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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTERLY PERIOD ENDED NOVEMBER 30, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO .
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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 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)
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 November 30,
1996: 657,911,904
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ORACLE CORPORATION
TABLE OF CONTENTS
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PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets at November 30, 1996 and
May 31, 1996.................................................. 3
Condensed Consolidated Statements of Operations for the three
months and six months ended November 30, 1996 and 1995........ 4
Condensed Consolidated Statements of Cash Flows for the six
months ended November 30, 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 4. Submission of Matters to a Vote of Security Holders........... 14
Item 6. Exhibits and Reports on Form 8-K.............................. 15
Signatures.................................................... 16
</TABLE>
2
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PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ORACLE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
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<CAPTION>
NOVEMBER 30, MAY 31,
1996 1996
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<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents............................. $ 559,384 $ 715,742
Short-term cash investments........................... 319,288 125,166
Trade receivables, net of allowance for doubtful
accounts of $95,790 and $105,711, respectively....... 1,083,996 1,084,858
Prepaid and refundable income taxes................... 179,214 171,560
Other current assets.................................. 185,477 187,139
---------- ----------
Total Current Assets............................... 2,327,359 2,284,465
---------- ----------
LONG-TERM CASH INVESTMENTS............................. 12,915 41,963
PROPERTY, net.......................................... 771,373 685,754
COMPUTER SOFTWARE DEVELOPMENT COSTS, net of accumulated
amortization of $34,186 and $78,025, respectively..... 98,825 99,072
OTHER ASSETS........................................... 250,423 245,989
---------- ----------
Total Assets....................................... $3,460,895 $3,357,243
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable to banks................................ $ 11,020 $ 4,377
Current maturities of long-term debt.................. 1,065 1,246
Accounts payable...................................... 163,590 169,895
Income taxes.......................................... 76,911 181,999
Accrued compensation and related benefits............. 230,986 295,048
Customer advances and unearned revenues............... 443,648 434,435
Value added tax and sales tax payable................. 50,866 99,409
Other accrued liabilities............................. 319,685 268,555
---------- ----------
Total Current Liabilities.......................... 1,297,771 1,454,964
---------- ----------
LONG-TERM DEBT......................................... 964 897
OTHER LONG-TERM LIABILITIES............................ 22,811 21,726
DEFERRED INCOME TAXES.................................. 3,413 9,207
STOCKHOLDERS' EQUITY................................... 2,135,936 1,870,449
---------- ----------
Total Liabilities and Stockholders' Equity......... $3,460,895 $3,357,243
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
3
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ORACLE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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THREE MONTHS ENDED SIX MONTHS ENDED
NOVEMBER 30, NOVEMBER 30,
--------------------- ---------------------
1996 1995 1996 1995
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REVENUES
Licenses and other................ $ 624,137 $ 502,948 $1,085,985 $ 868,668
Services.......................... 687,236 464,236 1,277,708 870,319
---------- ---------- ---------- ----------
Total Revenues................. 1,311,373 967,184 2,363,693 1,738,987
---------- ---------- ---------- ----------
OPERATING EXPENSES
Sales and marketing............... 454,688 356,650 814,538 635,673
Cost of services.................. 377,483 255,422 713,590 486,931
Research and development.......... 135,300 93,272 252,509 177,713
General and administrative........ 69,714 57,228 139,993 108,936
Acquired in-process research and
development...................... -- -- -- 50,931
---------- ---------- ---------- ----------
Total Operating Expenses....... 1,037,185 762,572 1,920,630 1,460,184
---------- ---------- ---------- ----------
OPERATING INCOME................... 274,188 204,612 443,063 278,803
Other income (expense), net....... 6,275 2,814 13,605 10,082
---------- ---------- ---------- ----------
INCOME BEFORE PROVISION FOR INCOME
TAXES............................. 280,463 207,426 456,668 288,885
Provision for income taxes........ 100,967 70,525 164,401 98,221
---------- ---------- ---------- ----------
NET INCOME......................... $ 179,496 $ 136,901 $ 292,267 $ 190,664
========== ========== ========== ==========
EARNINGS PER SHARE................. $ 0.27 $ 0.20 $ 0.43 $ 0.28
========== ========== ========== ==========
COMMON AND COMMON EQUIVALENT SHARES
OUTSTANDING....................... 675,949 670,710 674,880 670,244
========== ========== ========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
4
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ORACLE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
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<CAPTION>
SIX MONTHS ENDED
NOVEMBER 30,
--------------------
1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income.............................................. $ 292,267 $ 190,664
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 126,680 104,847
Write-off of acquired in-process research and
development........................................... -- 50,931
