<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTERLY PERIOD ENDED AUGUST 31, 1996
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________.
COMMISSION FILE NUMBER: 0-14376
ORACLE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 94-2871189
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
500 Oracle Parkway
Redwood City, California 94065
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(415) 506-7000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES X NO
Number of shares of registrant's common stock outstanding as of August 31,
1996: 657,309,890.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
ORACLE CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets at August 31, 1996 and 3
May 31, 1996...................................................
Condensed Consolidated Statements of Operations for the three
months ended August 31, 1996 and 1995.......................... 4
Condensed Consolidated Statements of Cash Flows for the three
months ended August 31, 1996 and 1995.......................... 5
Notes to Condensed Consolidated Financial Statements........... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................... 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................. 14
Item 6. Exhibits and Reports on Form 8-K............................... 14
Signatures..................................................... 15
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ORACLE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
AUGUST 31, MAY 31,
1996 1996
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents............................... $ 743,265 $ 715,742
Short-term cash investments............................. 252,522 125,166
Trade receivables, net of allowance for doubtful
accounts of $90,875 and $105,711, respectively......... 899,942 1,084,858
Prepaid and refundable income taxes..................... 169,995 171,560
Other current assets.................................... 168,919 187,139
---------- ----------
Total Current Assets................................... 2,234,643 2,284,465
---------- ----------
LONG-TERM CASH INVESTMENTS............................... 15,039 41,963
PROPERTY, net............................................ 731,565 685,754
COMPUTER SOFTWARE DEVELOPMENT COSTS, net of accumulated
amortization of $67,465 and $78,025, respectively....... 98,962 99,072
OTHER ASSETS............................................. 250,408 245,989
---------- ----------
Total Assets........................................... $3,330,617 $3,357,243
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable to banks.................................. $ 4,767 $ 4,377
Current maturities of long-term debt.................... 1,028 1,246
Accounts payable........................................ 165,820 169,895
Income taxes............................................ 125,051 181,999
Accrued compensation and related benefits............... 183,741 295,048
Customer advances and unearned revenues................. 474,634 434,435
Value added tax and sales tax payable................... 41,309 99,409
Other accrued liabilities............................... 311,665 268,555
---------- ----------
Total Current Liabilities.............................. 1,308,015 1,454,964
---------- ----------
LONG-TERM DEBT........................................... 853 897
OTHER LONG-TERM LIABILITIES.............................. 22,012 21,726
DEFERRED INCOME TAXES.................................... 3,884 9,207
STOCKHOLDERS' EQUITY..................................... 1,995,853 1,870,449
---------- ----------
Total Liabilities and Stockholders' Equity............. $3,330,617 $3,357,243
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
ORACLE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
AUGUST 31,
---------------------
1996 1995
---------- ----------
<S> <C> <C>
REVENUES
Licenses and other...................................... $ 461,848 $ 365,720
Services................................................ 590,472 406,083
---------- ----------
Total Revenues......................................... 1,052,320 771,803
---------- ----------
OPERATING EXPENSES
Sales and marketing..................................... 359,850 279,023
Cost of services........................................ 336,107 231,509
Research and development................................ 117,209 84,441
General and administrative.............................. 70,279 51,708
Acquired in-process research and development............ -- 50,931
---------- ----------
Total Operating Expenses............................... 883,445 697,612
---------- ----------
OPERATING INCOME......................................... 168,875 74,191
Other income (expense), net............................. 7,330 7,268
---------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES................. 176,205 81,459
Provision for income taxes.............................. 63,434 27,696
---------- ----------
NET INCOME............................................... $ 112,771 $ 53,763
========== ==========
EARNINGS PER SHARE....................................... $ 0.17 $ 0.08
========== ==========
COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING.......... 673,810 669,776
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
ORACLE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED AUGUST 31,
------------------
1996 1995
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................ $112,771 $ 53,763
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization............................ 62,765 50,339
Write-off of acquired in-process research and
development.............................................. -- 50,931
Provision for doubtful accounts.......................... 10,365 11,500
Decrease in trade receivables............................ 214,306 147,988
Decrease in prepaid and refundable income taxes.......... 2,150 12,375
