ORACLE CORP /DE/, 10-K405, 1998-07-22

ORACLE CORP /DE/
10-K405, 1998-07-22
PREPACKAGED SOFTWARE

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 20549

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FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED MAY 31, 1998

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934

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)

(650) 506-7000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE $0.01 PER SHARE
PREFERRED STOCK PURCHASE RIGHTS
(TITLE OF CLASS)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES [X] NO [_]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]

The aggregate market value of the voting stock held by non-affiliates of the
registrant as of June 30, 1998 was $18,491,740,698. This calculation does not
reflect a determination that persons are affiliates for any other purposes.

Number of shares of common stock outstanding as of June 30, 1998: 973,439,770.

DOCUMENTS INCORPORATED BY REFERENCE:

Part III--Portions of the registrant's definitive proxy statement to be issued
in conjunction with registrant's annual stockholders' meeting to be held on
October 19, 1998.

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ORACLE CORPORATION

FISCAL YEAR 1998 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS

<TABLE>
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PAGE
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<C> <S> <C>
PART I.
Item 1. Business...................................................... 3
Item 2. Properties.................................................... 11
Item 3. Legal Proceedings............................................. 11
Item 4. Submission of Matters to a Vote of Security Holders........... 11
Item 4A. Executive Officers of the Registrant.......................... 12
PART II.
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters....................................................... 13
Item 6. Selected Financial Data....................................... 14
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 14
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.... 24
Item 8. Financial Statements and Supplementary Data................... 24
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure...................................... 24
PART III.
Item 10. Directors and Executive Officers of the Registrant............ 25
Item 11. Executive Compensation........................................ 25
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................... 25
Item 13. Certain Relationships and Related Transactions................ 25
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-
K............................................................. 25
Signatures.................................................... 53
</TABLE>
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FORWARD-LOOKING STATEMENTS

In addition to historical information, this Annual Report contains forward-
looking statements. These forward-looking statements are subject to certain
risks and uncertainties that could cause actual results to differ materially
from those reflected in these forward-looking statements. Factors that might
cause such a difference include, but are not limited to, those discussed in
the section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Factors That May Affect Future Results
and Market Price of Stock." Readers are cautioned not to place undue reliance
on these forward-looking statements, which reflect management's opinions only
as of the date hereof. The Company undertakes no obligation to revise or
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 Quarterly Reports on Form 10-Q to be filed
by the Company in fiscal year 1999.

PART I

ITEM 1. BUSINESS

Oracle Corporation ("Oracle" or the "Company") is the world's leading supplier
of software products for information management and the world's second largest
software company. The Company's software products can be categorized into
three primary product families: Server Technologies, Application Development
and Business Intelligence Tools and Business Applications. The Company's
Server Technologies family of products consists of distributed database
servers, connectivity products and gateways. The Oracle8 relational database
management system ("DBMS") is the key component of Oracle's Server
Technologies database offering for storing, manipulating and retrieving
relational, object-relational, multi-dimensional text, spatial, video and
other types of data. The Company's Application Development Tools consist of a
set of software products capable of building database applications for
deployment in both client-server and web environments. Oracle also provides a
complete set of Business Intelligence tools allowing users to report, query
and analyze data held in an operational system or data warehouse. Oracle's
Business Applications products consist of over 45 integrated software modules
for financial management, supply chain management, manufacturing, project
systems, human resources and front office applications. The Company's
principal products run on a broad range of computers, including mainframe,
massively parallel, clustered, symmetrical multi-processing, minicomputers,
workstations, personal computers and laptop computers and over 85 different
operating systems, including UNIX, Windows and Windows NT. In addition to
software products, the Company offers consulting, education, support and
systems integration services in support of its customers' use of its software
products.

The Company was incorporated on October 29, 1986 in connection with a
reincorporation of the Company's predecessor in Delaware, which was completed
on March 12, 1987. The Company's former primary operating subsidiary, Oracle
Corporation, a California corporation, was incorporated in June 1977. In May
1995, Oracle Corporation was merged into Oracle Systems Corporation, a
Delaware corporation, whose name was changed to Oracle Corporation. Unless the
context otherwise requires, the "Company" or "Oracle" refers to Oracle
Corporation, its predecessor and its subsidiaries. The Company maintains its
executive offices and principal facilities at 500 Oracle Parkway, Redwood
City, California 94065. Its telephone number is (650) 506-7000.

BACKGROUND

Information management software can be classified into two broad categories:
systems software and business applications software. Systems software includes
database management systems and development tools, which enable users to
create, retrieve and modify the various types of data stored in a computer
system. Business applications software automates the performance of specific
business data processing functions such as payroll processing, general ledger
accounting and inventory control.

Database management systems software permits multiple users and applications
to access data concurrently while protecting the data against user and program
errors and against computer and network failures. Database management systems
are used to support the data access and data management requirements of
transaction processing and decision-support systems.

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In 1979, the Company introduced the first commercially available relational
database for the storing, manipulating and sharing of information. Relational
databases are often chosen to support three types of systems. The first is on-
line transaction processing systems ("OLTP") that process business information
at high speeds from large numbers of users. The second is data warehouses that
are designed to store large amounts of historical or reference data (e.g.,
consumer product goods data) which typically is used to support the decision-
making and information needs of an enterprise. Third, databases are often used
as application servers as a means of optimizing the efficiency of a system by
separating the applications processing function from the data processing
function.

Business applications software allows medium to large sized companies to
better manage, track and run their businesses. Typical processes include the
automation of different types of business activities, such as accounting
tasks, sales forecasting and analysis, and manufacturing. Pre-packaged
applications, such as Oracle's family of Business Applications, are designed
to allow companies to implement business systems much more rapidly than the
time it would typically take to build an application internally.

The software industry typically classifies applications into a few broad
categories. Financial, Manufacturing and Human Resources applications enable a
company to manage business information. Front Office Applications and Supply
Chain Management applications direct and support operations. Data Warehousing
applications enable users to analyze information that can be used for better
decision making. With the introduction of the internet and Java-based
programs, application modules can be web-enabled and allow users to access
information or use the applications through a simple web browser.

PRODUCT DEVELOPMENT ARCHITECTURE

Oracle's primary product development architecture is based on an internet
computing architecture. It is an open, network-based architecture providing
extensibility for distributed computing environments. There are three key
components of the Oracle product architecture: 1) "plug-in" components called
cartridges that are manageable and provide extensible functionality, 2) open
protocols and standardized interfaces that enable communication among
cartridges, and 3) open and de-facto standards, including Common Object
Request Broker Architecture ("CORBA"), Java and HTML. Oracle's architecture
was designed to combine the robustness of the client-server architecture, the
ease of use and deployment of Web technology, and the extensibility of object
technology. Internet computing is best characterized as a "multi-tiered
architecture" comprised of data servers, application servers and any client.
Typically, data servers and application servers that store and process the
information are managed by professional information technology managers. The
client is an easy to use and manage device through which end-users access the
business application. Internet computing allows administrators the ability to
manage applications from a central server. This is in contrast to a client-
server architecture in which each client runs and manages its own application.
The Company believes that the design of its software for internet computing
helps organizations decrease installation, maintenance and training costs
associated with information technology.

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PRODUCTS

The Company's product strategy is to deliver to its customers scalable
solutions for a range of computing needs: from personal and workgroup to
department and enterprise computing. The Company's products span all of these
markets and can be categorized into three primary product families: Server
Technologies, Application Development and Business Intelligence Tools and
Business Applications, as follows:

<TABLE>
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SERVER TOOLS APPLICATIONS
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<S> <C> <C>
ORACLE8 DESIGNER FINANCIALS
ORACLE8 ENTERPRISE EDITION DEVELOPER SUPPLY CHAIN MANAGEMENT
WEB APPLICATION SERVER JDEVELOPER MANUFACTURING
EXPRESS SERVER REPORTS PROJECTS
GATEWAY DISCOVERER HUMAN RESOURCES
EXPRESS FRONT OFFICE APPLICATIONS
WEB SELF SERVICE APPLICATIONS
DATA WAREHOUSING
</TABLE>

The Company continually enhances its existing products and develops new
products to meet its customers' ever-changing requirements as well as to
expand its product base. Research and development expenditures were 11% of
total revenues in fiscal 1998 and 10% of total revenues in each of fiscal 1997
and 1996 (in each case prior to the effect of amounts capitalized in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 86).

SERVER TECHNOLOGIES

Products

The Company's Server Technologies product family consists of an integrated set
of database server and networking products. The principal product is the
Oracle relational DBMS. The Oracle relational DBMS provides users the ability
to define, retrieve, manipulate and manage data stored on multiple computers,
using the industry-standard Structured Query Language ("SQL"). Oracle8
includes additional capabilities that allow users to manage unstructured
information such as text, spatial, video, messaging, multi-dimensional data as
well as object-relational information. Oracle8 is based on an advanced
scalable architecture and operates on a wide range of hardware and operating
systems. Key new features include object-relational technology, data
partitioning, server-managed back-up and recovery, advanced queuing,
heterogeneous services, index-only tables and binary large objects.

Beginning with the delivery of Oracle8 in June 1997, Oracle has offered
object-oriented technology in its server technology. Object-oriented
technology allows companies to more closely model their systems to an
enterprise's business. In an object-oriented development environment,
developers can define objects (data structures) and methods (operations) that
correspond directly to a business application. To support these features,
Oracle8 includes many new object-relational features such as custom object
types, methods and object views.

With the introduction of internet computing, the Company introduced Oracle Web
Application Server. Oracle Web Application Server is an open-software platform
for developing, deploying and managing distributed software application
programs. Based on CORBA, the Oracle Web Application Server allows distributed
transaction processing with large numbers of users and data while improving
performance and lowering incremental deployment and maintainence costs. The
current version 3.0 can support Web Servers for Netscape and Microsoft.

Oracle Express Server, acquired in 1995 as part of Information Resources,
Inc.'s Express family of products, is an advanced calculation engine and data
cache for data warehousing and On-line Analytical Processing

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("OLAP") and a key component of Oracle's server technologies family. Oracle
Express Server integrates cross- departmental data, enabling managers to view
their business from a common information base using a multi-dimensional model.
It provides users with the ability to integrate data from disparate systems,
including relational, legacy or external systems. This integration enables new
applications, such as fact-based selling, activity-based costing and product
profitability analysis to transcend the boundaries of a single department.

Another component of the Server Technologies product family is the Oracle Open
Gateway products (Oracle Transparent Gateway(R) and Oracle Procedural
Gateway(R)). These products allow non-Oracle DBMSs to be integrated into a
distributed database environment. Users can employ the SQL language to access
data stored in other relational DBMSs, such as IBM's DB2 and older
hierarchical DBMSs or file systems.

Key Features

The Oracle8 relational DBMS supports a client server architecture between
application programs and database servers, as well as a network computing
architecture among client devices, application servers and database servers.
Additionally, Oracle8 permits transparent data sharing across a communications
network so that application programs and users can access data without knowing
or specifying the location of the data within the network. The Oracle8 object-
relational DBMS provides features to support the operational requirements of
OLTP decision support and data warehouse environments for high systems
availability and performance. The Oracle relational DBMS provides optional
parallel server technology that further extends scalability and availability
by allowing multiple, loosely coupled or clustered machines to access
cooperatively a logical database spread across multiple disks. Furthermore,
the Oracle8 DBMS provides optional parallel query capabilities that enable
quick searching of large amounts of data for large-scale decision support and
data warehouse applications. The Oracle8 relational DBMS also contains
replication features that automatically copy data among multiple locations,
providing systems architects and application developers with additional
flexibility for managing data distribution and access throughout an
enterprise.

The Company's database technology has supported the management of multimedia
data, such as text, audio and video, since the introduction of Oracle 7.3.
With the release of Oracle8, object-relational capabilities of the Company's
database technology have been extended to support high-speed transactions,
powerful decision-support and leading edge network computing applications.

Among the key features of the Oracle Express Server are functions that
analyze, forecast, model and ask what-if questions of the data. The server has
built-in functions for mathematical, financial, statistical, logical and
string manipulation. Express Server can store and manage multidimensional
arrays of data or provide direct analysis of relational data with a
sophisticated multidimensional caching scheme. Other key features include the
ability to structure data in ways users understand, portability to leading
server platforms and operating systems such as Microsoft, IBM, Digital and
Hewlett-Packard, scalability from personal computer to mainframe, simultaneous
accessibility to several multidimensional databases, accessibility through
published Application Programming Interfaces ("APIs") which include Dynamic
Link Library ("DLL"), Visual Basic custom control and Dynamic Data Exchange
("DDE"), and the ability to combine relational and multidimensional data
through APIs which include a SQL interface to any database that complies with
the Open Database Connectivity ("ODBC") standard, native SQL support for
Oracle, Sybase, Ingres, Teradata, DB2 and SQLServer (both Sybase and
Microsoft).

Applications developed with the Oracle relational DBMS are scalable from the
desktop to massively parallel computers and are portable to a wide variety of
hardware and operating system environments with little or no change to the
underlying structure.

APPLICATION DEVELOPMENT AND BUSINESS INTELLIGENCE TOOLS

Products

The Company provides application development tools supporting different
approaches to development. For a model-based approach to development, Oracle
offers two products: Oracle Designer and Oracle Developer.

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Oracle Designer allows business processes to be visually modeled and
enterprise database applications to be generated. Oracle Developer is a 4GL
development tool for building database applications that can be deployed,
unchanged, in both client/server and Web environments. For Java programmers,
Oracle offers Oracle JDeveloper which provides a complete environment for
writing, debugging and deploying Java across the enterprise.

The Company also offers a suite of Business Intelligence tools, Oracle
Reports, Oracle Discoverer and Oracle Express, which provide reporting, ad-hoc
query and analysis capabilities to a wide range of users accessing data
warehouses and data marts.

Key Features

Model-based development in Oracle Designer allows developers to visually model
their business processes. This facilitates communication between business
users, who understand the problem, and developers, who are implementing a
solution to the problem. With Oracle Designer, business users and programmers
can agree on requirements before implementation begins. A database application
consists of two pieces-the application, which the user interacts with, and the
physical storage in the database. Oracle Designer allows developers to model
both of these visually. Also, Oracle Designer can automatically convert
existing applications back into models.

Oracle JDeveloper allows developers to create Java user interfaces using
JavaBeans and allows the creation of Enterprise JavaBeans for deployment on
the Oracle Application Server and (in the future) Oracle Database Server.

Oracle Discoverer features integration with Oracle Reports and Oracle Express,
and uniquely offers end user query prediction, connectivity to any data source
through ODBC, connectivity to any meta-data source through an End User Layer
(EUL) Gateway and support for MAPI.

BUSINESS APPLICATIONS

Products

Oracle's Business Applications consist of over 45 integrated software modules
for financial management, supply chain management, manufacturing, project
systems, human resources and front office applications. These applications
combine business functionality with innovative technologies, such as workflow
and data warehousing, to build enterprise-wide solutions. Oracle currently
provides or is in the process of developing industry solutions for the
Consumer Packaged Goods, Energy, Telecommunications, Government/Higher
Education, Industrial, Financial Services and other industries.

In fiscal 1997, Oracle acquired Datalogix International, Inc. ("Datalogix"), a
provider of client server solutions for process manufacturing applications
primarily to enhance the Company's technology offering in the Consumer
Packaged Goods industry.

In fiscal 1998, Oracle acquired Treasury Services Corporation ("TSC"),
primarily to enhance the Company's technology offering in the Financial
Services industry.

Oracle also provides a family of applications that have been specifically
designed for occasional users-Oracle Self-Service Applications. These
applications enable customers to lower the cost of their business operations
by providing their customers, suppliers and employees self-service access to
both transaction processing and selected business information using open,
internet standards.

In fiscal 1998, the Company also began delivering Web-deployed applications
that have a "thin-client" technology based on the Oracle Network Computing
Architecture and have the potential to reduce the costs of deployment and
maintenance associated with traditional client server applications.

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To work in conjunction with Oracle data warehousing server products, the
Oracle Data Warehousing Applications provide businesses different enterprise-
wide views of information required for informed decision making. Primary
products include Oracle Financial Analyzer and Oracle Sales Analyzer.

Key Features

Oracle provides an integrated set of applications, tools and database
technologies. This enables the Company to build application enhancements
within each technology layer for improved scalability and performance.
Oracle's flexible and open applications architecture enables customers to
tailor the applications with minimal programming and integrate Oracle
Applications with third party and legacy systems. Releases 10.7 and 11.0 of
Oracle Applications are fully compliant with year 2000 requirements.

With Web-deployed Oracle Applications, customers can reduce administrative and
installation costs associated with traditional two-tier architectures by
running Oracle Applications on any Java-enabled Web browser.