Provision for doubtful accounts........................ 28,203 27,991
Increase in trade receivables.......................... (1,892) (36,522)
(Increase) decrease in prepaid and refundable income
taxes................................................. (7,326) 3,263
Increase in other current assets....................... (16,043) (13,127)
Increase (decrease) in accounts payable................ (7,056) 5,879
Decrease in income taxes............................... (97,671) (42,407)
Increase (decrease) in customer advances and unearned
revenues.............................................. 6,985 (11,343)
Decrease in other accrued liabilities.................. (71,868) (30,365)
Increase in other long-term liabilities................ 1,085 1,076
Decrease in deferred income taxes...................... (4,621) (8,090)
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Net cash provided by operating activities............... 248,743 242,797
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CASH FLOWS FROM INVESTING ACTIVITIES
(Increase) decrease in cash investments................ (165,074) 41,298
Capital expenditures, net.............................. (173,853) (140,617)
Capitalization of computer software development costs.. (16,891) (25,350)
Increase in other assets............................... (19,178) (107,137)
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Net cash used for investing activities.................. (374,996) (231,806)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (payments) on debt obligations.......... 6,018 (200)
Proceeds from common stock issued...................... 70,332 42,612
Repurchase of common stock............................. (109,876) (48,580)
Proceeds from sales of call options.................... -- 17,175
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Net cash provided by (used for) financing activities.... (33,526) 11,007
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EFFECT OF EXCHANGE RATE CHANGES ON CASH.................. 3,421 (4,430)
--------- ---------
Net increase (decrease) in cash and cash equivalents.... (156,358) 17,568
CASH AND CASH EQUIVALENTS
Beginning of period..................................... 715,742 480,158
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End of period........................................... $ 559,384 $ 497,726
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
5
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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 six month period ended November 30, 1996. The results for the six
month period ended November 30, 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. ACQUISITIONS
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
$3,000,000 and $2,000,000 were charged to general and administrative expenses
in the accompanying condensed consolidated statements of operations in the
first half of fiscal 1997 and 1996, respectively.
As of November 30, 1996, the Company had a minority investment in Datalogix
International, Inc. of approximately 13.4%. Effective January 1, 1997, the
Company completed a cash merger transaction, by which it acquired the
remaining outstanding shares of Datalogix International, Inc. for
approximately $84,000,000 in cash. Based on a preliminary appraisal, the
Company expects to incur a one-time charge of approximately $40,000,000 in the
third quarter of fiscal 1997 for the write-off of acquired in-process research
and development.
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
6
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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. 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 filed by the Company in fiscal 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
Total revenues increased 36% in both the second quarter and first half of
fiscal 1997 as compared to the corresponding period in fiscal 1996. Domestic
revenues increased 54% and 49% in the second quarter and first half of fiscal
1997, respectively, while international revenues increased 23% and 27% in the
second quarter and first half of fiscal 1997, respectively, as compared to the
corresponding periods in fiscal 1996. International revenues were unfavorably
affected in the second quarter and first half of fiscal 1997 when compared to
the corresponding periods 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 second quarter and first
half of fiscal 1997 by approximately 27% and 31%, respectively, from the
corresponding periods of fiscal 1996. International revenues constituted
approximately 54% and 60% of total revenues in the second quarters of fiscal
1997 and 1996, respectively and 55% and 59% of total revenues in the first half
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 be adversely affected if
the U.S. dollar strengthens against certain major international currencies.
REVENUES:
<TABLE>
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THREE MONTHS ENDED SIX MONTHS ENDED
---------------------------- ----------------------------
NOV 30, NOV 30, NOV 30, NOV 30,
1996 CHANGE 1995 1996 CHANGE 1995
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Licenses and other...... $ 624,137 24% $ 502,948 $1,085,985 25% $ 868,668
Percentage of revenues.. 47.6% 52.0% 45.9% 50.0%
Services................ $ 687,236 48% $ 464,236 $1,277,708 47% $ 870,319
Percentage of revenues.. 52.4% 48.0% 54.1% 50.0%
Total revenues........ $1,311,373 36% $ 967,184 $2,363,693 36% $1,738,987
</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. License revenue growth
rates were 24% and 39% in the second quarters of fiscal 1997 and 1996,
respectively, and 25% and 32% in the first half of fiscal 1997 and 1996,
respectively. The Company's license revenues continue to benefit from an
overall increase in market demand for database and related products and
increased market acceptance of the Company's relational DBMS and applications
products. The Company believes that the lower license revenue growth rate
experienced in the second quarter and first half of fiscal 1997 was due
primarily to continued weakness in the performance of certain of its
international subsidiaries, most notably in Europe.