Increase in other current assets......................... (7,887) (15,106)
Decrease in accounts payable............................. (5,511) (8,997)
Decrease in income taxes................................. (53,321) (64,408)
Increase in customer advances and unearned revenues...... 35,780 15,953
Decrease in other accrued liabilities.................... (133,122) (102,460)
Increase (decrease) in other long-term liabilities....... 286 (26)
Increase (decrease) in deferred income taxes............. (4,483) 10,825
-------- --------
Net cash provided by operating activities................. 234,099 162,677
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in cash investments............................. (100,432) (6,468)
Capital expenditures, net................................ (88,976) (59,667)
Capitalization of computer software development costs.... (9,509) (12,586)
Increase in other assets................................. (17,600) (108,124)
-------- --------
Net cash used for investing activities.................... (216,517) (186,845)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (payments) on debt obligations............ (194) 721
Proceeds from common stock issued........................ 15,421 8,384
Repurchase of common stock............................... (11,957) --
Proceeds from sales of call options...................... -- 17,175
-------- --------
Net cash provided by financing activities................. 3,270 26,280
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH.................... 6,671 (6,684)
-------- --------
Net increase (decrease) in cash and cash equivalents..... 27,523 (4,572)
CASH AND CASH EQUIVALENTS
Beginning of period...................................... 715,742 480,158
-------- --------
End of period............................................ $743,265 $475,586
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
ORACLE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The condensed consolidated financial statements included herein have been
prepared by the Company without audit pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. However, the Company believes that the
disclosures are adequate to make the information presented not misleading.
These condensed consolidated financial statements should be read in
conjunction with the financial statements and the notes thereto included in
the Company's Annual Report on Form 10-K for the year ended May 31, 1996.
The unaudited condensed consolidated financial statements included herein
reflect all adjustments (which include only normal, recurring adjustments)
which are in the opinion of management necessary to state fairly the results
for the three month period ended August 31, 1996. The results for the three
month period ended August 31, 1996 are not necessarily indicative of the
results expected for the full fiscal year.
2. EARNINGS PER SHARE
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.
3. ACQUISITION
On July 27, 1995, the Company completed the acquisition of the on-line
analytical processing business of Information Resources, Inc. for $100,000,000
in cash. The Company received an appraisal of certain intangible assets which
indicated that $50,931,000 of the acquired intangible assets consisted of in-
process research and development. In the opinion of management and the
appraiser, the acquired in-process research and development had not yet
reached technological feasibility and had no alternative future uses.
Accordingly, the Company recorded a special charge of $50,931,000 in the
accompanying condensed consolidated statement of operations in the first
quarter of fiscal 1996. The remaining intangible assets acquired are being
amortized over a five year period. Amortization expenses of approximately
$1,500,000 and $500,000 were charged to general and administrative expenses in
the accompanying condensed consolidated statement of operations in the first
three months of fiscal 1997 and 1996, respectively.
6
<PAGE>
FORWARD-LOOKING STATEMENTS
In addition to historical information contained herein, this Quarterly Report
contains forward-looking statements. The forward-looking statements contained
herein are subject to certain risks and uncertainties that could cause actual
results to differ materially from those reflected in these forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, those discussed in the section entitled "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Factors That
May Affect Future Results and Market Price of Stock." Readers are cautioned
not to place undue reliance on these forward-looking statements, which reflect
management's analysis only as of the date hereof. The Company undertakes no
obligation to publicly release the results of any revision to these forward-
looking statements, which may be made to reflect events or circumstances after
the date hereof or to reflect the occurrence of unanticipated events. Readers
should carefully review the risk factors described in other documents the
Company files from time to time with the Securities and Exchange Commission,
including the Annual Report on Form 10-K for the fiscal year ended May 31,
1996, the Quarterly Reports on Form 10-Q to be filed by the Company in 1996
and 1997 and any Current Reports on Form 8-K filed by the Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Domestic and international revenues increased 44% and 31%, respectively, from
the first quarter of fiscal 1996. International revenues were unfavorably
affected in the first quarter of fiscal 1997 when compared to the
corresponding period of the prior year as a result of the strengthening of the
U. S. dollar against certain major international currencies. International
revenues expressed in local currency increased in the first quarter of fiscal
1997 by approximately 36% from the corresponding period of fiscal 1996.