In conjunction with Oracle Applications Release 11.0, Oracle's Business
Intelligence System offers integrated reporting, decision support, and
corrective action system targeted to managers, business analysts and
executives. Using ad hoc reporting and focused analytical applications,
managers and analysts can discover business trends and enhance business
decision making to capitalize on the desired outcome.

CONSULTING, EDUCATION AND SUPPORT SERVICES

In most of its sales offices around the world, the Company has trained
consulting and education personnel who offer consulting and education services
that help customers realize the potential of the Company's products in meeting
their information management needs. Consultants and instructors supplement the
Company's product offerings by providing services to assist customers in the
implementation of applications based on the Company's products and to ensure
that customers have the necessary training to use the Company's products.
Consulting and education revenues represented approximately 30%, 26% and 24%
of total revenues in fiscal 1998, 1997 and 1996, respectively.

The Company offers a wide range of support services that include on-site,
telephone or internet access to support personnel as well as software updates.
Telephone support is provided by local offices as well as Oracle's five global
support centers around the world. The prices of the Company's support services
are generally based on the level of support services provided and the number
of users authorized to access the Company's software products. Support
revenues represented approximately 25%, 23% and 21% of total revenues in
fiscal 1998, 1997 and 1996, respectively.

The Company believes that its broad-based service offerings and its current
and planned product offerings facilitate the transfer of technology to
customers and stimulate demand for the Company's products.

MARKETING AND SALES

Direct and Indirect Sales Organization

In the United States, the Company markets its products and services primarily
through its own direct sales and service organization. Sales and service
groups are based in the Company's headquarters in Redwood City, California,
and in field offices that, as of May 31, 1998, were located in approximately
80 metropolitan areas within the United States.

Outside the United States, the Company markets its products primarily through
the sales and service organizations of approximately 60 subsidiaries. These
subsidiaries license and support the Company's products both within their
local countries and certain other foreign countries where the Company does not
operate through a direct sales subsidiary. See Note 8 of Notes to Consolidated
Financial Statements for a summary of operations by geographic region.

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The Company also markets its products through value-added relicensors,
hardware providers, systems integrators and independent software vendors that
combine the Oracle relational DBMS, application development tools and business
applications with computer hardware or software application packages for
redistribution.

Additionally, the Company markets its products through independent
distributors in international territories not covered by its subsidiaries'
direct sales organizations.

As of May 31, 1998, in the United States, the Company employed 12,819 sales,
service and marketing employees, while the international sales, service and
marketing groups consisted of 15,591 employees.

Additional Customer Information

Revenues from international customers (including end users and resellers)
amounted to approximately 50%, 53% and 57% of the Company's total revenues in
fiscal 1998, 1997 and 1996, respectively. See Note 8 of Notes to Consolidated
Financial Statements for a summary of operations by geographic region.

COMPETITION

The computer software industry is intensely competitive and rapidly evolving.
The Company competes in various markets. Prospective customers often perform a
detailed technical evaluation of competitive products as a part of the DBMS,
software development tools and applications software selection process.
Technical support is therefore a critical element in the Company's sales and
delivery process. Consequently, sales representatives typically are teamed
with technical sales consultants who can answer technical questions, help
customers run benchmarks against competitive products and develop prototype
databases and Oracle-based applications.

The principal independent software competitors in the DBMS marketplace include
Computer Associates International, Inc., Informix Corporation, Microsoft
Corporation, Progress Software Corporation, Software AG and Sybase Inc. In the
workgroup and personal DBMS marketplace, the Company competes with several
desktop software vendors, including Microsoft Corporation. In addition,
hardware systems vendors sell or license database software with which the
Company competes, including International Business Machines Corporation. In
the application development and business intelligence tools market, the
Company competes primarily with Visual Basic, a product owned by Microsoft
Corporation, PowerBuilder, a product owned by Sybase, Inc., and Forte
Software, Inc. The Company also competes in the business applications software
market. Competitors include The Baan Company, J.D. Edwards, Peoplesoft, Inc.
and SAP Aktiengeschellschaft in the financial, manufacturing and human
resources applications markets. In the data warehousing market, the Company's
OLAP products compete with those of Arbor Software Corporation, Business
Objects, S. A., Cognos, Inc., Hyperion Solutions and Red Brick Systems, Inc.
The Company also competes with systems integrators and consulting
organizations in the services marketplace.

In the enterprise market, the Company believes that the most important
considerations for end user software customers are performance, functionality,
product reliability, ease of use, quality of technical support and total cost
of ownership, including initial price and deployment costs as well as ongoing
maintenance costs. In the workgroup market, the Company believes that the
principal competitive factors are strength in distribution and marketing,
brand name recognition, price/performance characteristics, ease of use,
ability to link with enterprise systems and product integration. The Company
believes that it competes effectively in each of these markets, although the
competition is intense in each market.

PRODUCT AND SERVICES REVENUES

The Company's standard end user license agreement for the Company's products
provides for an initial fee to use the product in perpetuity up to a maximum
number of users. The Company also enters into other license agreement types,
typically with major end user customers, which allow for the use of the
Company's products, usually restricted by the number of employees, the number
of users, or the license term. Fees from licenses are

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recognized as revenue upon contract execution, provided all shipment
obligations have been met, fees are fixed and determinable and collection is
probable. Fees from licenses sold together with consulting services are
generally recognized upon shipment provided that the above criteria have been
met and payment of the license fees is not dependent upon the performance of
the consulting services. In instances where the aforementioned criteria have
not been met, both the license and consulting fees are recognized under the
percentage of completion method of contract accounting.

The Company receives sublicense fees from its Oracle Alliance members (value-
added relicensors, hardware providers, systems integrators and independent
software vendors) based on the sublicenses granted by the Oracle Alliance
member. Sublicense fees typically are based on a percentage of the Company's
list price and are generally recognized as they are reported by the reseller.

In general, the Company prices its support services based on the level of
support services provided and the number of users authorized to access the
Company's software products. Most customers purchase support initially and
renew their support agreements annually. Support usually consists of two
parts: (1) technical support, including telephone consultation on the use of
the products and problem resolution; and (2) system updates for software
products and end user documentation. The Company generally bills support fees
at the beginning of each support period. Support revenues are recognized
ratably over the contract period.

Revenues related to consulting and education services to be performed by the
Company generally are recognized over the period during which the applicable
service is to be performed or on a services-performed basis.

The Company's quarterly revenues and expenses reflect distinct seasonality.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations."

PRODUCT PROTECTION

The Company relies on a combination of trade secret, copyright, patent,
trademark and other proprietary or intellectual property rights laws, license
agreements and technical measures to protect its rights in its software
products. The Company owns several issued patents and has numerous patent
applications pending before the United States Patent and Trademark Office.

The Company has registered "ORACLE" as a trademark in the United States and in
over 110 foreign countries and has additional registrations pending. The
Company also has registered over 55 other trademarks in the United States for
other product names and also has registration applications pending for
products and services names in the United States and foreign countries.

The Company's products generally are licensed to end users on a "right to use"
basis pursuant to a nontransferable perpetual license that restricts the use
of the products to the customer's operations based on some factor used to
approximate the customer's usage of the products, such as the number of
computers or the number of users. Although the Company's license agreements
prohibit a customer from disclosing the proprietary information contained in
the Company's products to any other person, it is technologically possible for
competitors of the Company to copy aspects of the Company's products in
violation of the Company's rights. The Company's products are generally
licensed pursuant to signed license agreements, or may be licensed pursuant to
"shrink-wrap" licenses that are not signed by the licensee. The enforceability
of such shrink-wrap licenses has not been conclusively determined in all
jurisdictions. The Company also distributes certain of its workgroup products
through the internet pursuant to on-line licenses that are acknowledged by the
licensee. The enforceability of such licenses has not yet been determined by
the courts. In addition, the laws of certain foreign countries do not protect
the Company's proprietary rights in its products to the same extent as do the
laws of the United States.

The Company believes that its trade secret, copyright, patent, trademark and
other proprietary and intellectual property rights are important. However,
because of the rapid pace of technological change in the computer software
industry, factors such as the knowledge, ability and experience of the
Company's personnel, brand

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recognition and ongoing product support may be more significant in maintaining
the Company's competitive advantages.

EMPLOYEES

As of May 31, 1998, the Company employed 36,802 full-time persons, including
27,523 in sales and services, 887 in marketing, 4,826 in research and
development and 3,566 in general and administrative positions. Of such
employees, 18,339 were located in the United States and 18,463 were employed
in approximately 60 other countries outside the United States.

None of the Company's employees is represented by a labor union. The Company
has experienced no work stoppages and believes that its employee relations are
good.

ITEM 2. PROPERTIES

The Company's headquarters facilities consist of approximately 2,200,000
square feet of office facilities in Redwood City, California, of which
1,700,000 square feet is located in seven buildings. The Company owns two of
the buildings, and as discussed in Footnote 2 of Notes to the Consolidated
Financial Statements, has recorded an additional four buildings as capital
leases and has an option to acquire the remaining building. The Company also
owns the land under each of these seven buildings.

In addition, the Company has purchased land in New Hampshire, the United
Kingdom, India and Australia and constructed facilities of 72,000 square feet
in New Hampshire and 300,000 square feet for its United Kingdom headquarters.
Construction of an additional 100,000 square feet is underway in the United
Kingdom. In fiscal 1999, construction will start for 75,000 square feet in
India and 120,000 square feet in Australia.

The Company has entered into a collateralized lease agreement with options to
purchase land and future or existing facilities near Rocklin, California and
in Virginia and Colorado. The Company leases a 100,000 square foot building in
Rocklin, California and facilities are under construction in Virginia and
Colorado for 200,000 square feet and 180,000 square feet, respectively.

Additional land is available at all of the aforementioned sites for future
expansion.

The Company also leases office space in the United States and various other
countries under operating leases.

The Company believes that its facilities are adequate for its current needs
and that suitable additional or substitute space will be available as needed
to accommodate expansion of the Company's operations. See Notes 2 and 5 of
Notes to Consolidated Financial Statements for information regarding the
Company's lease obligations.

ITEM 3. LEGAL PROCEEDINGS

The material set forth in Footnote 9 of Item 14(a)(1) of this Form 10-K is
incorporated herein by reference.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

11
<PAGE>

ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT

The executive officers of the Company are as follows:

<TABLE>
<CAPTION>
NAME OFFICE(S)
---- ---------
<S> <C>
Lawrence J. Ellison..... Chief Executive Officer and Chairman of the Board
Raymond J. Lane......... President, Chief Operating Officer and Director
Jeffrey O. Henley....... Executive Vice President, Chief Financial Officer
and Director
Barry Ariko............. Executive Vice President, Americas
Gary Bloom.............. Executive Vice President, System Products
David J. Roux........... Executive Vice President, Corporate Development
Robert W. Shaw.......... Executive Vice President, Worldwide Consulting
Services and Vertical Markets
Daniel Cooperman........ Senior Vice President, General Counsel and Secretary
Thomas A. Williams...... Vice President and Corporate Controller
</TABLE>

Mr. Ellison, 53, has been Chief Executive Officer since he co-founded the
Company in May 1977. Mr. Ellison has been Chairman of the Board since June
1995 and served as Chairman of the Board from April 1990 until September 1992.
He also served as President of the Company from May 1977 to June 1996. Mr.
Ellison is co-chairman of California's Council on Information Technology. He
is also a director of SuperGen, Inc., a pharmaceutical company, as well as
Apple Computer, Inc., a computer company.

Mr. Lane, 51, has been President and Chief Operating Officer of the Company
since July 1996. Mr. Lane served as Executive Vice President of the Company
and President of Worldwide Operations from October 1993 to June 1996, and has
been a Director since June 1995. He served as a Senior Vice President of the
Company and President of Oracle USA from June 1992 to September 1993. Before
joining Oracle, Mr. Lane served as Senior Vice President and Managing Partner
of the Worldwide Information Technology Group at Booz-Allen & Hamilton from
July 1986 to May 1992. He served on the Booz-Allen & Hamilton Executive
Committee and its Board of Directors from April 1987 to May 1992. Mr. Lane is
also a member of the Board of Trustees of Carnegie Mellon University.

Mr. Henley, 53, has been Executive Vice President and Chief Financial Officer
of the Company since March 1991, and has been a Director since June 1995.
Prior to joining Oracle, he served as Executive Vice President and Chief
Financial Officer of Pacific Holding Company, a privately held company with
diversified interests in manufacturing and real estate, from August 1986 to
February 1991.

Mr. Ariko, 52, has been the Executive Vice President for the Americas since
February 1998, and served as Senior Vice President for the Americas from April
1994 to February 1998. Prior to joining Oracle, Mr. Ariko was Vice President
and Managing Director of the Americas Division of Tandem Computers
Incorporated. He joined Tandem in 1980, and was named Director of Headquarters
Marketing in 1982, and Vice President of U.S. Sales Operations in 1988. Before
Tandem, Mr. Ariko spent 13 years in management and sales positions in the
computer and defense electronics industries.

Mr. Bloom, 37, has been the Executive Vice President of the System Products
Division since May 1997 and has held various positions, including Senior Vice
President of the Worldwide Alliances and Technologies Division from May 1997
to October 1997, Senior Vice President of the Product and Platform
Technologies Division from May 1996 to May 1997 and Vice President of the
Mainframe and Integration Technology Division and Vice President of the
Massively Parallel Computing Division from May 1992 to May 1996. Prior to
joining Oracle, Mr. Bloom worked at IBM Corporation and at Chevron Corporation
where he held various technical positions in their mainframe system areas.

12
<PAGE>

Mr. Roux, 41, has been Executive Vice President of Corporate Development since
March 1996, and Senior Vice President of Corporate Development of the Company
since September 1994. Since February 1998, he also has served as the Chief
Executive Officer and President of Network Computer, Inc., a subsidiary of the
Company. Before joining Oracle, Mr. Roux served as Senior Vice President,
Marketing and Business Development at Central Point Software from April 1992
to July 1994. From October 1991 to April 1992, he served as Senior Vice
President of the Portable Computing Group at Lotus Development Corporation and
from June 1989 to October 1991, he served as Vice President of Business
Development at Lotus Development Corporation.

Mr. Shaw, 50, has been Executive Vice President of Worldwide Consulting
Services and Vertical Markets since February 1997, and Senior Vice President
of Worldwide Applications and Services of the Company from August 1995 to
January 1997. From June 1992 to July 1995, Mr. Shaw served as Senior Vice
President of Global Services of the Company. Prior to joining Oracle, Mr. Shaw
served as a Vice President of the West Coast Information Systems group of
Booz-Allen & Hamilton from June 1989 to June 1992.

Mr. Cooperman, 47, has been Senior Vice President, General Counsel and
Secretary of the Company since February 1997. Prior to joining Oracle, Mr.
Cooperman had been associated with the law firm of McCutchen, Doyle, Brown &
Enersen since October 1977, and had served there as a partner since June 1983.
From September 1995 until February 1997, Mr. Cooperman was Chair of the law
firm's Business & Transactions Group, and from April 1989 through September
1995, he served as the Managing Partner of the law firm's San Jose Office.

Mr. Williams, 46, has been a Vice President of the Company since October 1990
and Corporate Controller since May 1989. Prior to joining Oracle, Mr. Williams
held various positions in the Audit Division of Arthur Andersen LLP, an
international public accounting firm, including Partner from September 1987 to
May 1989.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's Common Stock has been traded in the over-the-counter market and
the NASDAQ National Market since the Company's initial public offering in
1986. According to records of the Company's transfer agent, the Company had
approximately 14,368 stockholders of record as of May 31, 1998. Because many
of such shares are held by brokers and other institutions on behalf of
stockholders, the Company is unable to estimate the total number of
stockholders represented by these record holders. The following table sets
forth the low and high sale price as of the close of market of the Company's
Common Stock in each of the Company's last eight fiscal quarters.

<TABLE>
<CAPTION>
LOW SALE PRICE HIGH SALE PRICE
-------------- ---------------
<S> <C> <C>
Fiscal 1998:
Fourth Quarter............................ $23.44 $31.88
Third Quarter............................. 17.75 32.50
Second Quarter............................ 28.75 40.06
First Quarter............................. 30.67 42.13
Fiscal 1997:
Fourth Quarter............................ $22.42 $32.09
Third Quarter............................. 24.67 34.00
Second Quarter............................ 23.00 33.42
First Quarter............................. 21.33 28.09
</TABLE>

The Company's policy has been to reinvest earnings to fund future growth.
Accordingly, the Company has not paid dividends and does not anticipate
declaring dividends on its Common Stock in the foreseeable future.

On July 14, 1997, the Company announced a three-for-two stock split in the
form of a common stock dividend distributed on August 15, 1997 to stockholders
of record as of August 1, 1997. All share data and numbers of common shares
contained in this Form 10-K have been retroactively adjusted to reflect the
stock split.

