited (Ireland) Ireland
Oracle RDBMS Ireland Limited Ireland
Oracle Italia, S.p.A. Italy
Oracle Nederland B.V. The Netherlands
Oracle Norge AS Norway
Oracle Polska, Spa. z.o.o. Poland
Oracle Portugal - Sistemas De Informacao, Lta. Portugal
Oracle Slovenia Yugoslavia
Oracle Iberica S.A. (Spain) Spain
Oracle Svenska AB Sweden
Oracle Software (Switzerland) Ltd. Switzerland
Oracle Corporation UK Limited England
Relational Software Limited (UK) England
Oracle Argentina S.A. Argentina
Oracle do Brazil Sistemas Ltda. Brazil
Oracle Caribbean, Inc. Puerto Rico/United
States
Sistemas Oracle de Chile S.A. Chile
Centro de Capacitacion Oracles Ltda. Chile
Oracle Colombia Limitada Colombia
Oracle Centroamerica S.A. Costa Rica
</TABLE>
52
<PAGE> 2
<TABLE>
<S> <C>
Oracle del Peru, S.A. Peru
Oracle Mexico S.A. de C.V. Mexico
Sistemas Oracle de Venezuela C.A. Venezuela
Sistemas (Australia) Pty. Ltd. Australia
Beijing Oracle Systems Corporation China
Oracle Systems China (Hong Kong) Limited Hong Kong
Oracle Consulting Asia Limited Hong Kong
Oracle Systems Hong Kong Limited Hong Kong
Oracle Systems (Korea) Ltd. Korea
Oracle Systems Malaysia Sdn. Bhd. Malaysia
Oracle Systems New Zealand Ltd. New Zealand
Oracle Systems (Philippines) Inc. Phililppines
Oracle Systems South-East (Singapore) Pte Ltd Singapore
Oracle Systems (Thailand) Co. Ltd. Thailand
Oracle Systems Integration Ltd. (Cyprus) Cyprus
Oracle Systems Ltd. Cyprus
Oracle Software India Private Ltd. India
Oracle Biligisayer Sistemieri Ltd. Sti. (Turkey) Turkey
Oracle Corporation Canada Inc. Canada
La Societe D'Informatique Oracle du Quebec, Inc. Canada
Oracle Corporation Japan Japan
</TABLE>
53
<PAGE> 1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report dated June 22, 1994 included in this Form 10-K into
the Company's previously filed Registration Statement File Nos. 33-3536,
33-16749, 33-44702, 33-53349, 33-53351, and 33-53355.
/s/ Arthur Andersen & Co.
San Jose, California
July 27, 1994
54