International revenues constituted approximately 55% and 57% of total revenues
in the first three months of fiscal 1997 and 1996, respectively. Management
expects that the Company's international operations will continue to provide a
significant portion of total revenues. However, international revenues will
continue to be adversely affected if the U.S. dollar strengthens against
certain major international currencies.
REVENUES:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------
AUGUST 31, AUGUST 31,
1996 CHANGE 1995
---------- ------ ----------
<S> <C> <C> <C>
Licenses and other.............................. $ 461,848 26% $ 365,720
Percentage of revenues.......................... 43.9% 47.4%
Services........................................ $ 590,472 45% $ 406,083
Percentage of revenues.......................... 56.1% 52.6%
Total revenues................................ $1,052,320 36% $ 771,803
</TABLE>
LICENSES AND OTHER REVENUES. License revenues represent fees earned for
granting customers licenses to use the Company's software products. License
revenues also include revenues from the Company's systems integration
business, documentation revenues and other miscellaneous revenues. The Company
experienced quarterly revenue growth rates ranging from 24% to 44% during the
four quarters of fiscal 1996 as compared to the comparable four quarters of
fiscal 1995. The Company believes that these growth rates were primarily due
to an overall increase in market demand for database and related products and
increased market acceptance of the Company's relational DBMS. Similar to the
prior year, the Company believes that the lower revenue growth rate
experienced in the first three months of fiscal 1997 was due primarily to
fewer identified license opportunities as a result of the strong results
realized in the fourth quarter of the preceding fiscal year.
7
<PAGE>
SERVICES REVENUES. Support, consulting and education services revenues in the
first quarter of fiscal 1997 each increased from the corresponding period of
fiscal 1996. The Company's support revenues continued to constitute the
largest portion of service revenues. Support revenues grew 45% in the first
quarter of fiscal 1997 when compared to the corresponding period in fiscal
1996. This growth reflects the continued increase in the installed base of the
Company's products under support contracts. Consulting and education services
grew 46% in the first quarter of fiscal 1997 when compared to the
corresponding period in fiscal 1996. The Company continued to expand its
services to assist customers in the use and implementation of applications
based on the Company's products.
OPERATING EXPENSES:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------
AUGUST 31, AUGUST 31,
1996 CHANGE 1995
---------- ------ ----------
<S> <C> <C> <C>
Sales and marketing............................. $359,850 29% $279,023
Percentage of revenues.......................... 34.2% 36.2%
Cost of services................................ $336,107 45% $231,509
Percentage of revenues.......................... 31.9% 30.0%
Research and development (1).................... $117,209 39% $ 84,441
Percentage of revenues.......................... 11.1% 10.9%
General and administrative...................... $ 70,279 36% $ 51,708
Percentage of revenues.......................... 6.7% 6.7%
Acquired in-process research and development.... $ -- * $ 50,931
Percentage of revenues.......................... -- 6.6%
</TABLE>
- --------
* Not meaningful
(1) Pursuant to Statement of Financial Accounting Standards No. 86, the
Company capitalized software development costs equal to 0.9% and 1.6% of
total revenues during the first quarters of fiscal 1997 and 1996,
respectively.
International expenses were favorably affected in the first quarter of fiscal
1997 when compared to the corresponding period in the prior year due to
changes in the value of the U. S. dollar against certain major international
currencies.
SALES AND MARKETING EXPENSES. The Company continues to place significant
emphasis, both domestically and internationally, on direct sales through its
own sales force. However, the Company also continues to market its products
through indirect channels in order to increase market share while reducing
distribution costs. As a percentage of total revenues, sales and marketing
expenses decreased in the first three months of fiscal 1997 when compared to
the corresponding period of fiscal 1996. This decrease was due to a higher
percentage of services revenues when compared to the prior year period.
Similar to the prior year, the first quarter of fiscal 1997 sales and
marketing expenses were favorably affected due to revisions in the first three
months of fiscal 1997 to certain prior fiscal year compensation related
accruals based on actual payments made. Included in sales and marketing
expenses is the amortization of capitalized software development costs (see
below).
COST OF SERVICES. The cost of providing services consists largely of
consulting, education and support personnel expenses. As a percentage of
service revenues, cost of services was 57% of revenues in the first three
months of both fiscal 1997 and 1996.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses for the
first quarters of fiscal 1997 and 1996 would have been 12% and 13%,
respectively, of revenues without the capitalization of software development
costs in accordance with Statement of Financial Accounting Standards No. 86.