13
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues................ $7,143,866 $5,684,336 $4,223,300 $2,966,878 $2,001,147
Operating income........ 1,244,200 1,262,985 904,891 649,721 419,953
Net income.............. 813,695 821,457 603,279 441,518 283,720
Earnings per share--
Basic.................. 0.83 0.83 0.62 0.46 0.29
Earnings per share--
Diluted................ 0.81 0.81 0.60 0.44 0.28
Total assets............ 5,819,011 4,624,315 3,357,243 2,424,517 1,594,984
Short-term debt......... 2,924 3,361 5,623 9,599 6,898
Long-term debt.......... 304,337 300,836 897 81,721 82,845
Stockholders' equity.... 2,957,558 2,369,712 1,870,449 1,211,358 740,553
</TABLE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

The Company's revenue growth rate was 26%, 35% and 42% in fiscal 1998, 1997
and 1996, respectively. The lower overall revenue growth rates in fiscal 1998
and 1997 were primarily due to lower license revenue growth rates than those
experienced in the prior year. Sales and marketing expenses continued to
represent the largest category of operating expenses, constituting 33%, 35%,
and 37% of revenues in fiscal 1998, 1997 and 1996, respectively, while cost of
services as a percentage of total revenues increased to 32% in fiscal 1998
from 27% in fiscal 1997 and 26% in fiscal year 1996. The change in the sales
and marketing and cost of services percentages were primarily the result of
the change in the mix of license versus services revenues during the three
year period. The Company's investment in research and development increased to
11% of revenues in fiscal year 1998 from 10% of revenues in fiscal years 1997
and 1996, prior to the impact of capitalized software development costs.
General and administrative expenses as a percentage of revenues decreased to
5% in both fiscal 1998 and 1997 from 6% in fiscal 1996. Overall, operating
income as a percentage of revenues was 17% (20% prior to the charges for
acquired in process research and development), 22% (23% prior to the charges
for acquired in-process research and development), and 21% (23% prior to the
charges for acquired in-process research and development), in fiscal 1998,
1997 and 1996, respectively.

Domestic revenues increased 34% in fiscal 1998 and 47% in fiscal 1997, while
international revenues increased 18% and 25% in fiscal 1998 and 1997,
respectively. International revenues were unfavorably affected in both fiscal
1998 and 1997 when compared to the corresponding prior year periods as a
result of the strengthening of the U.S. dollar against certain major
international currencies. International revenues expressed in local currency
increased by approximately 28% and 31% in fiscal 1998 and 1997, respectively.
Revenues from international customers were approximately 50%, 53% and 57% of
revenues in fiscal 1998, 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 continues to strengthen against certain major
international currencies.

Quarterly revenues reflect distinct seasonality. See "Quarterly Results of
Operations" below.

REVENUES:

14
<PAGE>

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, which
constituted 3% of total license and other revenues in fiscal 1998, 1997 and
1996, respectively. License and other revenue growth rates were 10% and 26% in
fiscal 1998 and 1997, respectively. System software license growth rates were
7% and 20% and application software license revenue growth rates were 18% and
62% in fiscal 1998 and 1997, respectively. The lower license and other
revenues growth rate experienced in fiscal 1998 was due to lower revenue
growth in Asia Pacific as a result of the weakened economies in that region,
the strengthening of the U.S. dollar against certain major international
currencies, slower system software market growth and a significant
reorganization of the sales force which the Company believes adversely
affected both the system software and applications license revenue growth
rates.

During the past three fiscal years, the Company's customer and product base
has broadened as the Company has increased both the number of channels that it
uses to market its products, as well as the number of computers and operating
systems on which its relational DBMS operates, and as additional software
products have been acquired or introduced. License revenues for software used
on computers utilizing the UNIX operating system decreased to 64% of license
revenues in fiscal year 1998 from 70% in both fiscal 1997 and 1996. License
revenues for use on Windows platforms increased from 16% in fiscal 1996 to 21%
in fiscal 1997 and 30% in fiscal 1998. License revenues from software for use
on computers utilizing proprietary and other desktop platforms were 14%, 9%
and 6% in fiscal 1996, 1997 and 1998, respectively.

SERVICES REVENUES. Support, consulting and education services revenues each
increased in fiscal 1998 and 1997 over the corresponding prior year levels.
The Company's support revenues continued to constitute the largest portion of
services revenues, and grew 36% and 46% in fiscal 1998 and 1997, respectively.
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 47% and 44% in fiscal 1998 and 1997 as the Company
continued to expand its services to assist customers in the use and
implementation of applications based on the Company's products.

OPERATING EXPENSES:

<TABLE>
<CAPTION>
FISCAL YEAR 1998 CHANGE FISCAL YEAR 1997 CHANGE FISCAL YEAR 1996
(DOLLARS IN THOUSANDS) ---------------- ------ ---------------- ------ ----------------
<S> <C> <C> <C> <C> <C>
Sales and Marketing..... $2,371,306 20% $1,970,394 27% $1,549,231
Percentage of revenues.. 33.2% 34.7% 36.7%
Cost of Services........ $2,273,607 47% $1,550,466 41% $1,096,013
Percentage of revenues.. 31.8% 27.3% 26.0%
Research and Development
(1).................... $ 719,143 29% $ 555,476 43% $ 389,093
Percentage of revenues.. 10.1% 9.8% 9.2%
General and
Administrative......... $ 368,556 20% $ 308,215 32% $ 233,141
Percentage of revenues.. 5.2% 5.4% 5.5%
Acquired In-Process
Research and
Development............ $ 167,054 * $ 36,800 (28%) $ 50,931
Percentage of revenues.. 2.3% 0.6% 1.2%
</TABLE>
- --------
* Not meaningful
(1) Pursuant to SFAS No. 86, the Company capitalized software development
costs equal to 0.5% of total revenues during fiscal 1998 and 1997 and 1.1%
during fiscal 1996.

International expenses were favorably affected in both fiscal 1998 and 1997
when compared to the corresponding prior year periods due to the strengthening
of the U.S. dollar against certain major international currencies. The net
impact on operating margins, however, was unfavorable, since the negative
effect on revenues was greater than the positive effect on expenses.

15
<PAGE>

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. As a percentage
of licenses and other revenues, sales and marketing expenses increased from
67% in fiscal 1996 to 68% in fiscal 1997 and 74% in fiscal 1998 as a result of
lower than anticipated license revenues. Included in sales and marketing
expenses is the amortization of capitalized software development costs (see
below).

COST OF SERVICES. The cost of providing services consists largely of
consulting, education and support personnel expenses. As a percentage of
services revenues, cost of services increased to 58% in fiscal 1998 from 56%
in fiscal 1997. Increases in cost of services as a percentage of service
revenues were due primarily to an increase in consulting and education
services as a percentage of total services revenue. Consulting and education
services typically have lower margins than support.

RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses would
have been 11% of total revenues in fiscal 1998 and 10% in fiscal 1997 and
1996, respectively, without the capitalization of software development costs
in accordance with SFAS No. 86. Before considering the impact of software
capitalization, research and development expenses increased 30% and 34% in
fiscal 1998 and 1997, respectively. The fiscal 1998 increase was due in part
to increases associated with research and development staff hired in
connection with the acquisitions of TSC, as well as the merger of Network
Computer, Inc. ("NCI") and Navio Communications, Inc. ("Navio"). The fiscal
1997 increase was due in part to increases in research and development staff
hired in connection with the acquisitions of Datalogix and the on-line
analytical processing business of Information Resources, Inc. The Company
capitalized $38,079,000, $28,064,000 and $48,031,000 of computer software
development costs in fiscal 1998, 1997 and 1996, respectively, which
represented, 5% of total expenditures for research and development in fiscal
1998 and 1997 and 11% in fiscal 1996. Amortization of capitalized software
development costs is charged to sales and marketing expenses and totaled
$38,035,000, $28,156,000 and $48,815,000 in fiscal 1998, 1997 and 1996,
respectively. The Company believes that research and development expenditures
are essential to maintaining its competitive position and expects these costs
to continue to constitute a significant percentage of revenues.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses as a
percentage of revenues decreased in both fiscal 1998 and 1997 when compared to
their corresponding prior year periods, due primarily to higher revenue
levels.

ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT. Based on the results of third-
party appraisals, the Company recorded special charges of $91,500,000 and
$75,554,000 in the first quarter of fiscal 1998 related to the acquisition of
TSC and the merger of NCI and Navio, respectively, $36,800,000 in the third
quarter of fiscal 1997 related to the acquisition of Datalogix and $50,931,000
in the first quarter of fiscal 1996 related to the acquisition of the on-line
analytical processing business of Information Resources, Inc., respectively,
to expense in-process research and development costs. 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.

OTHER INCOME (EXPENSE):

* Not Meaningful

Other income and expense for fiscal 1998 includes the minority interest's
share of the one-time acquired research and development charge for NCI.
Excluding this credit of $25,726,000, other income and expense for fiscal 1998
was $57,893,000. Changes in non-operating income and expense primarily reflect
fluctuations in interest income and expense related to changes in cash and
debt balances and interest rates, as well as foreign exchange and

16
<PAGE>

other miscellaneous items. Additionally, the Company also realized a gain of
approximately $4,300,000 during fiscal 1998 related to the sale of certain
securities and a gain of $3,100,000 during fiscal 1996 related to the sale of
a portion of its investment in Datalogix.

PROVISION FOR INCOME TAXES:

<TABLE>
<CAPTION>
FISCAL YEAR 1998 CHANGE FISCAL YEAR 1997 CHANGE FISCAL YEAR 1996
(DOLLARS IN THOUSANDS) ---------------- ------ ---------------- ------ ----------------
<S> <C> <C> <C> <C> <C>
Provision for Income
Taxes.................. $514,124 11% $462,070 46% $316,231
Percentage of revenues.. 7.2% 8.1% 7.5%
</TABLE>

The Company's effective tax rates have historically differed from the federal
statutory rate primarily because of tax credits, certain foreign sales
corporation income that is not taxed, state taxes, foreign income taxes
provided at rates greater than the federal statutory rate, as well as foreign
losses that could not be utilized. See Note 7 of Notes to Consolidated
Financial Statements. The effective tax rate was 35% in fiscal 1998 (excluding
the effect of the acquired research and development charges for the TSC and
Navio transactions, net of a credit of $25,726,000 for minority interest), 36%
in fiscal 1997 and 34% in fiscal 1996.

NET INCOME AND EARNINGS PER SHARE:

<TABLE>
<CAPTION>
FISCAL YEAR 1998 CHANGE FISCAL YEAR 1997 CHANGE FISCAL YEAR 1996
(DOLLARS IN THOUSANDS) ---------------- ------ ---------------- ------ ----------------
<S> <C> <C> <C> <C> <C>
Net Income.............. $813,695 (1%) $821,457 36% $603,279
Percentage of revenues.. 11.4% 14.5% 14.3%
Earnings Per Share--
Basic.................. $ 0.83 -- $ 0.83 36% $ 0.62
Earnings Per Share--
Diluted................ $ 0.81 -- $ 0.81 35% $ 0.60
</TABLE>

QUARTERLY RESULTS OF OPERATIONS

The Company believes that fourth quarter revenues and expenses are 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 historically have resulted 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 1999. 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.

The following table sets forth selected unaudited quarterly information for
the Company's last eight fiscal quarters. The Company believes that all
necessary adjustments (which consisted only of normal recurring adjustments)
have been included in the amounts stated below to present fairly the results
of such periods when read in conjunction with the financial statements and
related notes included elsewhere herein.

<TABLE>
<CAPTION>
FISCAL 1998 QUARTER ENDED
---------------------------------------------
AUGUST 31 NOVEMBER 30 FEBRUARY 28 MAY 31
---------- ----------- ----------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues...................... $1,368,829 $1,613,727 $1,748,757 $2,412,553
Operating income.............. $ 48,976 $ 272,006 $ 318,273 $ 604,944
Net income.................... $ 8,471 $ 187,324 $ 215,077 $ 402,822
Earnings per share--basic..... $ 0.01 $ 0.19 $ 0.22 $ 0.41
Earnings per share--diluted
(1).......................... $ 0.01 $ 0.19 $ 0.22 $ 0.41
Shares outstanding--basic..... 979,285 982,491 974,947 973,674
Shares outstanding--diluted... 1,006,266 1,008,558 991,641 992,436
</TABLE>

17
<PAGE>

<TABLE>
<CAPTION>
FISCAL 1997 QUARTER ENDED
---------------------------------------------
AUGUST 31 NOVEMBER 30 FEBRUARY 28 MAY 31
---------- ----------- ----------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues...................... $1,052,320 $1,311,373 $1,372,612 $1,948,031
Operating income.............. $ 168,875 $ 274,188 $ 260,127 $ 559,795
Net income.................... $ 112,771 $ 179,496 $ 169,253 $ 359,937
Earnings per share--basic..... $ 0.11 $ 0.18 $ 0.17 $ 0.37
Earnings per share--diluted
(1).......................... $ 0.11 $ 0.18 $ 0.17 $ 0.36
Shares outstanding--basic..... 984,822 986,695 985,155 980,116
Shares outstanding--diluted... 1,010,715 1,013,924 1,009,779 1,002,762
</TABLE>
- --------
(1) Earnings per share before the effect of the charge for acquired in-process
research and development were $0.15 and $0.19 per share in the first
quarter of fiscal 1998 and the third quarter of fiscal 1997, respectively.

LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31,
---------------------------------------------
1998 CHANGE 1997 CHANGE 1996
---------- ------ ---------- ------ --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Working capital................ $1,838,885 36% $1,348,957 63% $829,501
Cash and cash investments...... 2,105,710 58% 1,329,527 51% 882,871
Cash provided by operating
activities.................... 1,614,579 57% 1,030,504 16% 889,157
Cash used for investing
activities.................... 922,521 19% 777,381 41% 551,488
Cash used for financing
activities.................... 282,846 395% 57,122 (35%) 88,291
</TABLE>

Working capital increased in both fiscal 1998 and 1997 over the corresponding
prior year periods, due primarily to increased cash flow from operations as
well as proceeds from the issuance of Senior Notes in fiscal 1997 (see below),
offset in part by acquisitions and stock repurchases, which resulted in higher
cash levels.

The Company generated higher positive cash flows from operations in both
fiscal 1998 and 1997, due primarily to improved profitability, before the
charges for acquired in-process research and development, and strong cash
collections.

Cash used for investing activities increased in both fiscal 1998 and 1997 as
compared to the corresponding prior year periods due primarily to changes in
the levels of cash investments. In each period, the Company made significant
investments in capital expenditures. In addition, the Company acquired TSC for
approximately $110,000,000 in cash in the first quarter of fiscal 1998,
Datalogix for approximately $82,000,000 in cash in the third quarter of fiscal
1997 ($58,000,000 net of cash assumed) and the on-line analytical processing
business of Information Resources, Inc. for approximately $100,000,000 in cash
in the first quarter of fiscal 1996. The Company expects to continue to invest
in capital and other assets to support its growth.

The Company's Board of Directors has approved the repurchase of up to
106,000,000 shares of Common Stock to reduce the dilutive effect of the
Company's stock plans. Pursuant to this repurchase program, the Company
purchased 18,446,106 shares of the Company's Common Stock for approximately
$489,823,000 in fiscal 1998, 19,211,250 shares of the Company's Common Stock
for approximately $528,209,000 in fiscal 1997, 6,717,201 shares of the
Company's Common Stock for approximately $113,087,000 in fiscal 1996 and
26,458,313 shares of the Company's Common Stock for approximately $200,646,000
prior to fiscal 1996. The Company used cash flow from operations and proceeds
from the issuance of Senior Notes in fiscal 1997 to repurchase the Company's
Common Stock and to invest in working capital and other assets to support its
growth.

During fiscal 1994 and 1995, the Company sold 8,628,750 put warrants. On March
24, 1995, 5,253,750 of these put warrants were canceled at minimal cost and
the remaining warrants expired without being exercised. Additionally, the
Company purchased 5,393,250 call options in fiscal 1994 and 1995. On July 6,
1995, the Company sold 3,283,875 of the call options and credited the net
proceeds of $17,175,000 to equity. The

18
<PAGE>

remaining 2,109,375 call options were exercised in October 1995 at $14.05 per
share for a total of $29,648,000 and were included in stock repurchases for
fiscal 1996.

During fiscal 1997, the Company sold 9,000,000 warrants, each of which
entitles the holder to purchase one share of Common Stock at prices between
$51.33 and $51.70. These warrants expire in May 2000 and the proceeds of
$35,898,000 were credited to equity.