SERVICE REVENUES. Support, consulting and education services revenues in the
second quarter and first half of fiscal 1997 each increased from the
corresponding periods of fiscal 1996. The Company's support revenues continued
to constitute the largest portion of service revenues in the second quarter and
first half of fiscal 1997. Support revenues grew 50% and 48% in the second
quarter and first half of fiscal 1997 when compared to the corresponding
periods in fiscal 1996. This growth reflects the continued increase in the
installed base of the Company's products under support contracts as well as an
increase in the number of customers electing higher support service offerings.
Consulting and education services grew 46% in both the second quarter and first
half of fiscal 1997 when compared to the corresponding periods 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.
7
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OPERATING EXPENSES:
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THREE MONTHS ENDED SIX MONTHS ENDED
------------------------ ------------------------
NOV 30, NOV 30, NOV 30, NOV 30,
1996 CHANGE 1995 1996 CHANGE 1995
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Sales and marketing....... $454,688 27% $356,650 $814,538 28% $635,673
Percentage of revenues.... 34.7% 36.9% 34.5% 36.6%
Cost of services.......... $377,483 48% $255,422 $713,590 47% $486,931
Percentage of revenues.... 28.8% 26.4% 30.2% 28.0%
Research and development
(1)...................... $135,300 45% $ 93,272 $252,509 42% $177,713
Percentage of revenues.... 10.3% 9.6% 10.7% 10.2%
General and
administrative........... $ 69,714 22% $ 57,228 $139,993 29% $108,936
Percentage of revenues.... 5.3% 5.9% 5.9% 6.3%
Acquired in-process
research and development. $ -- -- $ -- $ -- * $ 50,931
Percentage of revenues.... -- -- -- 2.9%
</TABLE>
- --------
* Not meaningful
(1) Pursuant to Statement of Financial Accounting Standards No. 86, the
Company capitalized software development costs equal to 0.6% and 1.3% of
total revenues during the second quarters of fiscal 1997 and 1996,
respectively, and 0.7% and 1.5% of total revenues in the first half of
fiscal 1997 and 1996, respectively.
International expenses were favorably affected in the second quarter and first
half of fiscal 1997 when compared to the corresponding periods in the prior
year due to the strengthening of the U.S. dollar against certain major
international currencies.
SALES AND MARKETING EXPENSES. The Company continues to place significant
emphasis, both domestically and internationally, on direct sales through its
own sales force. However, the Company also continues to market its products
through indirect channels in order to increase market share while reducing
distribution costs. As a percentage of total revenues, sales and marketing
expenses decreased in the second quarter and first half of fiscal 1997 when
compared to the corresponding periods of fiscal 1996 due primarily to
increased revenue levels. To a lesser extent, the decrease in the first half
of fiscal 1997 was also due to revisions made in the first quarter of fiscal
1997 to certain prior fiscal year compensation-related accruals that resulted
from changes in the amounts of estimated liabilities 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 55% of revenues in the second quarters
of both fiscal 1997 and 1996, and 56% in the first half of both fiscal 1997
and 1996.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses for the
second quarters of both fiscal 1997 and 1996 would have been 11% of total
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 35% from the second quarter of fiscal 1996 and 33% from the
first half of fiscal 1996 to the corresponding periods of fiscal 1997 (45% and
42% 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 on-line analytical processing business of Information
Resources, Inc. The Company capitalized approximately $7,383,000 and
$12,764,000 during the second quarters of fiscal 1997 and 1996, respectively,
and $16,891,000 and $25,350,000 in the corresponding six month periods.
Amortization of capitalized software development costs is charged to sales and
marketing expenses and totaled $7,521,000 and $12,975,000 in the second
quarters of fiscal 1997 and 1996, respectively, and $17,139,000 and
$25,907,000 in the corresponding six 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.
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GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses as a
percentage of revenues decreased in the second quarter and first half of
fiscal 1997 as compared to the corresponding periods in fiscal 1996, 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):
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THREE MONTHS ENDED SIX MONTHS ENDED
------------------------ ---------------------------
NOV 30, NOV 30, NOV 30, NOV 30,
1996 CHANGE 1995 1996 CHANGE 1995
-------- ------ -------- ---------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Other income (expense).. $ 6,275 123% $ 2,814 $ 13,605 35% $ 10,082
Percentage of revenues.. 0.5% 0.3% 0.6% 0.6%
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 during the first three months of fiscal 1996 related to the sale of
certain investment securities.