Before considering the impact of software capitalization, research and
development expenses increased 31% from the first quarter of fiscal 1996 (39%
after the adjustment for software capitalization). A portion of this increase
was due to research
8
<PAGE>
and development staff hired in connection with the acquisition of the on-line
analytical processing business of Information Resources, Inc. The Company
capitalized approximately $9,508,000 and $12,586,000 of software development
costs during the first quarters of fiscal 1997 and 1996, respectively.
Amortization of capitalized software development costs is charged to sales and
marketing expenses and totaled $9,618,000 and $12,932,000 in the first
quarters of fiscal 1997 and 1996, 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 remained constant in the first quarter of fiscal 1997
when compared to the corresponding period in fiscal 1996.
ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT. Based on the results of a third-
party appraisal, the Company recorded a special charge of $50,931,000 in the
first quarter of fiscal 1996 to expense in-process research and development
costs related to the acquisition of the on-line analytical processing business
of Information Resources, Inc.
OTHER INCOME (EXPENSE):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------
AUGUST 31, AUGUST 31,
1996 CHANGE 1995
---------- ------ ----------
<S> <C> <C> <C>
Other income (expense)........................ $ 7,330 1% $ 7,268
Percentage of revenues........................ 0.7% 0.9%
Changes in non-operating income and expense primarily reflect fluctuations in
interest income and expense related to changes in cash and debt balances and
interest rates. They also reflect foreign exchange and other miscellaneous
income and expense items. Additionally, the Company realized a gain of
approximately $3.1 million during the first quarter of fiscal 1996 related to
the sale of certain securities.
PROVISION FOR INCOME TAXES:
<CAPTION>
THREE MONTHS ENDED
-----------------------------
AUGUST 31, AUGUST 31,
1996 CHANGE 1995
---------- ------ ----------
<S> <C> <C> <C>
Provision for income taxes.................... $ 63,434 129% $ 27,696
Percentage of revenues........................ 6.0% 3.6%
The Company's estimated effective tax rate in the first quarter of fiscal 1997
was 36% as compared to a 34% tax rate in the corresponding period of fiscal
1996.
NET INCOME AND EARNINGS PER SHARE:
<CAPTION>
THREE MONTHS ENDED
-----------------------------
AUGUST 31, AUGUST 31,
1996 CHANGE 1995
---------- ------ ----------
<S> <C> <C> <C>
Net income.................................... $ 112,771 110% $ 53,763
Percentage of revenues........................ 10.7% 7.0%
Earnings per share............................ $ 0.17 113% $ 0.08
LIQUIDITY AND CAPITAL RESOURCES:
<CAPTION>
THREE MONTHS ENDED
-----------------------------
AUGUST 31, AUGUST 31,
1996 CHANGE 1995
---------- ------ ----------
<S> <C> <C> <C>
Working capital............................... $ 926,628 66% $ 558,791
Cash and cash investments..................... $1,010,826 72% $ 587,714
Cash provided by operating activities......... $ 234,099 44% $ 162,677
Cash used for investing activities............ $ 216,517 16% $ 186,845
Cash provided by financing activities......... $ 3,270 (88%) $ 26,280
</TABLE>
9
<PAGE>
Working capital increased in the first three months of fiscal 1997 over the
corresponding prior year period, due primarily to increased cash flow from
operations, which resulted in higher cash levels.
The Company generated higher positive cash flows from operations in the first
three months of fiscal 1997 over fiscal 1996, due primarily to improved
profitability.
Cash used for investing activities increased in the first three months of
fiscal 1997 as compared to the corresponding period of the prior year, due
primarily to changes in the levels of cash investments. In both periods, the
Company made significant investments in capital expenditures. In addition, the
Company acquired the on-line analytical processing business of Information
Resources, Inc. for $100,000,000 in cash in the first quarter of fiscal 1996.
The Company's Board of Directors has approved the repurchase of up to
27,000,000 shares of Common Stock on the open market to reduce the dilutive
effect of the Company's stock plans. Pursuant to this repurchase program, the
Company repurchased approximately 332,500 shares of the Company's Common Stock
for approximately $11,957,000 during the first quarter of fiscal 1997. To
date, the Company has repurchased a total of 22,449,509 shares of the
Company's Common Stock for approximately $325,689,000. The Company has 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.
