<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 FEBRUARY 29, 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)
<TABLE>
<S> <C>
Delaware 94-2871189
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
</TABLE>
500 Oracle Parkway,
Redwood City, California 94065
(Address of principal executive offices, including zip code)
(415) 506-7000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES X NO
--- ---
Number of shares of registrant's common stock outstanding as of February 29,
1996: 436,151,902.
================================================================================
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ORACLE CORPORATION
TABLE OF CONTENTS
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PAGE
----
<C> <S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets at February 29, 1996 and
May 31, 1995................................................... 3
Condensed Consolidated Statements of Operations for the three
months and nine months ended February 29, 1996 and February 28,
1995........................................................... 4
Condensed Consolidated Statements of Cash Flows for the nine
months ended February 29, 1996 and February 28, 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 6. Exhibits and Reports on Form 8-K............................... 13
Signatures..................................................... 14
</TABLE>
2
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PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ORACLE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FEBRUARY 29, MAY 31,
1996 1995
------------ ----------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................. $ 612,667 $ 480,158
Short-term cash investments........................... 97,078 105,660
Trade receivables, net of allowance for doubtful
accounts of $74,678 and $67,728, respectively........ 774,523 764,734
Prepaid and refundable income taxes................... 142,136 135,491
Other current assets.................................. 149,504 131,151
---------- ----------
Total current assets.............................. 1,775,908 1,617,194
---------- ----------
LONG-TERM CASH INVESTMENTS............................. 9,451 --
PROPERTY, net.......................................... 642,987 535,034
COMPUTER SOFTWARE DEVELOPMENT COSTS, net of accumulated
amortization of $96,748 and $70,515, respectively..... 98,951 99,855
OTHER ASSETS........................................... 235,735 172,434
---------- ----------
Total assets...................................... $2,763,032 $2,424,517
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable to banks................................ $ 8,185 $ 6,221
Current maturities of long-term debt.................. 1,700 3,378
Accounts payable...................................... 153,597 124,773
Income taxes.......................................... 99,738 134,121
Accrued compensation and related benefits............. 168,246 211,643
Customer advances and unearned revenues............... 350,219 316,273
Value added tax and sales tax payable................. 57,902 67,449
Other accrued liabilities............................. 230,411 191,291
---------- ----------
Total current liabilities......................... 1,069,998 1,055,149
---------- ----------
LONG-TERM DEBT......................................... 81,083 81,721
OTHER LONG-TERM LIABILITIES............................ 11,802 10,361
DEFERRED INCOME TAXES.................................. 8,996 27,490
PUT WARRANTS........................................... -- 38,438
STOCKHOLDERS' EQUITY................................... 1,591,153 1,211,358
---------- ----------
Total liabilities and stockholders' equity........ $2,763,032 $2,424,517
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
ORACLE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND NINE MONTHS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28,
1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
FEBRUARY FEBRUARY
------------------ ---------------------
1996 1995 1996 1995
--------- -------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES:
Licenses and other................... $ 528,351 $390,687 $1,397,019 $1,048,440
Services............................. 491,888 331,558 1,362,207 900,559
--------- -------- ---------- ----------
Total revenues................... 1,020,239 722,245 2,759,226 1,948,999
--------- -------- ---------- ----------
OPERATING EXPENSES:
Sales and marketing.................. 365,282 261,314 1,000,955 723,303
Cost of services..................... 286,843 196,683 773,774 540,784
Research and development............. 92,805 67,363 270,518 179,746
General and administrative........... 55,367 42,034 164,303 124,840
Acquired in-process research and
development......................... -- -- 50,931 --
--------- -------- ---------- ----------
Total operating expenses......... 800,297 567,394 2,260,481 1,568,673
--------- -------- ---------- ----------
OPERATING INCOME...................... 219,942 154,851 498,745 380,326
Other income (expense), net.......... 1,709 1,533 11,791 7,499
--------- -------- ---------- ----------