During fiscal 1998, the Company, as part of its authorized stock repurchase
program, sold put warrants and purchased call options through private
placements. As of May 31, 1998, the Company has a maximum potential obligation
under the put warrants to buy back 17,901,000 shares of its Common Stock for
prices ranging from $15.86 to $22.77 per share for an aggregate price of
approximately $343,000,000. The put warrants will expire from January 1999
through August 1999. The Company purchased call options for 8,950,500 shares
of its Common Stock at prices ranging from $18.09 to $26.09 per share for an
aggregate price of approximately $212,000,000. The call options will expire
from January 1999 through August 1999.

At May 31, 1998, the Company also had other outstanding debt of approximately
$7,261,000, primarily in the form of other notes payable and capital leases.

The Company anticipates that current cash balances, as well as anticipated
cash flows from operations, will be sufficient to meet its working capital and
capital expenditure needs at least through May 31, 1999.

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.

REVENUE GROWTH AND ECONOMIC CONDITIONS. The strength and profitability of the
Company's business depends on the overall demand for computer software and
services, particularly in the product segments in which the Company competes.
Because the Company's sales are primarily to major corporate and government
customers, the Company's business also depends on general economic and
business conditions. A softening of demand for computer software, caused by a
weakening of the economy, as the Company recently experienced in the Asia
Pacific region, may result in decreased revenues or decelerating growth rates.

The Company experienced a deceleration in database and applications license
revenue growth rates in fiscal 1998 from previous years; there can be no
assurances that such growth rates will increase or be sustainable in the near
term or that the Company's license revenue growth rates will return to
previous levels.

In particular, one of the challenges the Company continues to face in
promoting future growth in license revenues will be to refocus its marketing
and sales efforts in its applications business where the Company experienced
lower revenue growth in fiscal 1998 than the overall applications market.
There can be no assurances that the Company will be able to effectively
address the challenges it faces in promoting future license revenue growth in
its applications business.

In October 1997, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") No. 97-2, "Software Revenue
Recognition" which supersedes SOP No. 91-1. SOP No. 97-2 is effective for the
Company's fiscal year beginning June 1, 1998 and provides guidance on applying
generally accepted accounting principles for software revenue recognition
transactions. Based on the Company's current interpretation of the
requirements of SOP No. 97-2, application of this statement is not anticipated
to materially impact the Company's revenue. However, the accounting profession
is currently reviewing certain provisions of

19
<PAGE>

SOP 97-2 with the objective of providing additional guidance on implementing
its provisions. Depending upon the outcome of this review and the issuance of
implementation guidelines and potential interpretations, the Company may be
required to change its revenue recognition polices and business practices, and
such changes 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. The introduction of new competitive products into
one or more of the Company's various markets, the addition of new
functionality into an existing competitive product or the acquisition by one
of the Company's competitors of a product could have a material adverse effect
on the Company's business, results of operations or financial condition. 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 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 database marketplace where certain vendors offer deep
discounts in an effort to recapture or gain market share. 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, thereby reducing license revenues for the Company. Any such
price reductions and resulting lower license revenues could have a material
adverse effect on the Company's business, results of operations or financial
condition if the Company cannot offset these price reductions with a
corresponding increase in sales volumes.

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. The Company experienced a large
decline in revenue growth rates in Asia Pacific during fiscal 1998 in part due
to the economic difficulties that have occurred throughout this region. There
can be no assurances that these economies will recover in the near term or
that the Company's growth rates in this geographic region will return to
previous levels if the recovery occurs. The Company also has experienced
relatively slower growth rates in countries within its Europe Middle East
Africa (EMEA) division during the last several years, primarily as a result of
weaker economies relative to the rest of the world, slower adoption of
information and senior management changes in several major countries. There
can be no assurances that the Company will be able to successfully address
each of these challenges in the near term. 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 adversely affected revenues and
operating results in fiscal 1998, particularly in Asia Pacific and EMEA, and
will continue to do so in fiscal 1999 if the U.S. dollar continues to
strengthen relative to local currencies.

Foreign currency transaction gains and losses are primarily related to
sublicense fee and other 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. The Company finds
it impractical to hedge all

20
<PAGE>

foreign currencies in which it conducts business. As a result, the Company
will continue to experience foreign currency gains and losses.

HIRING AND RETENTION OF EMPLOYEES. The Company's continued growth and success
depend to a significant extent on the continued service of its 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 increasingly intense due to lower overall unemployment
rates and the boom in information technology spending. Accordingly, the
Company expects to experience increased compensation costs that may not be
offset through either improved productivity or higher prices. 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 non-competition 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.

SALES FORCE RESTRUCTURING AND VERTICAL MARKETS. The Company historically has
relied heavily on its direct sales force. In fiscal 1998, the Company
restructured its sales force to provide, among other things, specialized
expertise within certain vertical markets and certain product areas.
Transition issues associated with this restructuring probably contributed to
the deceleration in revenue growth rates experienced by the Company in fiscal
1998. Management will continue to address these transition issues in fiscal
1999 by making additional adjustments within the sales organization, though
management believes that it has resolved the primary issues relating to the
transition. There can be no assurances that transition issues associated with
the restructuring will not recur or that revenue growth rates will not be
adversely affected in future quarters.

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,
accurately forecast revenues and control expenses. A 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.

YEAR 2000. A significant amount of the demand the Company has experienced in
recent years for applications software may be generated by customers in the
process of replacing and upgrading applications in order to accommodate the
change in date to the year 2000. Once such customers have completed their
preparations, the software industry and the Company may experience a
significant deceleration from the strong annual growth rates recently
experienced in the applications software marketplace.

The Company has designed and tested the most current versions of its products
to be year 2000 compliant. Some of the Company's customers are running product
versions that are not year 2000 compliant. The Company has been encouraging
such customers to migrate to current product versions. It is possible that the
Company may experience increased expenses in addressing migration issues for
such customers. In addition, there can be no assurances that the Company's
current products do not contain undetected errors or defects associated with
year 2000 date functions that may result in material costs to the Company.
Some commentators have stated that a significant amount of litigation will
arise out of year 2000 compliance issues, and the Company is aware of a
growing number of lawsuits against other software vendors. Because of the
unprecedented nature of such litigation, it is uncertain whether or to what
extent the Company may be affected by it.

With respect to its internal systems, the Company is taking steps to prepare
its systems for the Year 2000 date change. The Company expects to
substantially complete these efforts at the end of calendar 1998, with
extensive testing to continue through 1999. Although the Company does not
believe that it will incur any material costs or experience material
disruptions in its business associated with preparing its internal systems for
the year 2000, there can be no assurances that the Company will not experience
serious unanticipated negative consequences and/or material costs caused by
undetected errors or defects in the technology used in its internal systems,
which are composed of third party software, third party hardware that contains
embedded software and the Company's own software products.

21
<PAGE>

FUTURE ACQUISITIONS. As part of its business strategy, the Company completed
the acquisitions of Navio and TSC in fiscal 1998, and expects to continue to
make acquisitions of, or significant investments in, businesses that offer
complementary products, services and technologies. Any acquisitions or
investments will be accompanied by the risks commonly encountered 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
distraction of management from the Company's 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, particularly in the case of a larger acquisition. 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 in connection with any such
future acquisitions.

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 expenditures 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. For example, in order to remain competitive in the European
markets for applications products, the Company will be required to continue to
enhance certain of its applications products to meet reporting requirements as
defined by the European Monetary Unit (EMU). The Company's inability to port
to or run on new or increasingly popular operating systems, or the Company's
failure to successfully enhance and improve its products in a timely manner,
and position and/or price its products, could have a material adverse effect
on the Company's business, results of operations or financial condition.

Significant undetected errors or delays in new products or new versions of a
product may affect market acceptance of the Company's products and could have
a material adverse effect on the Company's business, results of operations or
financial condition. 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, this could have a material adverse effect on the
Company's business, results of operations or financial condition.

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 directly or indirectly market in the future
are in various stages of development.

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
the (i) relatively long sales cycles for the Company's products, (ii) size and
timing of individual license transactions, which tend to be initiated by
customers at the end of a fiscal quarter as a negotiating tactic, (iii)
introduction of new products or product enhancements by the Company or its
competitors, (iv) 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 could 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

22
<PAGE>

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.

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 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.

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 ending May 31, 1999 include
significant investments in software research and development and related
product opportunities from which significant revenues are not anticipated for
several years.

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 assurance 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
assurance 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 expanded its technology
into a number of new business areas to foster long-term growth, including
application servers, internet/electronic commerce, interactive media and
network computing. These areas are relatively 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 success of network computing and, in particular, the
Company's current network computer software products is difficult to predict
because network computing represents a method of computing that is new to the
entire computer industry. The successful introduction of network computing to
the market will depend in large measure on (i) the commitment by hardware and
software vendors to manufacture, promote and distribute network computers,
(ii) the lower cost of ownership relative to personal computers, and (iii) the
ease of use and administration relative to personal computers. There can be no
assurances that sufficient numbers of vendors will undertake this commitment,
that the market will accept network computing or that network computing will
generate significant revenues to the Company. See "New Products."

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.

POSSIBILITY OF INFRINGEMENT CLAIMS. 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 overlaps. Regardless of its merit,
responding to 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,
results of operations or financial condition could be materially adversely
affected.

23
<PAGE>

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 or its
competitors' results of operations, changes in prices of the Company's or its
competitors' products and services, changes in 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.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to a variety of risks, including changes in interest
rates affecting the return on its investments and foreign currency
fluctuations. In the normal course of business, the Company employs
established policies and procedures to manage its exposure to fluctuations in
interest rates and foreign currency values.

INTEREST RATE RISK. The Company's exposure to market rate risk for changes in
interest rates relates primarily to the Company's investment portfolio. The
Company has not used derivative financial instruments in its investment
portfolio. The Company places its investments with high quality issuers and,
by policy, limits the amount of credit exposure to any one issuer. The Company
protects and preserves its invested funds by limiting default, market and
reinvestment risk. In addition, the Company has classified all its marketable
debt securities and long term debt investments as "held to maturity" which
does not expose the consolidated statement of operations or balance sheets to
fluctuations in interest rates. Information about the Company's investment
portfolio is set forth in Footnote 1 of Item 14(a)(1) of this Form 10-K and is
incorporated herein by reference.

FOREIGN CURRENCY RISK. The Company has entered into forward foreign exchange
contracts primarily to hedge amounts due from and the net assets of selected
subsidiaries denominated in foreign currencies (mainly in EMEA and Asia
Pacific) against fluctuations in exchange rates. The Company has not entered
into forward foreign exchange contracts for speculative or trading purposes.
The Company's accounting policies for these contracts are based on the
Company's designation of the contracts as hedging transactions. The criteria
the Company uses for designating a contract as a hedge include the contract's
effectiveness in risk reduction and one-to-one matching of derivative
instruments to underlying transactions. Gains and losses on forward foreign
exchange contracts are recognized in income in the same period as gains and
losses on the underlying transactions. If an underlying hedged transaction is
terminated earlier than initially anticipated, the offsetting gain or loss on
the related forward foreign exchange contract would be recognized in income in
the same period. In addition, since the Company enters into forward contracts
only as a hedge, any change in currency rates would not result in any material
net gain or loss, as any gain or loss on the underlying foreign currency
denominated balance would be offset by the gain or loss on the forward
contract. The Company operates in certain countries in Latin America, Eastern
Europe and Asia Pacific where there are limited forward currency exchange
markets and thus the Company has unhedged transaction exposures in these
currencies. Information about the Company's foreign currency forward exchange
contracts is set forth in Footnote 1 of Item 14(a)(1) of this Form 10-K and is
incorporated herein by reference.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The response to this item is submitted as a separate section of this Form 10-
K. See Item 14.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

24
<PAGE>

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information regarding directors required by Item 10 is incorporated by
reference from the Company's definitive proxy statement for its annual
stockholders' meeting to be held on October 19, 1998.

ITEM 11. EXECUTIVE COMPENSATION

The information required by Item 11 is incorporated by reference from the
Company's definitive proxy statement for its annual stockholders' meeting to
be held on October 19, 1998. The information specified in Item 402 (k) and (l)
of Regulation S-K and set forth in the Company's definitive proxy statement
for its annual stockholders' meeting to be held on October 19, 1998 is not
incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by Item 12 is incorporated by reference from the
Company's definitive proxy statement for its annual stockholders' meeting to
be held on October 19, 1998.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by Item 13 is incorporated by reference from the
Company's definitive proxy statement for its annual stockholders' meeting to
be held on October 19, 1998.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(A) 1. FINANCIAL STATEMENTS

The following financial statements are filed as a part of this report:

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants............................. 28
Consolidated Financial Statements:
Balance Sheets as of May 31, 1998 and 1997......................... 29
Statements of Operations for the years ended May 31, 1998, 1997 and
1996.............................................................. 30
Statements of Stockholders' Equity for the years ended May 31,
1998, 1997 and 1996............................................... 31
Statements of Cash Flows for the years ended May 31, 1998, 1997 and
1996.............................................................. 32
Notes to Consolidated Financial Statements......................... 33
</TABLE>

(A) 2. FINANCIAL STATEMENT SCHEDULES

The following financial statement schedule is filed as a part of this report:

<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
II Valuation and Qualifying Accounts................................ 52
</TABLE>

All other schedules are omitted because they are not required or the required
information is shown in the financial statements or notes thereto.

25
<PAGE>

(A) 3. EXHIBITS

The following exhibits are filed herewith or are incorporated by reference to
exhibits previously filed with the Commission. The Company shall furnish
copies of exhibits for a reasonable fee (covering the expense of furnishing
copies) upon request.

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
<C> <S>
3.01(1) Registrant's Restated Certificate of Incorporation, as amended to
March 11, 1987.
3.02(3) Certificate of Amendment of Certificate of Incorporation, dated
June 30, 1989.
3.03(1) Registrant's Bylaws, as adopted October 30, 1986.
3.04(6) Amendment to Registrant's Bylaws, dated January 13, 1989.
3.05(5) Amendment to Registrant's Bylaws, dated December 3, 1990.
3.06(5) Certificate of Designation specifying the terms of the Series A
Junior Participating Preferred Stock of Registrant, filed with the
Secretary of State of Delaware on December 7, 1990.
3.07(1) Specimen Certificate of Registrant's Common Stock.
3.08(11) Certificate of Amendment of Certificate of Incorporation, dated
November 4, 1993.
3.09(11) Certificate of Amendment of Certificate of Incorporation, dated
January 13, 1995.
3.10(18) Certificate of Amendment of Certificate of Incorporation of the
Company filed with the Delaware
Secretary of State on March 13, 1996.
3.11(14) Certificate of Amendment of Certificate of Incorporation of the
Company filed with the Delaware
Secretary of State on October 29, 1996.
4.01(13) Indenture between Oracle Corporation and State Street Bank and
Trust Company of California,
N.A., dated February 24, 1997.
4.02(16) Warrant Purchase Agreement between Oracle Corporation and Morgan
Stanley & Co. Incorporated, as agent for Morgan Stanley & Co.
International Limited, dated May 7, 1997.
4.03(16) Warrant Agreement between Oracle Corporation and BankBoston, N.A.,
dated May 12, 1997.
4.04(16) Warrant Certificate, dated May 12, 1997.
4.05(16) Warrant Purchase Agreement between Oracle Corporation and Goldman,
Sachs & Co., dated May 14, 1997.
4.06(16) Warrant Agreement between Oracle Corporation and BankBoston, N.A.,
dated May 19, 1997.
4.07(16) Warrant Certificate, dated May 19, 1997.
4.08(17)* Oracle Corporation 1993 Deferred Compensation Plan, as amended and
restated as of January 1, 1998.
4.09(18) Amended and Restated Preferred Shares Rights Agreement, dated March
31, 1998.
10.01(2)* Registrant's Stock Option Plan (1985), as amended to date, and
related documents.
10.02(4)* 1990 Directors' Stock Option Plan, as adopted July 30, 1990, and
related documents.
10.03(7)* 1990 Executive Officers' Stock Option Plan, as adopted October 15,
1990, and related documents.
10.04(8)* 1991 Long-Term Equity Incentive Plan, as adopted July 31, 1991.
10.05(9)* Oracle Systems Corporation Employee Stock Purchase Plan (1992), as
adopted August 24, 1992.
10.06(10)* 1993 Directors' Stock Option Plan, as adopted May 24, 1993.
</TABLE>

26
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
<C> <S>
10.07(12)* Amendment to 1993 Directors' Stock Option Plan, as adopted May 31,
1994.
10.08(13)* Restatement of Employment Agreement with David Roux as of August
31, 1996.
10.09(16) Amendment No 1 to 1991 Long-Term Equity Incentive Plan, dated
December 9, 1996.
10.10 Amendment to the 1991 Long-Term Equity Incentive Plan, dated July
14, 1997.
21.01 Subsidiaries of the Registrant.
23.01 Consent of Arthur Andersen LLP.
27.01 Financial Data Schedule.
</TABLE>
- --------
* Indicates management contract or compensatory plan or arrangement.