PROVISION FOR INCOME TAXES:
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THREE MONTHS ENDED SIX MONTHS ENDED
------------------------ ---------------------------
NOV 30, NOV 30, NOV 30, NOV 30,
1996 CHANGE 1995 1996 CHANGE 1995
-------- ------ -------- ---------- ------ --------
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Provision for income
taxes.................. $100,967 43% $ 70,525 $ 164,401 67% $ 98,221
Percentage of revenues.. 7.7% 7.3% 7.0% 5.6%
The Company's estimated effective tax rate for the first half 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:
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THREE MONTHS ENDED SIX MONTHS ENDED
------------------------ ---------------------------
NOV 30, NOV 30, NOV 30, NOV 30,
1996 CHANGE 1995 1996 CHANGE 1995
-------- ------ -------- ---------- ------ --------
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Net income.............. $179,496 31% $136,901 $ 292,267 53% $190,664
Percentage of revenues.. 13.7% 14.2% 12.4% 11.0%
Earnings per share...... $ 0.27 35% $ 0.20 $ 0.43 54% $ 0.28
LIQUIDITY AND CAPITAL RESOURCES:
<CAPTION>
SIX MONTHS ENDED
---------------------------
NOV 30, NOV 30,
1996 CHANGE 1995
---------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Working capital.................................. $1,029,588 62% $634,990
Cash and cash investments........................ $ 891,587 59% $562,088
Cash provided by operating activities............ $ 248,743 2% $242,797
Cash used for investing activities............... $ 374,996 62% $231,806
Cash provided by (used for) financing activities. $ (33,526) 405% $ 11,007
</TABLE>
9
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Working capital increased in the first half 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
half of fiscal 1997 over fiscal 1996, due primarily to improved profitability,
which was partially offset by larger cash payments for income taxes and
payments of other accrued liabilities.
Cash used for investing activities increased in the first half 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 2,552,500 shares of the Company's Common Stock for
approximately $109,876,000 during the first half of fiscal 1997. To date, the
Company has repurchased a total of 24,669,509 shares of the Company's Common
Stock for approximately $423,607,000. 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 November 30, 1996, the Company also had outstanding debt of approximately
$13,049,000, 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. Shifts toward the use of
operating systems on which the Company experiences relatively greater price
competition could result in lower average license prices and thereby reduced
license revenues for the Company. Any such price reductions and resulting
lower license revenues 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
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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 major currencies. Such contracts meet the criteria established in
FASB 52 for hedge accounting treatment. The Company finds it impractical to
hedge all foreign currencies in which it conducts business. As a result, the
Company will continue to experience foreign currency gains and losses.
RISKS ASSOCIATED WITH FUTURE ACQUISITIONS. As part of its business strategy,
the Company has acquired, effective January 1, 1997, Datalogix International,
Inc. ("Datalogix") and expects to make acquisitions of, or significant
investments in, businesses that offer complementary products, services and
technologies. The current Datalogix acquisition and any future acquisitions or
investments will be accompanied by the risks commonly encountered
12
<PAGE>
in acquisitions of businesses. Such risks include, among other things, the
difficulty of assimilating the operations and personnel of the acquired
businesses, the potential disruption of the Company's ongoing business, the
inability of management to maximize the financial and strategic position of the
Company, the maintenance of uniform standards, controls, procedures and
policies and the impairment of relationships with employees and clients as a
result of any integration of new management personnel. These factors could have
a material adverse effect on the Company's business, results of operations or
financial condition. The Company has paid cash to acquire Datalogix and 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 October 28, 1996, the court granted the defendants' motion to
dismiss the Second Amended Complaint, with leave to amend. Plaintiffs filed a
Third Amended Complaint on November 18, 1996, and defendants filed motions
seeking dismissal of the Third Amended Complaint. Defendants' motions were
heard by the Court on December 20, 1996. The Court has not yet issued its
ruling.
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On October 14, 1996, the Company held its Annual Meeting of Stockholders. At
the meeting, the stockholders elected as directors Lawrence J. Ellison (with
591,607,635 affirmative votes, and 4,059,314 votes withheld), Raymond J. Lane
(with 591,610,947 affirmative votes, and 4,056,002 votes withheld), Jeffrey O.
Henley (with 591,523,006 affirmative votes, and 4,143,943 votes withheld),
Donald L. Lucas (with 591,457,629 affirmative votes, and 4,209,320 votes
withheld), Michael J. Boskin (with 592,934,424 affirmative votes, and
2,732,525 votes withheld), and Delbert W. Yocam (with 593,194,864 affirmative
votes, and 2,472,085 votes withheld).
In addition, the stockholders approved the adoption of the Company's Executive
Officers 1997 Bonus Plan (with 551,985,507 affirmative votes, 17,623,911
negative votes, 2,042,009 votes withheld and 24,015,522 broker non-votes).