INCOME BEFORE PROVISION FOR INCOME
TAXES................................ 221,651 156,384 510,536 387,825
Provision for income taxes........... 75,361 51,607 173,582 127,982
--------- -------- ---------- ----------
NET INCOME............................ $ 146,290 $104,777 $ 336,954 $ 259,843
========= ======== ========== ==========
EARNINGS PER SHARE.................... $ 0.33 $ 0.24 $ 0.75 $ 0.59
========= ======== ========== ==========
COMMON AND COMMON EQUIVALENT SHARES
OUTSTANDING.......................... 446,986 443,025 446,881 443,235
========= ======== ========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
ORACLE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FEBRUARY
--------------------
1996 1995
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................................. $ 336,954 $ 259,843
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 159,715 102,255
Write-off of acquired in-process research and
development........................................... 50,931 --
Provision for doubtful accounts........................ 41,844 35,857
Increase in trade receivables.......................... (65,740) (119,586)
Increase in prepaid and refundable income taxes........ (7,535) (34,848)
Increase in other current assets....................... (20,988) (3,258)
Increase in accounts payable........................... 30,949 16,948
Increase (decrease) in income taxes.................... (20,777) 16,603
Increase in customer advances and unearned revenues.... 38,907 28,972
Increase (decrease) in other accrued liabilities....... (3,385) 34,050
Increase (decrease) in other long-term liabilities..... 1,441 (3,334)
Decrease in deferred income taxes...................... (17,916) (16,006)
--------- ---------
Net cash provided by operating activities............... 524,400 317,496
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in cash investments........................... (869) (65,683)
Capital expenditures, net.............................. (220,022) (179,653)
Capitalization of computer software development costs.. (36,478) (34,681)
Increase in other assets............................... (113,777) (131,041)
--------- ---------
Net cash used for investing activities.................. (371,146) (411,058)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) on debt obligations.......... (420) 689
Proceeds from common stock issued...................... 52,454 32,346
Repurchase of common stock............................. (82,920) (75,859)
Proceeds from sales of call options.................... 17,175 --
--------- ---------
Net cash used for financing activities.................. (13,711) (42,824)
--------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH.................. (7,034) 8,492
--------- ---------
Net increase (decrease) in cash and cash equivalents.... 132,509 (127,894)
CASH AND CASH EQUIVALENTS:
Beginning of period..................................... 480,158 404,810
--------- ---------
End of period........................................... $ 612,667 $ 276,916
========= =========
</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, 1995.
The unaudited condensed consolidated financial statements included herein
reflect all adjustments (which include only normal, recurring adjustments)
which are in the opinion of management necessary to state fairly the results
for the nine month period ended February 29, 1996. The results for the nine
month period ended February 29, 1996 are not necessarily indicative of the
results expected for the full fiscal year.
2. EARNINGS PER SHARE
On March 14, 1996, the Company announced a three-for-two stock split in the
form of a common stock dividend to be distributed on April 16, 1996 to
stockholders of record as of April 2, 1996. Per share data and numbers of
common shares contained in these condensed consolidated financial statements
and in Management's Discussion and Analysis of Financial Condition and Results
of Operations have not been adjusted to reflect the stock split that will be
effective in the fourth quarter of fiscal 1996.
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. ACQUISITIONS
On July 27, 1995, the Company completed the acquisition of the on-line
analytical processing business of Information Resources, Inc. for $100 million
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 expense of approximately $4
million was charged to general and administrative expenses in the accompanying
condensed consolidated statement of operations in the first nine months of
fiscal 1996.
On November 30, 1994, the Company completed the acquisition of the Rdb
database and repository businesses of Digital Equipment Corporation, including
all related software products and customer support services for $108 million
in cash. Intangible assets, with an assigned value of approximately $105
million, have been included in Other Assets in the accompanying condensed
consolidated balance sheet. These intangible assets relate to the value
assigned to the Rdb database and repository businesses installed base and
related technologies and are being amortized over a seven year period.