(1) Incorporated by reference to the Form S-1 Registration Statement filed
March 27, 1987, File No. 33-12941.
(2) Incorporated by reference to the Form S-8 Registration Statement filed
February 24, 1986, File No. 33-3536, as amended.
(3) Incorporated by reference to the Form 10-K filed August 25, 1989.
(4) Incorporated by reference to the Form 10-K filed on August 27, 1990.
(5) Incorporated by reference to the Form 8-K filed on December 10, 1990.
(6) Incorporated by reference to the Form 10-Q filed on January 11, 1991.
(7) Incorporated by reference to the Form 10-K filed on August 28, 1991.
(8) Incorporated by reference to the Form S-8 Registration Statement filed
December 23, 1991, File No. 33-44702.
(9) Incorporated by reference to the Form 10-Q filed on January 7, 1993.
(10) Incorporated by reference to the Form 10-K filed on July 22, 1993.
(11) Incorporated by reference to the Form 10-Q filed on January 11, 1994.
(12) Incorporated by reference to the Form 10-K filed on July 27, 1994.
(13) Incorporated by reference to the Form 10-Q filed on October 11, 1996.
(14) Incorporated by reference to the Form 10-Q filed on January 10, 1997.
(15) Incorporated by reference to the Form 10-Q filed on April 10, 1997.
(16) Incorporated by reference to the Form 10-K filed on August 13, 1997.
(17) Incorporated by reference to the Form S-8 filed on December 10, 1997.
(18) Incorporated by reference to the Form 8-A/A filed on March 31, 1998.

(B)REPORTS ON FORM 8-K

None.

27
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Oracle Corporation:

We have audited the accompanying consolidated balance sheets of Oracle
Corporation, a Delaware corporation, and subsidiaries as of May 31, 1998 and
1997, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended May 31,
1998. These financial statements and the schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Oracle Corporation and
subsidiaries as of May 31, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended May 31,
1998, in conformity with generally accepted accounting principles.

Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed under Item 14(a)2
is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not a part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in our audits
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.

ARTHUR ANDERSEN LLP

San Jose, California
June 16, 1998

28
<PAGE>

ORACLE CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF MAY 31, 1998 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
MAY 31,
----------------------
1998 1997
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents............................. $1,273,681 $ 890,162
Short-term cash investments........................... 645,518 323,028
Trade receivables, net of allowance for doubtful
accounts of $195,609 in 1998 and $127,840 in 1997.... 1,857,480 1,540,470
Other receivables..................................... 207,544 168,469
Prepaid and refundable income taxes................... 260,624 274,366
Prepaid expenses and other current assets............. 78,203 74,601
---------- ----------
Total current assets................................. 4,323,050 3,271,096
LONG-TERM CASH INVESTMENTS............................. 186,511 116,337
PROPERTY, net.......................................... 934,350 868,948
COMPUTER SOFTWARE DEVELOPMENT COSTS, net of accumulated
amortization of $37,473 in 1998 and $36,303 in 1997... 99,012 98,981
OTHER ASSETS........................................... 276,088 268,953
---------- ----------
Total assets......................................... $5,819,011 $4,624,315
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable and current maturities of long-term
debt................................................. $ 2,924 $ 3,361
Accounts payable...................................... 239,698 185,444
Income taxes.......................................... 181,354 203,646
Accrued compensation and related benefits............. 541,809 394,153
Customer advances and unearned revenues............... 877,087 602,862
Value added tax and sales tax payable................. 119,600 121,914
Other accrued liabilities............................. 521,693 410,759
---------- ----------
Total current liabilities............................ 2,484,165 1,922,139
LONG-TERM DEBT......................................... 304,337 300,836
OTHER LONG-TERM LIABILITIES............................ 57,095 24,226
DEFERRED INCOME TAXES.................................. 15,856 7,402
COMMITMENTS (Note 5)...................................
STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value--authorized,
1,000,000 shares; outstanding: none.................. -- --
Common stock, $0.01 par value, and additional paid in
capital--authorized, 2,000,000,000 shares;
outstanding: 973,336,512 shares in 1998 and
977,970,319 shares in 1997........................... 976,275 696,018
Retained earnings..................................... 2,023,056 1,686,170
Accumulated foreign currency translation adjustments
and unrealized gain on equity securities............. (41,773) (12,476)
---------- ----------
Total stockholders' equity........................... 2,957,558 2,369,712
---------- ----------
Total liabilities and stockholders' equity........... $5,819,011 $4,624,315
========== ==========
</TABLE>

See notes to consolidated financial statements.

29
<PAGE>

ORACLE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MAY 31, 1998, 1997 AND 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
----------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES
Licenses and other........................ $3,193,490 $2,896,696 $2,296,572
Services.................................. 3,950,376 2,787,640 1,926,728
---------- ---------- ----------
Total revenues........................... 7,143,866 5,684,336 4,223,300
---------- ---------- ----------
OPERATING EXPENSES
Sales and marketing....................... 2,371,306 1,970,394 1,549,231
Cost of services.......................... 2,273,607 1,550,466 1,096,013
Research and development.................. 719,143 555,476 389,093
General and administrative................ 368,556 308,215 233,141
Acquired in-process research and
development.............................. 167,054 36,800 50,931
---------- ---------- ----------
Total operating expenses................. 5,899,666 4,421,351 3,318,409
---------- ---------- ----------
OPERATING INCOME........................... 1,244,200 1,262,985 904,891
---------- ---------- ----------
OTHER INCOME (EXPENSE)
Interest income........................... 85,986 47,381 30,235
Interest expense.......................... (16,658) (6,806) (6,632)
Other..................................... 14,291 (20,033) (8,984)
---------- ---------- ----------
Total other income (expense)............. 83,619 20,542 14,619
---------- ---------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES... 1,327,819 1,283,527 919,510
Provision for income taxes................ 514,124 462,070 316,231
---------- ---------- ----------
NET INCOME................................. $ 813,695 $ 821,457 $ 603,279
========== ========== ==========
EARNINGS PER SHARE
Basic..................................... $ 0.83 $ 0.83 $ 0.62
Diluted................................... $ 0.81 $ 0.81 $ 0.60
SHARES OUTSTANDING
Basic..................................... 977,599 984,197 979,557
Diluted................................... 999,725 1,009,295 1,005,987
</TABLE>

See notes to consolidated financial statements.

30
<PAGE>

ORACLE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MAY 31, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
COMMON STOCK AND ACCUMULATED FOREIGN
ADDITIONAL PAID-IN CAPITAL CURRENCY TRANSLATION
--------------------------- ADJUSTMENTS AND
NUMBER OF RETAINED UNREALIZED GAIN ON
SHARES AMOUNT EARNINGS EQUITY SECURITIES TOTAL
-------------- ----------- ---------- -------------------- ----------
<S> <C> <C> <C> <C> <C>
BALANCES, May 31, 1995.. 975,053,448 $ 338,986 $ 854,138 $ 18,234 $1,211,358
Common stock issued
under stock option
plans.................. 10,718,087 31,720 -- -- 31,720
Common stock issued
under stock purchase
plan................... 4,684,519 61,071 -- -- 61,071
Reclassification of put
warrant obligations.... -- 1,053 37,385 -- 38,438
Proceeds from sale of
call options........... -- 17,175 -- -- 17,175
Repurchase of common
stock.................. (6,717,201) (2,676) (110,411) -- (113,087)
Effect of common stock
dividend............... -- 2,188 (2,188) -- --
Tax benefits from stock
plans.................. -- 26,316 -- -- 26,316
Foreign currency
translation
adjustments............ -- -- -- (12,147) (12,147)
Unrealized gain on
equity securities...... -- -- -- 6,326 6,326
Net income.............. -- -- 603,279 -- 603,279
-------------- ----------- ---------- -------- ----------
BALANCES, May 31, 1996.. 983,738,853 475,833 1,382,203 12,413 1,870,449
Common stock issued
under stock option
plans.................. 8,814,265 46,013 -- -- 46,013
Common stock issued
under stock purchase
plan................... 4,628,451 92,171 -- -- 92,171
Sale of warrants to
purchase stock......... -- 35,898 -- -- 35,898
Repurchase of common
stock.................. (19,211,250) (10,719) (517,490) -- (528,209)
Tax benefits from stock
plans.................. -- 56,822 -- -- 56,822
Foreign currency
translation
adjustments............ -- -- -- (18,565) (18,565)
Unrealized gain on
equity securities...... -- -- -- (6,324) (6,324)
Net income.............. -- -- 821,457 -- 821,457
-------------- ----------- ---------- -------- ----------
BALANCES, May 31, 1997.. 977,970,319 696,018 1,686,170 (12,476) 2,369,712
Common stock issued
under stock option
plans.................. 8,369,044 72,432 -- -- 72,432
Common stock issued
under stock purchase
plan................... 5,443,255 131,860 -- -- 131,860
Repurchase of common
stock.................. (18,446,106) (16,280) (473,543) -- (489,823)
Effect of common stock
dividend............... -- 3,266 (3,266) -- --
Tax benefits from stock
plans.................. -- 41,629 -- -- 41,629
Foreign currency
translation
adjustments............ -- -- -- (29,325) (29,325)
Unrealized gain on
equity securities...... -- -- -- 28 28
Equity adjustments
related to
acquisitions........... -- 47,350 -- -- 47,350
Net income.............. -- -- 813,695 -- 813,695
-------------- ----------- ---------- -------- ----------
BALANCES, May 31, 1998.. 973,336,512 $ 976,275 $2,023,056 $(41,773) $2,957,558
============== =========== ========== ======== ==========
</TABLE>

See notes to consolidated financial statements.

31
<PAGE>

ORACLE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MAY 31, 1998, 1997 AND 1996
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
---------------------------------
1998 1997 1996
---------- ---------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................. $ 813,695 $ 821,457 $ 603,279
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization.............. 328,563 264,773 219,494
Write-off of acquired in-process research
and development........................... 167,054 36,800 50,931
Provision for doubtful accounts............ 106,915 92,635 64,412
Changes in assets and liabilities, net of
effects of acquisitions:
Increase in trade receivables............. (464,994) (628,025) (449,780)
Decrease (increase) in prepaid and
refundable income taxes.................. 10,370 (102,864) (20,377)
Increase in other current assets.......... (52,301) (8,893) (37,685)
Increase in accounts payable.............. 58,680 16,807 48,392
Increase in income taxes.................. 12,640 78,050 86,367
Increase in customer advances and unearned
revenues................................. 292,323 175,657 127,126
Increase in other current liabilities..... 285,493 275,534 210,984
Increase (decrease) in deferred income
taxes.................................... 23,086 6,286 (25,351)
Increase in other non-current liabilities. 33,055 2,287 11,365
---------- ---------- ---------
Net cash provided by operating activities.. 1,614,579 1,030,504 889,157
---------- ---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of cash investments............. (1,196,066) (524,313) (238,960)
Proceeds from maturities of cash
investments.............................. 803,402 252,077 177,491
Capital expenditures...................... (328,358) (390,741) (308,392)
Capitalization of computer software
development costs........................ (38,079) (28,064) (48,031)
Increase in other assets, net of cash
acquired from acquisitions............... (163,420) (86,340) (133,596)
---------- ---------- ---------
Net cash used for investing activities..... (922,521) (777,381) (551,488)
---------- ---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (payments) under notes
payable and long-term debt............... 3,862 298,321 (81,624)
Payments of capital leases................ (1,177) (1,316) (3,546)
Proceeds from common stock issued......... 204,292 138,184 92,791
Proceeds from sales of call options....... -- -- 17,175
Proceeds from sales of warrants........... -- 35,898 --
Repurchase of common stock................ (489,823) (528,209) (113,087)
---------- ---------- ---------
Net cash used for financing activities..... (282,846) (57,122) (88,291)
---------- ---------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH..... (25,693) (21,581) (13,794)
---------- ---------- ---------
Net increase in cash and cash equivalents.. 383,519 174,420 235,584
CASH AND CASH EQUIVALENTS
Beginning of year.......................... 890,162 715,742 480,158
---------- ---------- ---------
End of year................................ $1,273,681 $ 890,162 $ 715,742
========== ========== =========
</TABLE>

See notes to consolidated financial statements.

32
<PAGE>

ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1998

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Organization

Oracle designs, develops, markets and supports computer software products with
a wide variety of uses, including database management, application development
and business intelligence and business applications. The Company also offers
consulting, education and support services in support of its customers' use of
its software products.

Basis of Financial Statements

The consolidated financial statements include the accounts of the Company and
its subsidiaries. All intercompany transactions and balances between the
companies have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

Foreign Currency Translation

In general, the functional currency of a foreign operation is deemed to be the
local country's currency. Consequently, assets and liabilities of operations
outside the United States are generally translated into United States dollars
using current exchange rates, and the effects of foreign currency translation
adjustments are included as a component of stockholders' equity. At May 31,
1998 and 1997, accumulated foreign currency translation losses were
$41,803,000 and $12,478,000, respectively.

The Company hedges certain portions of its exposure to foreign currency
fluctuations through a variety of strategies and financial instruments. The
primary hedging instruments are forward foreign exchange contracts. At May 31,
1998, the Company had approximately $216,766,000 of forward foreign exchange
contracts outstanding as hedges of intercompany accounts of certain of its
international subsidiaries. An additional $49,080,000 of forward contracts
were outstanding as hedges of net assets of certain of its international
subsidiaries. The fair value of foreign currency contracts is estimated based
on the spot rate of the various hedged currencies as of the end of the period.
Gains and losses associated with currency rate changes on forward foreign
exchange contracts used to hedge intercompany accounts are recorded currently
in income, as they offset corresponding gains and losses on the foreign
currency-denominated assets and liabilities being hedged. Net foreign exchange
transaction losses and expenses were $8,752,000, $6,645,000 and $4,232,000 in
fiscal 1998, 1997, and 1996, respectively, and are included in other income
and expense. Net gains on equity hedges were $6,668,000, $7,598,000 and
$9,051,000 in fiscal 1998, 1997, and 1996, respectively. These net gains on
equity hedges were recorded as a component of accumulated foreign currency
translation adjustments in stockholders' equity.

As of May 31, 1998, the fair value (and carrying amount) of outstanding
foreign forward exchange contracts were as follows:

<TABLE>
<CAPTION>
Contract
Amount Fair Value
------------ ------------
<S> <C> <C>
Intercompany account hedges..................... $216,766,000 $215,286,000
Equity hedges................................... $ 49,080,000 $ 48,239,000
</TABLE>

33
<PAGE>

ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MAY 31, 1998

At May 31, 1998 maturities of the Company's forward foreign exchange and
equity hedge contracts were twelve months or less in term.

Accounting for Derivative Instruments and Hedging Activities

In June 1998, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 133 "Accounting for Derivative Instruments and for Hedging
Activities" which requires companies to value derivative financial
instruments, including those used for hedging foreign currency exposures, at
current market value with the impact of any change in market value being
charged against earnings in each period. SFAS No. 133 will be effective for
and adopted by the Company in the first quarter of the fiscal year ending May
31, 2000. The Company anticipates that SFAS No. 133 will not have a material
impact on its consolidated financial statements.

Supplemental Statements of Cash Flows Data

The Company paid income taxes in the amount of $439,708,000, $533,914,000 and
$438,791,000, and interest expense in the amount of $16,653,000, $843,000 and
$8,616,000 during the fiscal years ended 1998, 1997 and 1996, respectively. In
fiscal 1998, 1997 and 1996, the Company received income tax refunds in the
amount of $9,463,000, $13,273,000 and $6,201,000, respectively. The Company
purchased equipment under capital leases in the amount of $736,000, $946,000
and $803,000 in fiscal 1998, 1997 and 1996, respectively.

Non-cash transactions in fiscal 1996 included the expiration of $38,438,000 of
put warrants which were reclassified from liabilities to stockholders' equity.

Substantially all of the Company's cash and cash equivalents at May 31, 1998
consisted of highly liquid investments in time deposits of major world banks,
commercial paper, money market mutual funds and taxable municipal securities
with original maturities or puts of 90 days or less. The Company considers
such investments to be cash equivalents for purposes of the statements of cash
flows. Cash investments at May 31, 1998 primarily consisted of taxable
municipal securities, commercial paper and U.S. Government Agency Paper with
original maturities or puts of 91 days or more. No individual investment
security equaled or exceeded 2% of total assets.