The stockholders also approved an amendment to the Company's Certificate of
Incorporation increasing the number of authorized shares of the Company's
Common Stock from 1,000,000,000 to 2,000,000,000 shares (with 545,368,010
affirmative votes, 43,147,179 negative votes, 1,639,743 votes withheld and
5,512,017 broker non-votes).
The stockholders also approved an amendment to the Company's 1993 Directors'
Stock Option Plan, increasing certain option grants to non-employee directors
and eliminating certain provisions that are no longer necessary under Section
16 of the Securities Exchange Act of 1934 (with 505,884,752 affirmative votes,
63,470,396 negative votes, 2,296,279 votes withheld and 24,015,522 broker non-
votes).
The stockholders also approved an amendment to the Company's 1991 Long-Term
Equity Incentive Plan increasing the number of shares of the Company's Common
Stock reserved for issuance thereunder by 34,000,000 shares (with 316,425,310
affirmative votes, 194,073,237 negative votes, 1,836,511 votes withheld and
83,331,891 broker non-votes).
The stockholders also approved an amendment to the Company's Employee Stock
Purchase Plan (1992) increasing the number of shares of the Company's Common
Stock reserved for issuance thereunder by 7,000,000 shares (with 504,000,693
affirmative votes, 6,591,913 negative votes, 1,745,280 votes withheld and
83,329,063 broker non-votes).
14
<PAGE>
The stockholders also ratified the appointment of Arthur Andersen LLP as the
Company's independent public accountants for fiscal year 1997 (with 593,917,082
affirmative votes, 667,461 negative votes and 1,082,406 votes withheld).
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<C> <S>
3.1 Certificate of Amendment of Certificate of Incorporation of the Company
filed with the Delaware Secretary of State on October 29, 1996.
27.1 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
None
15
<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: January 10, 1997 By: /s/ JEFFREY O. HENLEY
---------------------------------------
Jeffrey O. Henley
Executive Vice President and Chief
Financial Officer
Dated: January 10, 1997 By: /s/ THOMAS A. WILLIAMS
---------------------------------------
Thomas A. Williams
Vice President and Corporate Controller
16
<PAGE>
ORACLE CORPORATION
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT # EXHIBIT TITLES
--------- --------------
<C> <S>
3.1 Certificate of Amendment of Certificate of Incorporation of the
Company filed with the Delaware Secretary of State on October 29,
1996
27.1 Financial Data Schedule
</TABLE>
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
Oracle Corporation, a corporation organized and existing under the laws of
the State of Delaware, hereby certifies as follows:
1. The name of the corporation is Oracle Corporation, and the date of
filing of its original Certificate of Incorporation with the Secretary of State
was October 29, 1986.
2. Article 4 of the Certificate of Incorporation is amended to read, in
full, as follows:
"The total number of shares of stock of all classes which the corporation
has the authority to issue is 2,001,000,000, consisting of 2,000,000,000
shares of Common Stock with a par value of $0.01 per share, and 1,000,000
shares of Preferred Stock with a par value of $0.01 per share."
3. This Certificate of Amendment of Certificate of Incorporation has been
duly adopted in accordance with the provisions of Section 242 of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, Oracle Corporation has caused this Certificate to be
signed and attested by its duly authorized officers as of this 29th day of
October, 1996.
ORACLE CORPORATION,
a Delaware corporation
By: /s/ RAYMOND L. OCAMPO JR.
-------------------------
Raymond L. Ocampo Jr.
Senior Vice President, General
Counsel & Corporate Secretary
ATTEST:
By: /s/ THOMAS THEODORES
--------------------
Assistant Secretary
Thomas Theodores
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> NOV-30-1996
<CASH> 559,384
<SECURITIES> 319,288
<RECEIVABLES> 1,179,786
<ALLOWANCES> 95,790
<INVENTORY> 10,024
<CURRENT-ASSETS> 2,327,359
<PP&E> 1,310,643
<DEPRECIATION> 539,270
<TOTAL-ASSETS> 3,460,895
<CURRENT-LIABILITIES> 1,297,771
<BONDS> 0
<COMMON> 6,735
0
0
<OTHER-SE> 2,129,201
<TOTAL-LIABILITY-AND-EQUITY> 3,460,895
<SALES> 0
<TOTAL-REVENUES> 1,311,373
<CGS> 0
<TOTAL-COSTS> 377,483
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 5,820
<INTEREST-EXPENSE> 1,140
<INCOME-PRETAX> 280,463
<INCOME-TAX> 100,967
<INCOME-CONTINUING> 179,496
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 179,496
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.27
</TABLE>