Amortization expense of approximately $11 million was charged to cost of
services in the accompanying condensed consolidated statement of operations in
the first nine months of fiscal 1996.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
In addition to historical information contained herein, this Discussion and
Analysis 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 the forward-
looking statements, including those discussed below or in the Company's Form
10-K for the fiscal year ended May 31, 1995. 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.
RESULTS OF OPERATIONS
Domestic revenues increased 44% in the third quarter and first nine months of
fiscal 1996 while international revenues increased 39% and 40% in the third
quarter and first nine months of fiscal 1996, respectively, when compared to
the corresponding periods in fiscal 1995. International revenues were
favorably affected in the first nine months of fiscal 1996 when compared to
the corresponding period of the prior year as a result of the weakening of the
U. S. dollar against certain major international currencies. International
revenues expressed in local currency increased in the third quarter and first
nine months of fiscal 1996 by approximately 39% and 37%, respectively, from
the corresponding periods of fiscal 1995. International revenues constituted
approximately 57% and 59% of total revenues in the third quarters of fiscal
1996 and 1995, respectively, and 58% and 60% of total revenues in the first
nine months of fiscal 1996 and 1995, respectively. Management expects that the
Company's international operations will continue to provide a significant
portion of total revenues. However, international revenues will be adversely
affected if the U.S. dollar strengthens against certain major international
currencies.
REVENUES:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------------- ----------------------------
FEB 29, FEB 28, FEB 29, FEB 28,
1996 CHANGE 1995 1996 CHANGE 1995
---------- ------ -------- ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Licenses and other...... $ 528,351 35% $390,687 $1,397,019 33% $1,048,440
Percentage of revenues.. 51.8% 54.1% 50.6% 53.8%
Services................ $ 491,888 48% $331,558 $1,362,207 51% $ 900,559
Percentage of revenues.. 48.2% 45.9% 49.4% 46.2%
Total revenues........ $1,020,239 41% $722,245 $2,759,226 42% $1,948,999
</TABLE>
LICENSE 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, certain software development revenues and
other miscellaneous revenues. The Company believes that the period over period
growth rates were due primarily to an overall increase in market demand for
database and related products and increased market acceptance of the Company's
relational DBMS and applications products and the addition of revenues
generated from the acquisition of the Rdb and repository businesses of Digital
Equipment Corporation and the on-line analytical processing business of
Information Resources, Inc. The lower license and other growth rate
experienced in the first nine months of fiscal 1996 was due primarily to
weaknesses in first quarter revenues in certain countries, most notably in
Europe.
SERVICE REVENUES. Support, consulting and education services revenues each
increased from the corresponding periods of fiscal 1995. The Company's support
revenues continued to constitute the largest portion of service revenues in
the third quarter and first nine months of fiscal 1996. Support revenues grew
50% and 57% in the third quarter and first nine months of fiscal 1996. This
growth reflects the continued increase in the installed base of the Company's
products under support contracts and support revenues associated with the
recently acquired Rdb and repository businesses of Digital Equipment
Corporation and the on-line analytical processing business of Information
Resources, Inc. Consulting and education services grew 47% in the third
quarter and first nine months of fiscal 1996 when compared to the
corresponding periods in fiscal 1995. The Company continued to expand its
services to assist customers in the use and implementation of applications
based on the Company's products.