Investments in Debt and Equity Securities

In accordance with SFAS No. 115 and based on the Company's intentions
regarding these instruments, the Company has classified all marketable debt
securities and long-term debt investments as held-to-maturity and has
accounted for these investments at amortized cost. The Company has classified
its marketable equity securities as available-for-sale (included in "Other
Assets" in the accompanying consolidated balance sheets) and recorded net
unrealized holding gains in equity of $30,000 and $2,000 as of May 31, 1998
and 1997, respectively, which were included in "Accumulated foreign currency
translation adjustments and unrealized gain on equity securities" in the
accompanying consolidated balance sheets.

34
<PAGE>

ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MAY 31, 1998

At May 31, 1998 and 1997, the amortized cost basis, aggregate fair value and
gross unrealized holding gains and losses by major security type were as
follows:

<TABLE>
<CAPTION>
AMORTIZED AGGREGATE UNREALIZED
COST BASIS FAIR VALUE GAINS/(LOSSES)
---------- ---------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Fiscal 1998:
Debt securities issued by states of
the United States and political
subdivisions of the states......... $275,985 $273,613 $(2,372)
Corporate debt securities........... 556,044 556,318 274
-------- -------- -------
Total cash investments.......... $832,029 $829,931 $(2,098)
======== ======== =======
Fiscal 1997:
Debt securities issued by states of
the United States and political
subdivisions of the states......... $251,670 $251,993 $ 323
Corporate debt securities........... 187,695 187,786 91
-------- -------- -------
Total cash investments.......... $439,365 $439,779 $ 414
======== ======== =======
</TABLE>

All of the Company's long-term investments mature within 30 months.

Concentration of Credit Risk

Financial instruments which potentially subject the Company to concentrations
of credit risk consist primarily of cash investments and trade receivables. The
Company has cash investment policies that limit investments to investment grade
securities. The Company performs ongoing credit evaluations of its customer's
financial condition and the risk with respect to trade receivables is further
mitigated by the fact that the Company's customer base is highly diversified.

Transfer of Financial Assets

The Company offers its customers the option to acquire its software and
services through payment plans, financing or leasing contracts. In general, the
Company transfers future payments under these contracts to financing
institutions on a non-recourse basis. The Company records such transfers as
sales of the related accounts receivable when it is considered to have
surrendered control of such receivables under the provisions of SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities."

Property

Property is stated at cost. Capital leases are recorded at the present value of
the future minimum lease payments at the date of acquisition. Depreciation is
computed using the straight-line method based on estimated useful lives of the
assets which range from two to forty years. Capital leases and leasehold
improvements are amortized over the estimated useful lives or lease terms, as
appropriate.

In fiscal 1998, 1997 and 1996, the Company purchased approximately $13,000,
$15,000 and $300,000, respectively, in computer equipment and maintenance
services from nCUBE Corporation, the principal shareholder of which is Lawrence
J. Ellison, Chief Executive Officer of the Company, for use in a variety of
internal development and production purposes.

35
<PAGE>

ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MAY 31, 1998

Software Development Costs

The Company capitalizes internally generated software development costs in
compliance with SFAS No. 86, "Accounting for the Costs of Computer Software to
be Sold, Leased or Otherwise Marketed." Capitalization of computer software
development costs begins upon the establishment of technological feasibility
for the product. Capitalized software development costs amounted to
$38,079,000, $28,064,000 and $48,031,000 in fiscal 1998, 1997 and 1996,
respectively.

Amortization of capitalized computer software development costs begins when
the products are available for general release to customers, and is computed
on a product-by-product basis as the greater of: (a) the ratio of current
gross revenues for a product to the total of current and anticipated future
gross revenues for the product; or (b) the straight-line method over the
remaining estimated economic life of the product (generally two to three
years). Amortization amounted to $38,035,000, $28,156,000 and $48,815,000, for
the fiscal years ended May 31, 1998, 1997 and 1996, respectively, and is
included in sales and marketing expenses.

Acquisitions

On August 29, 1997, the Company acquired the shares of TSC for approximately
$110,000,000 in cash and the conversion of outstanding TSC options to options
to purchase the Company's stock. As a result of this conversion, the Company
recorded a credit to equity of approximately $8,967,000 related to the value
of the stock options. The Company received an appraisal of certain intangible
assets which indicated that $91,500,000 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 $91,500,000 in the first
quarter of fiscal 1998. The remaining intangible assets acquired, with an
assigned value of approximately $45,000,000, were included in "Other Assets"
in the accompanying consolidated balance sheets, and are being amortized over
a five year period. Amortization expense of approximately $6,500,000 was
included in the accompanying consolidated statement of operations in fiscal
1998.

On August 11, 1997, the Company completed the merger of its subsidiary, NCI,
and Navio, a development stage company, in a stock for stock exchange valued
at approximately $77,000,000. As a result of the issuance of NCI stock in
exchange for the stock of Navio, the Company recorded a credit to equity of
approximately $38,383,000. The Company received an appraisal of certain
intangible assets which indicated that $75,554,000 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 $75,554,000 in the
first quarter of fiscal 1998. The remaining intangible assets acquired, with
an assigned value of approximately $2,100,000, were included in "Other Assets"
in the accompanying consolidated balance sheets, and are being amortized over
a three year period. Amortization expense of approximately $500,000 was
included in the accompanying consolidated statement of operations in fiscal
1998. As a result of the merger, the Company's ownership interest in NCI was
reduced to approximately 66%. The minority interest's share of the charge for
the acquired in-process research and development, $25,726,000, is reflected in
other income in the accompanying consolidated statements of operations for
fiscal 1998.

As of December 31, 1996, the Company had a minority investment in Datalogix of
approximately 13.4%. Effective January 1, 1997, the Company completed a merger
transaction, by which it acquired the remaining outstanding shares of
Datalogix for approximately $82,000,000 in cash. The Company received an
appraisal of certain intangible assets which indicated that $36,800,000 of the
acquired intangible assets consisted of in-

36
<PAGE>

ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MAY 31, 1998

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 $36,800,000 in the
accompanying consolidated statement of operations in fiscal 1997. The
remaining intangible assets acquired, with an assigned value of approximately
$20,000,000, were included in "Other Assets" in the accompanying consolidated
balance sheets and are being amortized over a five year period. Amortization
expense of approximately $4,000,000 and $1,700,000 was included in the
accompanying consolidated statement of operations in fiscal 1998 and 1997,
respectively.

On July 27, 1995, the Company completed the acquisition of the on-line
analytical processing business of Information Resources, Inc. for
approximately $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 consolidated statement of operations in fiscal
1996. The remaining intangible assets acquired, with an assigned value of
approximately $33,000,000, were included in "Other Assets" in the accompanying
consolidated balance sheets and are being amortized over a five year period.
Amortization expenses of approximately $7,600,000, $6,000,000 and $5,000,000
were included in the accompanying consolidated statement of operations in
fiscal 1998, 1997 and 1996, respectively.

No pro forma financial statements for the periods prior to the acquisitions
have been provided due to the amounts being immaterial.

Deferred Revenues

Deferred revenues primarily relate to support agreements which have been paid
for by customers prior to the performance of those services.

Long Term Debt

Based on the borrowing rates currently available to the Company for loans
similar in terms and average maturities, the stated value of long term debt
approximated market value at May 31, 1998.

Revenue Recognition

In October 1997, the American Institute of Certified Public Accountants
("AICPA") issued SOP No. 97-2, "Software Revenue Recognition" which supersedes
SOP No. 91-1. SOP No. 97-2 is effective for the Company's fiscal year
beginning June 1, 1998 and provides guidance on applying generally accepted
accounting principles for software revenue recognition transactions. Based on
the Company's current interpretation of the requirements of SOP No. 97-2,
application of this statement is not anticipated to materially impact the
Company's revenues, results of operations or financial condition.

The Company generates several types of revenue including the following:

License and Sublicense Fees. The Company's standard end user license
agreement for the Company's products provides for an initial fee to use the
product in perpetuity up to a maximum number of users. The Company also enters
into other license agreement types, typically with major end user customers,
which allow for the use of the Company's products, usually restricted by the
number of employees, the number of users, or the license term. Fees from
licenses are recognized as revenue upon contract execution, provided all
shipment obligations have been met, fees are fixed or determinable, and
collection is probable. Fees from licenses sold

37
<PAGE>

ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MAY 31, 1998

together with consulting services are generally recognized upon shipment
provided that the above criteria have been met and payment of the license fees
is not dependent upon the performance of the consulting services. In instances
where the aforementioned criteria have not been met, both the license and
consulting fees are recognized under the percentage of completion method of
contract accounting.

The Company provides for sales returns based on historical rates of return.

Support Agreements. Support agreements generally call for the Company to
provide technical support and software updates to customers. Revenue on
technical support and software update rights is recognized ratably over the
term of the support agreement and is included in services revenue in the
accompanying statement of operations.

Consulting and Education Services. The Company provides consulting and
education services to its customers. Revenue from such services is generally
recognized as the services are performed.

Accounting for Stock-Based Compensation

Effective June 1, 1996, the Company adopted the disclosure provisions of SFAS
No. 123, "Accounting for Stock-Based Compensation." In accordance with the
provisions of SFAS No. 123, the Company applies Accounting Principles Board
Opinion 25 and related interpretations in accounting for its employee stock
option plans. See Note 6 to the Consolidated Financial Statements for a summary
of the pro forma effects on reported net income and earnings per share for
fiscal 1998 and 1997 based on the fair value of options and shares granted as
prescribed by SFAS No. 123.

Income Taxes

Deferred income taxes are provided for timing differences in recognizing
certain income, expense and credit items for financial reporting purposes and
tax reporting purposes. Such deferred income taxes primarily relate to the
methods of accounting for capitalized software development costs, the timing of
recognition of certain revenue items, the timing of the deductibility of
certain reserves and accruals for income tax purposes and the timing of
recognition of dividends from subsidiaries.

Earnings Per Share

On July 14, 1997, the Company announced a three-for-two stock split in the form
of a common stock dividend distributed on August 15, 1997 to stockholders of
record as of August 1, 1997. All per share data and numbers of common shares
contained in this Form 10-K have been retroactively adjusted to reflect the
stock split.

In February 1997, the Financial Accounting Standards Board issued SFAS No. 128
"Earnings per Share," which was adopted by the Company in the third quarter of
fiscal 1998. SFAS No. 128 requires companies to compute earnings per share
under two different methods, basic and diluted earnings per share, and to
disclose the methodology used for the calculations.

38
<PAGE>

ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MAY 31, 1998

Basic earnings per share is calculated using the weighted average number of
shares outstanding during the period. Diluted earnings per share is computed on
the basis of the weighted average number of common shares outstanding plus the
dilutive effect of outstanding stock options using the "treasury stock" method.
The following table sets forth the computation of basic and diluted earnings
per share:

<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
-------------------------------------
1998 1997 1996
------------------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net income............................ $ 813,695 $ 821,457 $ 603,279
=========== ============ ============
Weighted average shares outstanding... 977,599 984,197 979,557
Dilutive effect of employee stock
options.............................. 22,126 25,098 26,430
----------- ------------ ------------
Diluted shares outstanding............ 999,725 1,009,295 1,005,987
=========== ============ ============
Basic earnings per share.............. $ 0.83 $ 0.83 $ 0.62
Diluted earnings per share............ $ 0.81 $ 0.81 $ 0.60
</TABLE>

Capital Structure

In fiscal 1998, the Company adopted SFAS No. 129, "Disclosure of Information
About Capital Structure." SFAS No. 129 requires companies to disclose certain
information about their capital structure. SFAS No. 129 did not have a material
impact on the Company's consolidated financial statement disclosures.

Comprehensive Income

In June 1997, the FASB issued SFAS No. 130, "Comprehensive Income," which will
be adopted by the Company in the first quarter of fiscal 1999. SFAS No. 130
requires companies to report a new, additional measure of income on the income
statement or to create a new financial statement that shows the new measure of
income. "Comprehensive Income" will include foreign currency translation gains
and losses and unrealized gains and losses on equity securities that have been
previously excluded from net income and reflected instead in equity. The
Company anticipates that SFAS No. 130 will not have a material impact on its
consolidated financial statements.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current
year presentation.

2. PROPERTY

Property consists of:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
--------------------
1998 1997
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Computer equipment................................... $ 813,037 $ 681,324
Furniture and fixtures............................... 255,625 217,109
Automobiles.......................................... 8,983 6,653
Buildings and improvements........................... 565,933 486,208
Land................................................. 89,750 85,980
--------- ---------
Total............................................ 1,733,328 1,477,274
Accumulated depreciation and amortization............ (798,978) (608,326)
--------- ---------
Property, net.................................... $ 934,350 $ 868,948
========= =========
</TABLE>

39
<PAGE>

ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MAY 31, 1998

During fiscal 1994, the Company purchased $85,100,000 in mortgage notes. These
notes are the obligations of IV Centrum Associates, a real estate limited
partnership, which owns two buildings leased by the Company at its
headquarters site. The Company also became a 74% limited partner in IV Centrum
Associates by making a capital contribution of approximately $4,000,000. The
Company has the right to leave the partnership and to take full title to both
buildings without making further capital contributions. As a result of the
original note purchases and capital contribution, the Company capitalized the
two building leases, and the $89,100,000 in payments have been classified as
buildings and improvements.

Additionally, during fiscal 1994, the Company entered into an arrangement
whereby it leased an office building adjacent to its headquarters site and
concurrently acquired the land under the building and all outstanding mortgage
notes for a total of $22,100,000. The Company has various options to extend
the lease and to purchase the building at various times during the lease term.
As a result of the land and note purchases, the Company has capitalized the
building lease, and the $22,100,000 in payments have been classified as land
and buildings and improvements.

In fiscal 1997, the Company became a 74% limited partner in III Centrum
Associates Limited Partnership, a real estate limited partnership which owns
one of the buildings leased by the Company at its headquarters site, by making
a capital contribution of $2,500,000. Additionally, in fiscal 1997, the
Company loaned the partnership $60,400,000 in the form of a promissory note
secured by a deed of trust which was used to pay off a mortgage on a building
owned by the partnership. The Company has the right to leave the partnership
on January 1, 2000, and to take title to the building without making further
capital contributions. The Company continues to lease the building from the
partnership. As a result of the loan and capital contribution, the Company has
capitalized the building lease, and the $62,900,000 in payments have been
classified as buildings and improvements.

Equipment under capital leases included in property at May 31, 1998 and 1997
was $28,182,000 and $29,452,000, respectively. Accumulated amortization of
leased equipment at such dates was $27,285,000 and $27,698,000, respectively.

As of May 31, 1998, future minimum annual lease payments under capital leases
together with their present value were:

<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
------------------ (IN THOUSANDS)
<S> <C>
1999........................................................ $ 696
2000........................................................ 293
2001........................................................ 95
2002........................................................ 30
------
Total minimum lease payments.............................. 1,114
Amount representing interest................................ (182)
------
Present value of minimum lease payments................... $ 932
======
</TABLE>

In March 1998, the AICPA issued SOP 98-1 "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." SOP No. 98-1 is effective
for the Company's fiscal year beginning June 1, 1998. The Company anticipates
that SOP No. 98-1 will not have a material impact on its consolidated
financial statements.

40
<PAGE>

ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MAY 31, 1998

3. NOTES PAYABLE AND CURRENT MATURITIES OF LONG-TERM DEBT

At May 31, 1998 and 1997, the Company had unsecured short-term borrowings from
banks which were payable on demand in the amounts of $2,282,000 and
$2,532,000, respectively. The Company also had current maturities of long-term
debt of $642,000 and $829,000 at May 31, 1998 and 1997, respectively.

4. LONG-TERM DEBT

Long-term debt consists of:

<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
--------------------
1998 1997
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Senior Notes........................................ $ 300,000 $ 300,000
Other............................................... 4,047 64
Capital lease obligations (See Note 2).............. 932 1,601
--------- ---------
Total............................................. 304,979 301,665
Current maturities.................................. (642) (829)
--------- ---------
Long-term debt...................................... $ 304,337 $ 300,836
========= =========
</TABLE>

During the third quarter of fiscal 1997, the Company issued $150,000,000 in
6.72% Senior Notes due in the year 2004 and $150,000,000 in 6.91% Senior Notes
due in the year 2007. The Senior Notes are unsecured general obligations of
the Company that rank on a parity with all other unsecured and unsubordinated
indebtedness of the Company that may be outstanding. As of May 31, 1998,
maturities of long-term debt (excluding the Senior Notes discussed above and
the lease payments related to capitalized lease obligations discussed in Note
2) are:

<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
------------------ (IN THOUSANDS)
<S> <C>
1999........................................................ $ --
2000........................................................ --
2001........................................................ 47
2002........................................................ 4,000
------
Total..................................................... $4,047
======
</TABLE>

5. COMMITMENTS

In December 1996, the Company entered into a seven year master lease facility
which provides for the construction or purchase of up to $150,000,000 of
property and improvements to be leased to the Company. In May 1998, this
facility was increased by $32,000,000 to a total of $182,000,000. The
Company's obligation to make lease payments generally will begin at the end of
the construction period. Rent will be payable quarterly in arrears over a term
of seven years. The Company's obligations under the lease facility currently
are collateralized by a forward contract to sell 6,000,000 shares of the
Company's Common Stock at $26.50 per share plus accretion, subject to
adjustments over time. The forward contract has a stated maturity of February
13, 2003. The buyer may complete the sale on February 13, 2001 (or for a
fifteen day period thereafter) or in certain other circumstances as defined by
the forward contract. The Company may, at its option, anytime during the lease
term substitute other collateral such as U.S. treasury securities. The Company
may, at its option, purchase the leased properties during the term of the
lease at approximately the amount expended by the lessor to construct or

41
<PAGE>

ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MAY 31, 1998

purchase such properties. In the event that the Company does not exercise its
purchase option, the Company has agreed to guarantee that the properties will
have a specified residual value which will be determined at the lease
inception date for each property. As of May 31, 1998, approximately
$114,300,000 of the master lease facility had been utilized. Leases under the
provisions of this agreement are accounted for as operating leases.