At August 31, 1996, the Company had outstanding debt of approximately
$6,648,000 primarily in the form of other notes payable and capital leases.
The Company anticipates that current cash balances and anticipated cash flows
from operations will be sufficient to meet its working capital and capital
expenditure needs at least through the next twelve months.
FACTORS THAT MAY AFFECT FUTURE RESULTS AND MARKET PRICE OF STOCK
The Company operates in a rapidly changing environment that involves numerous
risks, some of which are beyond the Company's control. The following
discussion highlights some of these risks.
MANAGEMENT OF GROWTH. The Company has a history of rapid growth. The Company's
future operating results will depend on management's ability to manage growth,
continuously hire and retain significant numbers of qualified employees,
forecast revenues and control expenses. An unexpected decline in the growth
rate of revenues without a corresponding and timely slowdown in expense growth
could have a material adverse effect on the Company's business, results of
operations or financial condition.
COMPETITIVE ENVIRONMENT. The computer software industry is an intensely
competitive industry with several large vendors that develop and market
databases, applications, development tools or decision support products.
Certain of these vendors have significantly more financial and technical
resources than the Company. If new competitive products are introduced into
one or more of the Company's various markets, the Company's business could be
adversely affected. In addition, new distribution methods (e.g., electronic
channels) and opportunities presented by the Internet have removed many of the
barriers to entry historically faced by small and start-up companies in the
software industry. The Company expects to face increasing competition from
such companies in the various markets in which it competes.
PRICING. Intense competition in the various markets in which the Company
competes may put pressure on the Company to reduce prices on certain products,
particularly in the enterprise and departmental database marketplace where
certain vendors offer deep discounts in an effort to recapture or gain
marketshare. In addition, the bundling of software products for promotional
purposes or as a long-term pricing strategy by certain of the Company's
competitors could have the effect over time of significantly reducing the
prices that the Company can charge for its products. Any such price reductions
could adversely affect the Company's results of operations and financial
condition if the Company cannot offset these price reductions with a
corresponding increase in sales volumes.
10
<PAGE>
INDUSTRY GROWTH AND ECONOMIC CONDITIONS. The strength and profitability of the
Company's business depends on the overall demand for computer software and
growth in the computer industry. Because the Company's sales are primarily to
major corporate, government, education and other business customers, the
Company's business also partly depends on general economic and business
conditions. A softening of demand for computer software, caused by a weakening
of the economy or otherwise, may result in decreased revenues or declining
revenue growth rates for the Company.
NEW PRODUCTS. The markets for the Company's products are characterized by
rapid technological advances in hardware and software development, evolving
standards in computer hardware and software technology, and frequent new
product introductions and enhancements. Product introductions and short
product life cycles necessitate high levels of expenditure for research and
development. To maintain its competitive position, the Company must enhance
and improve existing products and continue to introduce new products and new
versions of existing products that keep pace with technological developments,
satisfy increasingly sophisticated customer requirements and achieve market
acceptance. The Company's inability to port to or run on new or increasingly
popular operating systems, or the Company's failure to successfully position
and/or price its products, could have a material adverse effect on the
Company's operating results.
Significant undetected errors or delays in new products or new versions of a
product may affect market acceptance of the Company's products and adversely
affect operating results. If the Company were to experience delays in the
commercialization and introduction of new or enhanced products, if customers
were to experience significant problems with the implementation and
installation of products or if customers were dissatisfied with product
functionality or performance, the Company's business and operating results
could be materially adversely affected.
There can be no assurance that the Company's new products will achieve
significant market acceptance or will generate significant revenue. Additional
products that the Company plans to market in the future are in various stages
of development. Some of these products, such as network computer and on-line
analytical processing (OLAP) products, are in business areas that are new to
the Company's product development and sales and product marketing personnel.
See "New Business Areas."