7
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OPERATING EXPENSES:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------------- --------------------------
FEB 29, FEB 28, FEB 29, FEB 28,
1996 CHANGE 1995 1996 CHANGE 1995
---------- ------ -------- ---------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Sales and marketing..... $ 365,282 40% $261,314 $1,000,955 38% $723,303
Percentage of revenues.. 35.8% 36.2% 36.3% 37.1%
Cost of services........ $ 286,843 46% $196,683 $ 773,774 43% $540,784
Percentage of revenues.. 28.1% 27.2% 28.0% 27.7%
Research and development
(1).................... $ 92,805 38% $ 67,363 $ 270,518 51% $179,746
Percentage of revenues.. 9.1% 9.3% 9.8% 9.2%
General and administra-
tive................... $ 55,367 32% $ 42,034 $ 164,303 32% $124,840
Percentage of revenues.. 5.4% 5.8% 6.0% 6.4%
Acquired in-process
research and
development............ $ -- -- $ -- $ 50,931 * $ --
Percentage of revenues.. -- -- 1.8% --
</TABLE>
- --------
* Not meaningful
(1) Pursuant to Statement of Financial Accounting Standards No. 86, the
Company capitalized software development costs equal to 1.1% and 1.7% of
total revenues during the third quarters of fiscal 1996 and 1995,
respectively, and 1.3% and 1.8% of total revenues in the first nine months
of fiscal 1996 and 1995, respectively.
International expenses were unfavorably affected in the first nine months of
fiscal 1996 when compared to the corresponding periods in the prior year due
to changes in the value of the U. S. dollar against certain major
international currencies.
SALES AND MARKETING EXPENSES. The Company continues to place significant
emphasis, both domestically and 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 third quarter of fiscal 1996 when compared to the
corresponding period of fiscal 1995 primarily due to increased revenue levels.
As a percentage of total revenues, sales and marketing expenses also decreased
in the first nine months of fiscal 1996 when compared to the corresponding
period in fiscal 1995. This decrease was primarily due to revisions made in
the first quarter of fiscal 1996 to certain prior fiscal year compensation-
related accruals based on actual payments made and, to a lesser extent, due to
increased revenue levels. 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 58% and 59% of revenues in the third
quarters of fiscal 1996 and 1995, respectively, and decreased to 57% in the
first nine months of fiscal 1996 from 60% in the corresponding period in
fiscal 1995. The Company's year to date service margins have been positively
affected versus the prior year periods due primarily to higher margins in the
consulting area and a higher percentage of support revenues which have higher
margins than consulting and education revenues.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses for the
third quarters of fiscal 1996 and 1995 would have been 10% and 11%,
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 third quarter of fiscal 1995 and
43% from the first nine months of fiscal 1995 to the corresponding periods of
fiscal 1996 (38% and 51% after the adjustment for software capitalization). A
portion of this increase was due to research and development staff hired in
connection with the acquisition of the Rdb and repository businesses of
Digital Equipment Corporation and the on-line analytical processing business
of Information Resources, Inc. The
8
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Company capitalized approximately $11,127,000 and $12,095,000 during the third
quarters of fiscal 1996 and 1995, respectively, and $36,477,000 and
$34,681,000 in the corresponding nine month periods. Amortization of
capitalized software development costs is charged to sales and marketing
expenses and totaled $11,475,000 and $11,773,000 in the third quarters of
fiscal 1996 and 1995, respectively, and $37,382,000 and $34,471,000 in the
corresponding nine month periods. The Company believes that research and
development expenditures are essential to maintaining its competitive position
and expects these costs to continue to constitute a significant percentage of
revenues.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses as a
percentage of revenues decreased in the third quarter and first nine months of
fiscal 1996 as compared to the corresponding periods in fiscal 1995, primarily
because of higher revenue levels.
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 NINE MONTHS ENDED
------------------------ ------------------------
FEB 29, FEB 28, FEB 29, FEB 28,
1996 CHANGE 1995 1996 CHANGE 1995
-------- ------ -------- -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Other income (expense).... $ 1,709 11% $ 1,533 $ 11,791 57% $ 7,499
Percentage of revenues.... 0.2% 0.2% 0.4% 0.4%
</TABLE>
Changes in non-operating expenses primarily reflect fluctuations in interest
income and expense related to changes in cash and debt balances and interest
rates. They also reflect foreign exchange and other miscellaneous income and
expense items. Additionally, the Company realized a gain of approximately $3.1
million and $1.8 million during the first three months of fiscal 1996 and 1995,
respectively, related to the sale of certain securities.