Facilities and certain furniture and equipment are leased under operating
leases. As of May 31, 1998, future minimum annual lease payments (excluding
the master lease facility discussed above and the lease payments related to
capitalized facilities discussed in Note 2) are as follows:

<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
------------------ (IN THOUSANDS)
<S> <C>
1999........................................................ $145,547
2000........................................................ 127,219
2001........................................................ 98,595
2002........................................................ 77,321
2003........................................................ 60,166
Thereafter.................................................. 226,099
--------
Total..................................................... $734,947
========
</TABLE>

Rent expense was $206,108,000, $184,468,000 and $179,227,000, for fiscal years
1998, 1997 and 1996, respectively. Rent expense in fiscal 1998, 1997 and 1996
is net of sublease income of approximately $3,169,000, $1,394,000 and
$2,020,000, respectively.

6. STOCKHOLDERS' EQUITY

Stock Option Plans

The Company's 1985 Stock Option Plan provided for the issuance of incentive
stock options to employees of the Company and non-qualified options to
employees, directors, consultants and independent contractors of the Company.
Under the terms of this plan, options were generally granted at not less than
fair market value, became exercisable as established by the Board of Directors
(generally ratably over four to five years), and generally expire ten years
from the date of grant. As of May 31, 1998, options to purchase 1,505,379
shares were outstanding and vested. As of May 31, 1998, there were no options
for shares of Common Stock available for future grant under this plan.

In fiscal 1991, the Company adopted both the 1990 Directors Stock Option Plan
and the 1990 Executive Officers Stock Option Plan which provide for the
issuance of non-qualified stock options to directors and non-qualified or
incentive stock options to executive officers of the Company, respectively.
Under the terms of these plans, options to purchase up to 14,445,000 shares of
Common Stock were reserved for issuance, generally are granted at not less
than fair market value, become exercisable as established by the Board of
Directors (generally ratably over four years), and generally expire ten years
from the date of grant. As of May 31, 1998 options to purchase 879,939 shares
of Common Stock were outstanding and vested. Options for 3,477,256 shares were
available for future grant under these plans at May 31, 1998.

In fiscal 1992, the Company adopted the Long-term Equity Incentive Plan which
provides for the issuance of non-qualified stock options and incentive stock
options, as well as stock purchase rights, stock appreciation rights (in
connection with options), and long-term performance awards to eligible
employees, officers, directors who are also employees or consultants, and
advisors of the Company. Under the terms of this plan, options to

42
<PAGE>

ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MAY 31, 1998

purchase 33,750,000 shares of Common Stock were reserved for issuance,
generally are granted at not less than fair market value, become exercisable
as established by the Board of Directors (generally ratably over four years),
and generally expire ten years from the date of grant. An additional
27,000,000 shares of Common Stock were reserved for issuance under the plan in
each of fiscal 1994 and fiscal 1996. In fiscal 1997, an additional 51,000,000
shares of Common Stock were reserved for issuance under the plan. As of May
31, 1998, options to purchase 65,922,688 shares of Common Stock were
outstanding, of which 30,202,676 shares were vested. Options for 47,828,274
shares were available for future grant under the plan at May 31, 1998. To
date, the Company has not issued any stock purchase rights, stock appreciation
rights or long-term performance awards under this plan.

In fiscal 1993, the Company's Board of Directors adopted the 1993 Directors
Stock Option Plan (the "1993 Directors Plan") which provides for the issuance
of non-qualified stock options to outside directors. Under the terms of this
plan, options to purchase 3,375,000 shares of Common Stock were reserved for
issuance, are granted at not less than fair market value, become exercisable
over four years, and expire ten years from the date of grant. Under the terms
of the 1993 Directors Plan, all grants of options to purchase shares of the
Company's Common Stock are automatic and nondiscretionary. Each individual who
becomes an outside director shall automatically be granted options to purchase
50,000 shares. The 1993 Directors Plan also provides for subsequent stock
option grants. On May 31 of each year, each outside director will be granted
options to purchase 18,000 shares of the Company's Common Stock, provided that
on such date the outside director has served on the Company's Board of
Directors for at least six months. In addition, in lieu of the grant of an
option to purchase 18,000 shares of Common Stock, each outside director who
has served as a Chairman of the Executive or Finance and Audit Committee of
the Company's Board of Directors will be granted options to purchase 40,000
shares of Common Stock on May 31 of each year, provided that the outside
director has served as a Chairman of any such committee for at least one year.
In addition, an outside director who is the Chairman of the Compensation
Committee of the Company's Board of Directors and who has served on the
Compensation Committee for at least one year, will be granted options to
purchase 25,000 shares of common stock on May 31 of each year beginning May
31, 1998. As of May 31, 1998, options to purchase 821,282 shares of Common
Stock were outstanding, of which 394,360 were vested. Options for 2,186,221
shares were available for future grant under this plan at May 31, 1998.

In December 1997, the Company reduced the exercise price of approximately 20%
of the outstanding Common Stock options held by the Company's employees to the
fair market value per share as of the date of the reduction in price. The
Company repriced these employee stock options in an effort to retain employees
at a time when a significant percentage of employee stock options had exercise
prices that were above fair market value. The Company believes that stock
options are a valuable tool in compensating and retaining employees. Executive
officers and directors were excluded from this repricing.

43
<PAGE>

ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MAY 31, 1998

The following table summarizes stock option plan activity:

<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES UNDER OPTION EXERCISE PRICE
------------------- ----------------
<S> <C> <C>
Balance, May 31, 1995................. 55,949,673 $ 6.14
Granted............................. 18,685,829 20.23
Exercised........................... (10,718,087) 2.95
Canceled............................ (3,590,525) 12.29
-----------
Balance, May 31, 1996................. 60,326,890 $10.69
-----------
Granted............................. 17,165,418 25.70
Exercised........................... (8,814,265) 5.41
Canceled............................ (3,233,362) 16.67
-----------
Balance, May 31, 1997................. 65,444,681 $15.00
-----------
Granted............................. 31,182,867 29.72
Exercised........................... (8,369,044) 8.66
Canceled............................ (19,129,216) 33.33
-----------
Balance, May 31, 1998................. 69,129,288 $17.32
===========
</TABLE>

As of May 31, 1998, the Company had reserved 122,621,039 shares of Common
Stock for the exercise of options. The range of exercise prices for options
outstanding at May 31, 1998 was $0.70 to $34.71. The range of exercise prices
for options is due primarily to the fluctuating price of the Company's stock
over the period of the grants.

The following table summarizes information about stock options outstanding at
May 31, 1998:

<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER WEIGHTED WEIGHTED NUMBER EXERCISE PRICE OF
RANGE OF OUTSTANDING AVERAGE REMAINING AVERAGE EXERCISABLE EXERCISABLE
EXERCISE PRICE AS OF 5/31/98 CONTRACTUAL LIFE EXERCISE PRICE AS OF 5/31/98 OPTIONS
-------------------------------- ----------------- -------------- ------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 0.70 -- $ 0.70 8,755 4.12 $ 0.70 8,755 $ 0.70
$ 0.89 -- $ 1.35 7,383,136 3.07 $ 1.30 7,383,136 $ 1.30
$ 1.50 -- $10.00 8,046,740 4.66 $ 5.70 7,514,415 $ 5.88
$10.07 -- $14.22 7,754,709 6.18 $12.11 6,231,885 $11.86
$14.28 -- $20.94 7,796,364 6.96 $16.77 3,908,992 $16.40
$21.06 -- $22.58 8,030,348 7.66 $22.42 3,865,794 $22.42
$22.75 -- $22.75 13,946,863 8.90 $22.75 38,251 $22.75
$22.92 -- $25.56 6,991,105 7.93 $23.70 1,875,183 $23.85
$26.06 -- $27.54 1,351,425 8.93 $26.64 231,800 $26.66
$27.67 -- $34.71 7,819,843 8.63 $27.91 1,924,143 $27.82
---------- ----------
$ 0.70 -- $34.71 69,129,288 6.99 $17.32 32,982,354 $11.64
========== ==========
</TABLE>

44
<PAGE>

ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MAY 31, 1998

Stock Purchase Plan

In October 1987, the Company adopted an Employee Stock Purchase Plan (the
"1987 Purchase Plan") and reserved 54,000,000 shares of Common Stock for
issuance thereunder. In September 1992, the plan was amended to reserve an
additional 1,687,500 shares of Common Stock. The 1987 Purchase Plan was
terminated on September 30, 1992 and the remaining shares became available for
issuance under the 1992 Purchase Plan.

In August 1992, the Company adopted the Employee Stock Purchase Plan (1992)
(the "Employee Stock Purchase Plan") and reserved 13,500,000 shares of Common
Stock for issuance thereunder. An additional 13,500,000 and 10,500,000 shares
of Common Stock were reserved for issuance under the plan in fiscal 1994 and
fiscal 1997, respectively. Under the stock purchase plan, the Company's
employees may purchase shares of Common Stock at a price per share that is 85%
of the lesser of the fair market value as of the beginning or the end of the
semi-annual option period. Through May 31, 1998, 27,974,276 shares had been
issued and 10,145,677 shares are reserved for future issuances under this
plan.

During fiscal 1998, 1997 and 1996 the Company issued 5,443,255, 4,628,451 and
4,684,519 shares, respectively, under the Employee Stock Purchase Plan. If the
Company had elected to recognize the compensation cost based on the fair value
of the employee's purchase rights, the cost would have been estimated using
the Black-Scholes model, with the following assumptions for each of the two
six-month periods in fiscal 1998, 1997 and 1996: (i) dividend yield of zero
percent for all periods, (ii) expected life of one-half year for all periods,
(iii) expected volatility of 39%, 37.5% and 37.5%, and (iv) risk-free interest
rates within a range of 5.55% to 6.37%. The weighted-average fair value of
each purchase right granted in fiscal 1998, 1997 and 1996 was $9.35, $6.35 and
$4.19 per share, respectively.

Shareholder Rights Plan

On December 3, 1990, the Board of Directors adopted a Shareholder Rights Plan.
The Shareholder Rights Plan was amended on March 31, 1998. Pursuant to the
Shareholder Rights Plan, the Company distributed Preferred Stock Purchase
Rights as a dividend at the rate of one Right for each share of the Company's
Common Stock held by stockholders of record as of December 31, 1990. The Board
of Directors also authorized the issuance of Rights for each share of Common
Stock issued after record date, until occurrence of certain specified events.
The Shareholder Rights Plan was adopted to provide protection to stockholders
in the event of an unsolicited attempt to acquire the Company.

The Rights are not exercisable until the earlier of (i) ten days following an
announcement that a person or group has acquired beneficial ownership of 15%
of the Company's Common Stock or (ii) ten days (or such later date as may be
determined by the Board of Directors) following the announcement of a tender
offer which would result in a person or group obtaining beneficial ownership
of 15% or more of the Company's outstanding Common Stock, subject to certain
exceptions (the earlier of such dates being called the "Distribution Date.")
The Rights are initially exercisable for one-six thousand seven hundred
fiftieth of a share of the Company's Series A Junior Participating Preferred
Stock at a price of $125.00 per one-six thousand seven hundred fiftieth of a
share, subject to adjustment. However, if (i) after the Distribution Date the
Company is acquired in certain types of transactions, or (ii) any person or
group (with certain exceptions) acquires beneficial ownership of 15% of the
Company's Common Stock, then holders of Rights (other than the 15% holder)
will be entitled to receive upon exercise of the Right, Common Stock of the
Company (or in the case of acquisition of the Company, Common Stock of the
acquirer) having a market value of two times the exercise price of the Right.

The Company is entitled to redeem the Rights, for $0.000148 per Right, at the
discretion of the Board of Directors, until certain specified times. The
Rights are not exercisable until the Company's period for redemption

45
<PAGE>

ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MAY 31, 1998

has passed. The Company may also require the exchange of Rights, at a rate of
one share of Common Stock, for each Right, under certain circumstances. The
Company also has the ability to amend the Rights, subject to certain
limitations.

Stock Repurchases

The Company's Board of Directors has approved the repurchase of up to
106,000,000 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 purchased 18,466,106 shares of the Company's Common Stock for
approximately $489,823,000 in fiscal 1998, 19,211,250 shares of the Company's
Common Stock for approximately $528,209,000 in fiscal 1997, 6,717,201 shares
of the Company's Common Stock for approximately $113,087,000 in fiscal 1996
and 26,458,313 shares of the Company's Common Stock for approximately
$200,646,000 prior to fiscal 1996.

Stock Warrants

During fiscal 1998, the Company, as part of its authorized stock repurchase
program, sold put warrants and purchased call options through private
placements. As of May 31, 1998, the Company has a maximum potential obligation
under the put warrants to buy back 17,901,000 shares of its common stock for
prices ranging from $15.86 to $22.77 per share for an aggregate price of
approximately $343,000,000. The put warrants will expire from January 1999
through August 1999. The Company purchased call options for 8,950,500 shares
of its Common Stock at prices ranging from $18.09 to $26.09 per share for an
aggregate price of approximately $212,000,000. The call options will expire
from January 1999 through August 1999.

Accounting for Stock-Based Compensation

Pro forma information regarding net income and earnings per share is required
by SFAS No. 123. This information is required to be determined as if the
Company had accounted for its employee stock purchase plan and employee stock
options granted subsequent to May 31, 1996 under the fair value method of that
statement.

The fair value of options granted for fiscal years ending May 31, 1998, 1997
and 1996 reported below has been estimated at the date of grant using a Black-
Scholes option pricing model with the following weighted average assumptions:

<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
-----------------------------
EMPLOYEE STOCK OPTIONS 1998 1997 1996
---------------------- --------- --------- ---------
<S> <C> <C> <C>
Expected life from vest date (in years):
Employees................................. 0.45 0.41 0.41
Officers and Directors.................... 0.43-6.14 0.43-6.14 0.43-6.14
Risk-free interest rates.................... 5.6-6.6% 5.6-6.8% 5.30-6.7%
Volatility.................................. 39.0% 37.5% 37.5%
Dividend yield.............................. -- -- --
</TABLE>

46
<PAGE>

ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MAY 31, 1998

The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions, including the expected stock price volatility.
The Company's options have characteristics significantly different from those
of traded options, and changes in the subjective input assumptions can
materially affect the fair value estimate. Based upon the above assumptions,
the weighted average fair value of employee stock options granted during
fiscal 1998, 1997 and 1996 was $9.32, $11.60 and $8.89 per share,
respectively.

For purposes of pro forma disclosures, the estimated fair value of the options
is amortized over the options' vesting period. Had the Company's stock option
and stock purchase plan been accounted for under SFAS No. 123, net income and
earnings per share would have been reduced to the following pro forma amounts:

<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
--------------------------------------
1998 1997 1996
------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net income:
As reported....................... $ 813,695 $ 821,457 $ 603,279
Pro forma......................... $ 656,711 $ 737,288 $ 572,875
Earnings per share:
Basic............................. $ 0.83 $ 0.83 $ 0.62
Diluted........................... $ 0.81 $ 0.81 $ 0.60
Proforma basic.................... $ 0.67 $ 0.75 $ 0.58
Proforma diluted.................. $ 0.66 $ 0.74 $ 0.57
</TABLE>

The effects of applying SFAS No. 123 on pro forma disclosures of net income
and earnings per share for fiscal 1998, 1997 and 1996 are not likely to be
representative of the pro forma effects on net income and earnings per share
in future years.