UNEVEN PATTERNS OF QUARTERLY OPERATING RESULTS. The Company's revenues in
general, and its license revenues in particular, are relatively difficult to
forecast and vary from quarter to quarter due to various factors, including
(i) the relatively long sales cycles for the Company's products, (ii) the size
and timing of individual license transactions, (iii) the timing of the
introduction of new products or product enhancements by the Company or its
competitors, (iv) the potential for delay or deferral of customer
implementations of the Company's software, (v) changes in customer budgets,
and (vi) seasonality of technology purchases and other general economic
conditions. Accordingly, the Company's quarterly results are difficult to
predict until the end of the quarter, and delays in product delivery or
closing of sales near the end of a quarter can cause quarterly revenues and
net income to fall significantly short of anticipated levels.
The Company's license revenues in any quarter are substantially dependent on
orders booked and shipped in that quarter. Because the Company's operating
expenses are based on anticipated revenue levels and because a high percentage
of the Company's expenses are relatively fixed, a delay in the recognition of
revenue from even a limited number of license transactions could cause
significant variations in operating results from quarter to quarter and could
cause net income to fall significantly short of anticipated levels.
ALTERNATE DISTRIBUTION CHANNELS. The Company historically has relied heavily
on its direct sales force. However, the Company is moving increasingly toward
indirect, electronic and other alternate distribution channels to meet
competitive demands. There can be no assurances that the Company will be
successful in shifting to these alternate distribution channels. If the
Company is not successful, the Company may lose significant sales
opportunities.
11
<PAGE>
UNCERTAINTY OF EMERGING AREAS. The impact on the Company of emerging areas
such as the Internet, on-line services and electronic commerce is uncertain.
There can be no assurances that the Company will be able to provide a product
offering that will satisfy new customer demands in these areas. In addition,
standards for network protocols, as well as other industry adopted and de
facto standards for the Internet, are evolving rapidly. There can be no
assurances that standards chosen by the Company will position its products to
compete effectively for business opportunities as they arise on the Internet
and other emerging areas.
NEW BUSINESS AREAS. The Company has in recent years diversified into a number
of new business areas including Internet, on-line services, electronic
commerce, interactive media applications and data warehousing. It also has
begun to develop hardware reference specifications and to promote the use of
network computers. These areas are new to the Company's product development
and sales and marketing personnel. There is no assurance that the Company will
compete effectively or will generate significant revenues in these new areas.
The Company's success with its current network computer products and network
computers generally is difficult to predict because network computers
represent a method of computing that is new to the entire computer industry.
The successful introduction of network computers to the market will depend in
large measure on the commitment by hardware vendors to manufacture, promote
and distribute network computers. There can be no assurance that sufficient
numbers of hardware vendors will undertake this commitment, that the market
will accept network computers or that they will generate significant revenues
to the Company. See "New Products."
HIRING AND RETENTION OF EMPLOYEES. The Company's continued growth and success
depends to a significant extent on the continued service of senior management
and other key employees and the hiring of new qualified employees. Competition
for highly-skilled business, product development, technical and other
personnel is intense, particularly in the strong economic cycle currently
prevailing for high technology companies. There can be no assurances that the
Company will be successful in continuously recruiting new personnel and in
retaining existing personnel. None of the Company's employees is subject to a
long-term employment or a noncompetition agreement. The loss of one or more
key employees or the Company's inability to attract additional qualified
employees or retain other employees could have a material adverse effect on
the continued growth of the Company. In addition, the Company may experience
increased compensation costs in order to compete for skilled employees.
INTERNATIONAL SALES. A substantial portion of the Company's revenues is
derived from international sales and is therefore subject to the risks
attendant thereto, including the general economic conditions in each country,
the overlap of different tax structures, the difficulty of managing an
organization spread over various countries, changes in regulatory
requirements, compliance with a variety of foreign laws and regulations, and
longer payment cycles in certain countries. Other risks associated with
international operations include import and export licensing requirements,
trade restrictions and changes in tariff rates.
A significant portion of the Company's business is conducted in currencies
other than the U.S. dollar. Changes in the value of major foreign currencies
relative to the value of the U.S. dollar therefore could adversely affect
future revenues and operating results. Foreign currency transaction gains and
losses are primarily related to sublicense fee agreements between the Company
and selling distributors and subsidiaries. These gains and losses are charged
against earnings in the period incurred.
The Company has reduced its transaction and translation gains and losses
associated with converting foreign currencies into U.S. dollars by using
forward foreign exchange contracts to hedge transaction and translation
exposures in certain currencies. Such contracts meet the criteria established
in FASB 52 for hedge accounting treatment. The Company finds it impractical to
hedge all foreign currencies in which it conducts business. As a result, the
Company will continue to experience foreign currency gains and losses.