PROVISION FOR INCOME TAXES:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------ ------------------------
FEB 29, FEB 28, FEB 29, FEB 28,
1996 CHANGE 1995 1996 CHANGE 1995
-------- ------ -------- -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Provision for income
taxes.................... $ 75,361 46% $ 51,607 $173,582 36% $127,982
Percentage of revenues.... 7.4% 7.1% 6.3% 6.6%
</TABLE>
The Company's estimated effective tax rate for the third quarter and first nine
months of fiscal 1996 was 34% as compared to a 33% tax rate in the
corresponding periods of fiscal 1995.
NET INCOME AND EARNINGS PER SHARE:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------ ------------------------
FEB 29, FEB 28, FEB 29, FEB 28,
1996 CHANGE 1995 1996 CHANGE 1995
-------- ------ -------- -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Net income................ $146,290 40% $104,777 $336,954 30% $259,843
Percentage of revenues.... 14.3% 14.5% 12.2% 13.3%
Earnings per share........ $ 0.33 38% $ 0.24 $ 0.75 27% $ 0.59
</TABLE>
9
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LIQUIDITY AND CAPITAL RESOURCES:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-------------------------
FEB 29, FEB 28,
1996 CHANGE 1995
-------- ------ --------
<S> <C> <C> <C>
Working capital................................... $705,910 85% $382,607
Cash and cash investments......................... $719,196 79% $402,547
Cash provided by operating activities............. $524,400 65% $317,496
Cash used for investing activities................ $371,146 (10%) $411,058
Cash used for financing activities................ $ 13,711 (68%) $ 42,824
</TABLE>
Working capital increased in the first nine months of fiscal 1996 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
nine months of fiscal 1996 over fiscal 1995, due primarily to improved
profitability.
Cash used for investing activities decreased in the first nine months of
fiscal 1996 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 Rdb database and repository businesses of Digital
Equipment Corporation for $108 million in cash in the third quarter of fiscal
1995, and the on-line analytical processing business of Information Resources,
Inc. for $100 million in cash in the first quarter of fiscal 1996.
The Company's Board of Directors has approved the repurchase of up to 18
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 repurchased approximately 2,275,000 shares of the Company's Common
Stock for approximately $82,920,000 during the first nine months of fiscal
1996. To date, the Company has repurchased a total of 14,034,384 shares of the
Company's Common Stock for approximately $283,565,000. 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.
In December 1991, the Company entered into an $80 million subordinated note
purchase agreement with Nippon Steel Corporation ("NSC") which was terminated
on March 1, 1996 upon the redemption in full of the subordinated note by the
Company. In connection with this agreement, the Company also entered into a
strategic relationship with NSC to target major customers and industries in
Japan; this relationship continues even though the subordinated note was
redeemed. 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, if 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 and has agreed not to acquire any
shares of the Company, subject to certain exceptions.
At February 29, 1996, the Company also had outstanding debt of approximately
$10,968,000 (in addition to the NSC subordinated debt) 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.
10
<PAGE>
FACTORS THAT MAY AFFECT FUTURE RESULTS:
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.
COMPETITIVE ENVIRONMENT. The computer software industry is an intensely
competitive industry with several large hardware and software vendors that
develop and market database, applications, development tools or decision
support products. Certain of these vendors have significantly more financial
and technical resources than the Company. The entry of any such vendor into
one or more of the Company's various markets through the introduction of new
products, strategic alliances or acquisition could adversely affect the
Company's business. In addition, 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 recently have offered deep discounts in an
effort to recapture or gain marketshare.
UNEVEN PATTERNS OF QUARTERLY OPERATING RESULTS. The Company's revenues in
general, and in particular its license revenues, 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.
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.
The Company believes that fourth quarter revenues are positively affected by a
number of seasonal factors, including the Company's sales compensation plans.
The Company believes that these seasonal factors are common in the computer
software industry. Such factors typically result in first quarter revenues in
any year being lower than revenues in the immediately preceding fourth
quarter. The Company expects this trend to repeat in the first quarter of
fiscal 1997. In addition, the Company's European operations generally provide
lower revenues in the summer months because of the generally reduced economic
activity in Europe during the summer. This seasonal factor could also
adversely affect first quarter revenues.