7. INCOME TAXES

The following is a geographical breakdown of the Company's income before
taxes:

<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
------------------------------
1998 1997 1996
---------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Domestic...................................... $ 799,814 $ 952,131 $680,172
Foreign....................................... 528,005 331,396 239,338
---------- ---------- --------
Total....................................... $1,327,819 $1,283,527 $919,510
========== ========== ========
</TABLE>

47
<PAGE>

ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MAY 31, 1998

The provision for income taxes consists of the following:

<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
----------------------------
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Current payable:
Federal...................................... $275,837 $318,976 $253,514
State........................................ 54,035 55,387 42,738
Foreign...................................... 133,790 169,080 109,712
-------- -------- --------
Total current.............................. 463,662 543,443 405,964
-------- -------- --------
Deferred payable (prepaid):
Federal...................................... 45,116 (53,480) (67,865)
State........................................ (9,369) (11,136) (8,129)
Foreign...................................... 14,715 (16,757) (13,739)
-------- -------- --------
Total deferred............................. 50,462 (81,373) (89,733)
-------- -------- --------
Total.......................................... $514,124 $462,070 $316,231
======== ======== ========
</TABLE>

The provision for income taxes differs from the amount computed by applying
the federal statutory rate to the Company's income before taxes as follows:

<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
----------------------------
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Tax provision at statutory rate............... $464,737 $449,234 $321,829
Tax credits................................... (12,500) (13,455) (692)
Tax benefit of exempt FSC income.............. (18,214) (22,130) (20,831)
State tax expense, net of federal benefit..... 34,367 31,632 22,800
Foreign taxes provided at rates other than the
U.S. statutory rate.......................... (10,260) 6,797 (1,977)
Nondeductible write-off of acquired in-process
research and development..................... 49,274 10,405 --
Other, net.................................... 6,720 (413) (4,898)
-------- -------- --------
Provision for income taxes.................... $514,124 $462,070 $316,231
======== ======== ========
</TABLE>

48
<PAGE>

ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MAY 31, 1998

The components of the deferred tax assets and liabilities, as reflected on the
balance sheet, consist of the following:

<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
----------------------------
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred tax liabilities:
Capitalized software development costs...... $(38,051) $(40,506) $(34,858)
Other tax liabilities....................... (10,787) (793) (16,319)
-------- -------- --------
Total deferred tax liabilities............ (48,838) (41,299) (51,177)
-------- -------- --------
Deferred tax assets:
Reserves and accruals....................... 117,705 101,444 44,155
Differences in timing of revenue
recognition................................ 77,335 104,561 51,366
Foreign earnings deemed repatriated......... -- 25,400 49,325
Net operating loss carryovers............... 16,173 24,935 16,417
Depreciation and amortization............... 55,550 65,368 29,670
Deferred cost sharing gain.................. 30,412 -- --
Employee compensation and benefits.......... 35,602 27,476 35,459
Other tax assets............................ 6,894 14,640 35,569
-------- -------- --------
Total deferred tax assets................. 339,671 363,824 261,961
Valuation allowance......................... (6,986) (8,784) (7,815)
-------- -------- --------
Net....................................... $283,847 $313,741 $202,969
-------- -------- --------
Recorded as:
Prepaid and refundable income taxes......... $260,624 $274,366 $171,560
Deferred income taxes....................... (15,856) (7,402) (9,207)
Other assets................................ 39,079 46,777 40,616
-------- -------- --------
$283,847 $313,741 $202,969
======== ======== ========
</TABLE>

The Company provides United States income taxes on the earnings of foreign
subsidiaries unless they are considered permanently invested outside the
United States. As of May 31, 1998, the cumulative amount of earnings upon
which United States income taxes have not been provided are approximately
$411,979,000. At May 31, 1998, the unrecognized deferred tax liability for
these earnings is approximately $53,760,000.

Certain foreign subsidiaries of the Company have net operating loss
carryforwards at May 31, 1998, totaling approximately $60,414,000, which may
be used to offset future taxable income. These carryforwards expire at various
dates; $797,000 in 1999, $945,000 in 2000, $2,795,000 in 2001, $9,689,000 in
2002, $1,419,000 in 2003, $4,604,000 in 2004, $12,376,000 in 2005, and the
remaining balance has no expiration.

The Company's federal tax returns have been examined by the Internal Revenue
Service for all years through 1991. The IRS has assessed taxes for 1988, 1989,
1990 and 1991 that the Company is contesting in Tax Court. The IRS is
examining the Company's U.S. income tax returns for 1992 through 1995.
Management does not believe that the outcome of these matters will have a
material adverse effect on the Company's consolidated results of operations or
consolidated financial position.

49
<PAGE>

ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MAY 31, 1998

8. SEGMENT INFORMATION

The Company operates in one industry segment: the development and marketing of
computer software and related services. The Company's products are marketed
internationally through the Company's subsidiaries and through distributors.
Intercompany revenues are generally based on a sublicense fee, representing a
percentage of license and support revenues generated by non-U.S. operations
from their unaffiliated customers.

The following table presents a summary of operations by geographic region:

<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
--------------------------------
1998 1997 1996
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues from unaffiliated customers:
Domestic operations..................... $3,571,159 $2,664,962 $1,815,725
---------- ---------- ----------
International operations:
Europe/Middle East/Africa operations.. 2,297,340 1,881,157 1,541,308
Asia Pacific operations............... 797,995 809,604 605,244
Other Americas operations............. 477,372 328,613 261,023
---------- ---------- ----------
Total international operations...... 3,572,707 3,019,374 2,407,575
---------- ---------- ----------
Consolidated.............................. $7,143,866 $5,684,336 $4,223,300
========== ========== ==========
Intercompany revenues:
Domestic operations..................... $ 694,072 $ 646,389 $ 508,201
========== ========== ==========
Operating income (excluding acquired in-
process research and development):
Domestic operations..................... $ 991,628 $ 963,391 $ 714,208
Europe/Middle East/Africa operations.... 238,641 165,919 113,956
Asia Pacific operations................. 100,486 125,811 81,844
Other Americas operations............... 80,499 44,664 45,814
---------- ---------- ----------
Consolidated........................ $1,411,254 $1,299,785 $ 955,822
========== ========== ==========
Identifiable assets:
Domestic operations..................... $3,821,239 $2,894,912 $1,976,487
Europe/Middle East/Africa operations.... 1,367,901 1,131,723 942,816
Asia Pacific operations................. 375,544 445,930 336,640
Other Americas operations............... 254,327 151,750 101,300
---------- ---------- ----------
Consolidated........................ $5,819,011 $4,624,315 $3,357,243
========== ========== ==========
</TABLE>

In 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," which
will be adopted by the Company in its 1999 annual consolidated financial
statements. SFAS No. 131 requires companies to report financial and
descriptive information about its reportable operating segments, including
segment profit or loss, certain specific revenue and expense items, and
segment assets, as well as information about the revenues derived from the
Company's products and services, the countries in which the Company earns
revenues and holds assets, and major customers.

50
<PAGE>

ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MAY 31, 1998

9. LEGAL PROCEEDINGS

Shareholder class actions were filed in the California Superior Court for the
County of San Mateo against the Company and its chief financial officer and
chief operating officer on and after December 18, 1997. The class actions were
brought on behalf of purchasers of the stock of the Company during the period
April 29, 1997 through December 9, 1997. Plaintiffs allege that the defendants
made misstatements about anticipated revenue growth in the Company's database
and applications businesses, while selling Company stock, in violation of
California state securities laws. The class actions have been consolidated
into a single action. On June 16, 1998, the Court overruled the Company's
demurrer to the complaint and ordered defendants to answer the complaint
within thirty days. The Company believes that it has meritorious defenses to
this action and intends to vigorously defend it.

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.

51
<PAGE>

SCHEDULE II

ORACLE CORPORATION
VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
BALANCE AT ADDITIONS BALANCE
BEGINNING CHARGED TRANSLATION AT END
CLASSIFICATION OF PERIOD TO OPERATIONS WRITE-OFFS ADJUSTMENTS OF PERIOD
-------------- ------------ ------------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful
Accounts Year Ended:
May 31, 1996.......... $ 67,728,000 $ 64,412,000 $(23,229,000) $(3,200,000) $105,711,000
============ ============ ============ =========== ============
May 31, 1997.......... $105,711,000 $ 92,635,000 $(68,804,000) $(1,702,000) $127,840,000
============ ============ ============ =========== ============
May 31, 1998.......... $127,840,000 $106,915,000 $(34,407,000) $(4,739,000) $195,609,000
============ ============ ============ =========== ============
</TABLE>

52
<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on July 21, 1998.

Oracle Corporation

Lawrence J. Ellison
By: _________________________________
Lawrence J. Ellison, Chief
Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the date indicated.

<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----

<S> <C> <C>
Lawrence J. Ellison Chief Executive Officer and Chairman of July 21, 1998
____________________________________ the Board of Directors (Principal
Lawrence J. Ellison Executive Officer)

Raymond J. Lane President, Chief Operating Officer and July 21, 1998
____________________________________ Director
Raymond J. Lane

Jeffrey O. Henley Executive Vice President, Chief July 21, 1998
____________________________________ Financial Officer and Director
Jeffrey O. Henley (Principal Financial Officer)

Thomas A. Williams Vice President and Corporate Controller July 21, 1998
____________________________________ (Principal Accounting Officer)
Thomas A. Williams

Jeffrey Berg Director July 21, 1998
____________________________________
Jeffrey Berg

Michael J. Boskin Director July 21, 1998
____________________________________
Michael J. Boskin

Jack Kemp Director July 21, 1998
____________________________________
Jack Kemp

Donald L. Lucas Director July 21, 1998
____________________________________
Donald L. Lucas

Richard A. McGinn Director July 21, 1998
____________________________________
Richard A. McGinn
</TABLE>

53
<PAGE>

[RECYCLE LOGO APPEARS HERE]
4290-10k98
<PAGE>

ORACLE CORPORATION
INDEX OF EXHIBITS

EXHIBIT NO. EXHIBIT TITLES
- ----------- --------------

10.10 Amendment to the 1991 Long-Term Equity Incentive Plan, Dated
July 14, 1997.

21.01 Subsidiaries of the Registrant.

23.01 Consent of Arthur Andersen LLP.

27.01 Financial Data Schedule.

<PAGE>

EXHIBIT 10.10

Amendment to 1991 Long-Term Equity Incentive Plan dated July 14, 1997

Section 3 of the 1991 Plan shall be amended to add the following sentences at
the end of Section 3:

Notwithstanding the other terms of this Plan, options granted by Treasury
Services Corporation (collectively, the "TSC Options ") shall be assumed by the
Corporation under this Plan pursuant to the Agreement and Plan of Reorganization
dated as of July 30, 1997, and, with respect to the TSC Options, this Plan shall
include the terms and conditions of such TSC Options as applicable only to such
options. To the extent any provision of this Plan could be deemed to provide an
additional benefit to the holders of the TSC Options within the meaning of
Section 424(a) of the Code, such provision shall not apply to such option
holder, and to the extent any term contained in the applicable TSC Option
directly conflicts with the terms of this Plan, the terms of the applicable TSC
Option shall govern."

<PAGE>

EXHIBIT 21.01
ORACLE CORPORATION
FEDERAL I. D. # 94-2871189
SUBSIDIARIES OF THE REGISTRANT
AS OF MAY 31, 1998
LIST OF ENTITIES:
STATE OR COUNTRY
SUBSIDIARY OF INCORPORATION
- ---------- ----------------
Oracle (Barbados) Foreign Sales Corporation Barbados
Network Computer, Inc. Delaware
Datalogix International, Inc. Delaware
Intercom Global Corporation Delaware
Intercom Software Corporation Delaware
Intercom Network Corporation Delaware
Oracle Credit Corporation California
Oracle China, Inc. California
Oracle Taiwan, Inc. California
Oracle Complex Systems Corporation Delaware
Oracle Japan Holding, Inc. Delaware
RSIB, Inc. Delaware
Oracle Holdings, Inc. Delaware
Oracle GmbH Austria
Oracle Belgium N.V. Belgium
Oracle Software d.o.o. Croatia
Oracle Czech S.R.O. Czech Republic
Oracle Danmark A/S Denmark
Oracle Deutschland GmbH Germany
Oracle Finland OY Finland
Oracle France S.A. France
Oracle Hellas S.A. Greece
Oracle Hungary Kft. Hungary
Oracle Europe Manufacturing Limited Ireland
Oracle Technology Company Ireland
Oracle Italia, S.p.A. Italy
Oracle Holding Antilles NV Netherlands Antilles
Network Computer Incorporated, Nederland B.V. The Netherlands
Oracle Nederland B.V. The Netherlands
Folebo BV The Netherlands
Oracle Norge AS Norway
Oracle Polska, Sp. z.o.o. Poland
Oracle Portugal - Sistemas De Informacao, LDA Portugal
Oracle Slovensko spol. s.l.o. Slovakia
Oracle Slovenia d.o.o. Slovenia
Oracle Iberica S.A. (Spain) Spain
Oracle Svenska AB Sweden
Oracle Software (Switzerland) Ltd. Switzerland
Oracle AG Switzerland

1
<PAGE>

EXHIBIT 21.01 (CONTINUED)
ORACLE CORPORATION
FEDERAL I. D. # 94-2871189
SUBSIDIARIES OF THE REGISTRANT
AS OF MAY 31, 1998
LIST OF ENTITIES:
STATE OR COUNTRY
SUBSIDIARY OF INCORPORATION
- ---------- ----------------
Oracle Corporation OLAP, Ltd. UK
Oracle Corporation UK Limited UK
Oracle Resources Ltd. UK
Oracle Corporation Nominees, Ltd. UK
Oracle EMEA Management Ltd. UK
Oracle Systems Limited Cyprus
Oracle Software Systems Israel Limited Israel
Saudi Oracle Limited Saudi Arabia
Oracle (South Africa) (Pty) Limited South Africa
Oracle Biligisayer Sistemleri Limited Sirketi Turkey
Oracle Argentina S.A. Argentina
Oracle do Brazil Sistemas Ltda. Brazil
Oracle Caribbean, Inc. Puerto Rico/United States
Oracle Holding Cayman Cayman Islands
Sistemas Oracle de Chile S.A. Chile
Centro de Capacitacion Oracles Ltda. Chile
Oracle Colombia Limitada Colombia
Oracle Centroamerica S.A. Costa Rica
Oracle Ecuador S.A. Ecuador
Oracle Mexico S.A. de C.V. Mexico
Oracle del Peru, S.A. Peru
Oracle Uruguay, S. A. Uruguay
Oracle de Venezuela C.A. Venezuela
Oracle Corporation Canada, Inc. Canada
La Societe D'Informatique Oracle du
Quebec, Inc. Canada
Oracle Corporation Japan Japan
Oracle Systems (Australia) Pty. Ltd. Australia
Beijing Oracle Systems Company Limited China
Oracle Systems China (Hong Kong) Limited Hong Kong
Oracle Systems Hong Kong Limited Hong Kong
PT Oracle Indonesia Ltd. Indonesia
Oracle Systems (Korea) Ltd. Korea
Oracle Systems Malaysia Sdn. Bhd. Malaysia
Oracle New Zealand, Ltd. New Zealand
Oracle Systems (Philippines) Inc. Philippines
Oracle Systems South East Asia (Singapore)
Pte. Ltd. Singapore
Oracle Systems (Thailand) Company Limited Thailand
Oracle Vietnam Vietnam
Oracle Software India Ltd. India

<PAGE>

EXHIBIT 23.01

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation of our
report dated June 16, 1998 included in this Form 10-K, into the Company's
previously filed Registration Statements (File No.'s 33-3536, 33-16749, 33-
33564, 33-44702, 33-51754, 33-53349, 33-53351, 33-53355, 333-18997, 333-19001
and 333-41935) on Form S-8.

ARTHUR ANDERSEN LLP

San Jose, California
July 21, 1998

<PAGE>

<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements contained in the Company's Annual Report on Form 10-K for
the fiscal year ended May 31, 1998 and is qualified in its entirety by reference
to such statements.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> MAY-31-1998
<CASH> 1,273,681
<SECURITIES> 645,518
<RECEIVABLES> 2,053,089
<ALLOWANCES> 195,609
<INVENTORY> 11,045
<CURRENT-ASSETS> 4,323,050
<PP&E> 1,733,328
<DEPRECIATION> 798,978
<TOTAL-ASSETS> 5,819,011
<CURRENT-LIABILITIES> 2,484,165
<BONDS> 0
0
0
<COMMON> 9,733
<OTHER-SE> 2,957,558
<TOTAL-LIABILITY-AND-EQUITY> 5,819,011
<SALES> 0
<TOTAL-REVENUES> 7,143,866
<CGS> 0
<TOTAL-COSTS> 2,273,607
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 106,915
<INTEREST-EXPENSE> 16,658
<INCOME-PRETAX> 1,327,819
<INCOME-TAX> 514,124
<INCOME-CONTINUING> 813,695
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 813,695
<EPS-PRIMARY> 0.83
<EPS-DILUTED> 0.81

</TABLE>