RISKS ASSOCIATED WITH FUTURE ACQUISITIONS. As part of its business strategy,
the Company expects to make acquisitions of, or significant investments in,
businesses that offer complementary products, services and technologies. Any
such future acquisitions or investments would be accompanied by the risks
commonly encountered in acquisitions of businesses. Such risks include, among
other things, the difficulty of assimilating
12
<PAGE>
the operations and personnel of the acquired businesses, the potential
disruption of the Company's ongoing business, the inability of management to
maximize the financial and strategic position of the Company, the maintenance
of uniform standards, controls, procedures and policies and the impairment of
relationships with employees and clients as a result of any integration of new
management personnel. These factors could have a material adverse effect on
the Company's business, results of operations or financial condition. The
Company expects that the consideration paid for future acquisitions, if any,
could be in the form of cash, stock, rights to purchase stock or a combination
thereof. Dilution to existing stockholders and to earnings per share may
result to the extent that shares of stock or other rights to purchase stock
are issued in connection with any such future acquisitions.
RELATIVE PRODUCT PROFITABILITY. Certain of the Company's revenues are derived
from products which, as a percentage of revenues, currently require a higher
level of development, distribution and support expenditures compared to
certain of its other core products. To the extent that revenues generated from
such products become a greater percentage of the Company's total revenues, the
Company's operating margins may be adversely affected, unless the expenses
associated with such products decline as a percentage of revenues.
ENFORCEMENT OF THE COMPANY'S INTELLECTUAL PROPERTY RIGHTS. Despite the
Company's efforts to protect its intellectual property rights, it may be
possible for unauthorized third parties to copy certain portions of the
Company's products or to reverse engineer or obtain and use technology or
other information that the Company regards as proprietary. In addition, the
laws of certain countries do not protect the Company's proprietary rights to
the same extent as do the laws of the United States. Accordingly, there can be
no assurance that the Company will be able to protect its proprietary
technology against unauthorized third party copying or use, which could
adversely affect the Company's competitive position.
The Company from time to time receives notices from third parties claiming
infringement by the Company's products of third party patent and other
intellectual property rights. The Company expects that software products will
increasingly be subject to such claims as the number of products and
competitors in the Company's industry segments grows and the functionality of
products overlap. Regardless of its merit, any such claim could be time-
consuming, result in costly litigation and require the Company to enter into
royalty and licensing agreements which may not be offered or available on
terms acceptable to the Company. If a successful claim is made against the
Company and the Company fails to develop or license a substitute technology,
the Company's business and operating results could be materially adversely
affected.
POSSIBLE VOLATILITY OF STOCK PRICE. The market price of the Company's Common
Stock has experienced significant fluctuations and may continue to fluctuate
significantly. The market price of the Common Stock may be significantly
affected by factors such as the announcement of new products or product
enhancements by the Company or its competitors, technological innovation by
the Company or its competitors, quarterly variations in the Company's results
of operations, changes in prices of the Company's or its competitors' products
and services, changes in the Company's revenue and revenue growth rates for
the Company as a whole or for specific geographic areas, business units,
products or product categories, changes in earnings estimates by market
analysts, speculation in the press or analyst community and general market
conditions or market conditions specific to particular industries. The stock
prices for many companies in the technology sector have experienced wide
fluctuations which often have been unrelated to their operating performance.
Such fluctuations may adversely affect the market price of the Company's
Common Stock.
LONG-TERM INVESTMENT CYCLE. Developing and localizing software is expensive
and the investment in product development often involves a long payback cycle.
The Company's plans for its fiscal year ended May 31, 1997 include significant
investments in software research and development and related product
opportunities from which significant revenues are not anticipated for several
years.
13
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
A shareholder derivative lawsuit was filed in the Superior Court of the State
of California, County of San Mateo, on October 23, 1995. The derivative suit
was brought by Company stockholders, allegedly on behalf of the Company,
against certain of the Company's present and former officers and directors.
The derivative plaintiffs allege primarily that these officers and directors
intentionally or negligently breached their fiduciary duties to the Company by
allegedly engaging or acquiescing in certain activities related to nCUBE, a
company in which Oracle's Chief Executive Officer owns a controlling interest.