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.
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 and enhanced products, if customers
were to experience significant problems with the implementation and
installation of new releases or if customers were dissatisfied
11
<PAGE>
with product functionality or performance, it could materially adversely
affect the Company's business and operating results.
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 the Network Computer(TM), are
in business areas that are new to the Company's product development and sales
and product marketing personnel. See "New Business Areas."
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 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 results of operations.
INTERNATIONAL SALES. More than half 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, unexpected changes in regulatory requirements,
compliance with a variety of foreign laws and regulations, and longer accounts
receivables 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. In addition, foreign currency
transaction gains and losses arising from normal business operations are
credited to or charged against earnings in the period incurred.
The Company has reduced its transaction and translation gains and losses 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.
NEW BUSINESS AREAS. The Company has in recent years diversified into a number
of new business areas including internet and interactive media applications.
It has also begun to develop hardware reference specifications and promote the
use of the Network Computer. 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 Network Computers is difficult to
predict because it represents a method of computing that is new to the entire
computer industry and is counter to traditional computing methods. Its
successful introduction to the market will depend in large measure on the
commitment by hardware vendors to manufacture, promote and distribute the
Network Computer. There can be no assurances that sufficient numbers of
hardware vendors will undertake this commitment, that the market will accept
the Network Computer or that it will generate significant revenues to the
Company. See "New Products."
KEY EMPLOYEES. The Company's continued success depends to a significant extent
on senior management and other key employees. None of these individuals is
subject to a long-term employment or a noncompetition agreement. Competition
for qualified people in the software industry is intense. The loss of one or
more key employees or the Company's inability to attract and retain other key
employees could have a material adverse effect on the Company.
ENFORCEMENT OF THE COMPANY'S INTELLECTUAL PROPERTY RIGHTS. The Company relies
on a combination of the protections provided under applicable patent,
copyright, trademark and trade secret laws. It also relies on confidentiality
procedures and licensing arrangements to establish and protect its rights in
its products.
12
<PAGE>
Despite the Company's efforts to protect these 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 proprietary 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. Such
royalty or licensing agreements may not be offered or may not be 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 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.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
13
<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: April 12, 1996 By: /s/ JEFFREY O. HENLEY
--------------------------------
Jeffrey O. Henley,
Executive Vice President and
Chief Financial Officer
Dated: April 12, 1996 By: /s/ THOMAS A. WILLIAMS
--------------------------------
Thomas A. Williams,
Vice President and Corporate
Controller
14
<PAGE>
[LOGO OF ORACLE]
<PAGE>
ORACLE CORPORATION
INDEX OF EXHIBITS
EXHIBIT # EXHIBIT TITLES PAGE
- --------- -------------- ----
27.1 Financial Data Schedule 16
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> FEB-29-1996
<CASH> 612,667
<SECURITIES> 97,078
<RECEIVABLES> 849,201
<ALLOWANCES> 74,678
<INVENTORY> 9,102
<CURRENT-ASSETS> 1,775,908
<PP&E> 1,052,661
<DEPRECIATION> 409,674
<TOTAL-ASSETS> 2,763,032
<CURRENT-LIABILITIES> 1,069,998
<BONDS> 0
0
0
<COMMON> 4,358
<OTHER-SE> 1,586,795
<TOTAL-LIABILITY-AND-EQUITY> 2,763,032
<SALES> 0
<TOTAL-REVENUES> 1,020,239
<CGS> 0
<TOTAL-COSTS> 286,843
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 6,603
<INTEREST-EXPENSE> 2,316
<INCOME-PRETAX> 221,651
<INCOME-TAX> 75,361
<INCOME-CONTINUING> 146,290
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 146,290
<EPS-PRIMARY> 0.33
<EPS-DILUTED> 0.33
</TABLE>