The derivative plaintiffs seek compensatory and other damages, disgorgement of
profits and certain assets, temporary and permanent injunctions requiring the
defendants to relinquish their directorships, and a voiding of all contracts
with nCUBE. On May 29, 1996, the court granted the defendants' motion to
dismiss the complaint, with leave to amend. Plaintiffs filed a Second Amended
Complaint on August 6, 1996, and defendants have filed motions seeking
dismissal of the amended complaint. Defendants' motions are scheduled to be
heard by the Court on October 28, 1996.
The Company is subject to various other legal proceedings and claims, either
asserted or unasserted, which arise in the ordinary course of business. While
the outcome of these claims cannot be predicted with certainty, management
does not believe that the outcome of any of these legal matters will have a
material adverse effect on the Company's consolidated results of operations or
consolidated financial position.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Restatement of Employment Agreement with David Roux as of
August 31,1996
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Oracle
Corporation has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ORACLE CORPORATION
Dated: October 11, 1996 By: /s/ Jeffrey O. Henley
_____________________________
Jeffrey O. Henley
Executive Vice President and
Chief Financial Officer
Dated: October 11, 1996 By: /s/ Thomas A. Williams
_____________________________
Thomas A. Williams
Vice President and
Corporate Controller
15
<PAGE>
ORACLE CORPORATION
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT TITLES PAGE
------- -------------- ----
<C> <S> <C>
10.1 Restatement of Employment Agreement with David Roux as of 17
August 31, 1996
27.1 Financial Data Schedule 18
</TABLE>
16
<PAGE>
EXHIBIT 10.1
RESTATEMENT OF EMPLOYMENT AGREEMENT
This Agreement is entered into as of August 31, 1996 between Oracle
Corporation ("Employer") and David J. Roux ("Employee") to restate the existing
terms of the employment relationship between Employer and Employee and eliminate
provisions which have expired.
If Employee's employment is involuntarily terminated without good cause,
Employee will receive severance at his base salary rate of $29,166.67 per month
for twelve months, provided, however, that any such payments would cease
whenever Employee obtained other employment. During any period for which
Employee receives severance, Employee would continue to receive health care
benefits under COBRA provisions at Employer's expense.
Until September 26, 1998, Employee is entitled to a minimum of $250,000 per
year in discretionary incentive income. However, Employee has chosen to
participate in Employer's Fiscal Year 1997 Executive Compensation Bonus Plan
("the FY97 Executive Plan"). Employee understands that there is no minimum
compensation guarantee in the FY97 Executive Plan, and that by participating in
the FY97 Executive Plan, Employee is foregoing the $250,000 guarantee. So long
as Employee remains a member of Employer's Executive Management Committee,
Employee may continue to participate in Employer's Executive Compensation Bonus
Plan, but thereby foregoes any minimum incentive income guarantee.
IN WITNESS WHEREOF, Employer and Employee have executed this Agreement as of
the date first above written.
EMPLOYER:
ORACLE CORPORATION,
a Delaware corporation
By: /s/ Phillip E. Wilson
--------------------------------------
Phillip E. Wilson
Senior Vice President, Human Resources
EMPLOYEE:
/s/ David J. Roux
- -----------------------------------------
DAVID J. ROUX
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> JUN-01-1996
<PERIOD-END> AUG-31-1996
<CASH> 743,265
<SECURITIES> 252,522
<RECEIVABLES> 990,817
<ALLOWANCES> 90,875
<INVENTORY> 8,884
<CURRENT-ASSETS> 2,234,643
<PP&E> 1,220,617
<DEPRECIATION> 489,052
<TOTAL-ASSETS> 3,330,617
<CURRENT-LIABILITIES> 1,308,015
<BONDS> 0
0
0
<COMMON> 6,569
<OTHER-SE> 1,989,284
<TOTAL-LIABILITY-AND-EQUITY> 3,330,617
<SALES> 0
<TOTAL-REVENUES> 1,052,320
<CGS> 0
<TOTAL-COSTS> 336,107
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,515
<INTEREST-EXPENSE> 427
<INCOME-PRETAX> 176,205
<INCOME-TAX> 63,434
<INCOME-CONTINUING> 112,771
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 112,771
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.17
</TABLE>
