<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-Q
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended August 31, 2000
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission file number: 0-14376
Oracle Corporation
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 94-2871189
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
</TABLE>
500 Oracle Parkway
Redwood City, California 94065
(Address of principal executive offices, including zip code)
(650) 506-7000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES [X] NO [_]
Number of shares of registrant's common stock outstanding as of September 30,
2000: 5,597,447,674
(adjusted pro forma for the two-for-one stock split effective October 12,
2000).
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<PAGE>
ORACLE CORPORATION
Table of Contents
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
PART I FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets at August 31, 2000 and
May 31, 2000.................................................. 3
Condensed Consolidated Statements of Operations for the three
months ended August 31, 2000 and 1999......................... 4
Condensed Consolidated Statements of Cash Flows for the three
months ended August 31, 2000 and 1999......................... 5
Notes to Condensed Consolidated Financial Statements.......... 6
Management's Discussion and Analysis of Financial Condition
Item 2. and Results of Operations..................................... 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk.... 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................. 19
Item 6. Exhibits and Reports on Form 8-K.............................. 20
Signatures.................................................... 21
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
ORACLE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
August 31, May 31,
2000 2000
---------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents............................. $4,837,097 $ 7,429,206
Short-term cash investments........................... 225,475 332,792
Trade receivables, net of allowance for doubtful
accounts of $262,958 and $272,203 respectively....... 1,696,320 2,533,964
Other receivables..................................... 162,847 256,203
Prepaid and refundable income taxes................... 213,780 212,829
Prepaid expenses and other current assets............. 123,076 118,340
---------- -----------
Total current assets................................ 7,258,595 10,883,334
LONG-TERM CASH INVESTMENTS.............................. 70,000 110,000
PROPERTY, net........................................... 936,757 934,455
INTANGIBLE AND OTHER ASSETS............................. 1,247,175 1,148,990
---------- -----------
Total assets........................................ $9,512,527 $13,076,779
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable and current maturities of long-term
debt................................................. $ 3,660 $ 2,691
Accounts payable...................................... 253,243 287,495
Income taxes payable.................................. 517,123 2,821,776
Accrued compensation and related benefits............. 401,693 725,860
Customer advances and unearned revenues............... 1,269,585 1,133,482
Value added tax and sales tax payable................. 83,723 165,304
Other accrued liabilities............................. 778,082 725,630
---------- -----------
Total current liabilities........................... 3,307,109 5,862,238
LONG-TERM DEBT.......................................... 300,731 300,770
OTHER LONG-TERM LIABILITIES............................. 178,128 186,178
DEFERRED INCOME TAXES................................... 355,661 266,130
STOCKHOLDERS' EQUITY.................................... 5,370,898 6,461,463
---------- -----------
Total liabilities and stockholders' equity.......... $9,512,527 $13,076,779
========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
ORACLE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
August 31,
---------------------
2000 1999
---------- ----------
<S> <C> <C>
REVENUES
Licenses and other.................................... $ 807,238 $ 632,181
Services.............................................. 1,454,637 1,352,336
---------- ----------
Total revenues...................................... 2,261,875 1,984,517
---------- ----------
OPERATING EXPENSES
Sales and marketing................................... 572,964 538,426
Cost of services...................................... 673,878 756,750
Research and development.............................. 251,027 235,941
General and administrative............................ 105,965 107,537
---------- ----------
Total operating expenses............................ 1,603,834 1,638,654
---------- ----------
OPERATING INCOME........................................ 658,041 345,863
Net investment gains/(losses) related to marketable
securities........................................... 15,433 (3,340)
Other income, net..................................... 102,769 21,687
---------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES................ 776,243 364,210
Provision for income taxes............................ 275,566 127,474
---------- ----------
NET INCOME.............................................. $ 500,677 $ 236,736
========== ==========
EARNINGS PER SHARE:
Basic................................................. $ 0.09 $ 0.04
Diluted............................................... $ 0.08 $ 0.04
SHARES OUTSTANDING:
Basic................................................. 5,604,058 5,721,840
Diluted............................................... 5,932,870 5,964,804
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
ORACLE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
August 31,
------------------------
2000 1999
------------ ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income......................................... $ 500,677 $ 236,736
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization..................... 73,160 76,813
Amortization of purchase price in excess of net
tangible assets acquired......................... 18,997 18,308
Provision for doubtful accounts................... 58,993 15,789
Net investment (gains)/losses related to
marketable securities............................ (15,433) 3,340
Changes in assets and liabilities:
Decrease in trade receivables.................... 776,348 728,991
(Increase) decrease in prepaid and refundable
income taxes.................................... (1,122) 4,747
Decrease in other current assets................. 88,142 100,253
Decrease in accounts payable..................... (34,038) (30,827)
Decrease in income taxes payable................. (2,117,814) (123,032)
Increase in customer advances and unearned
revenues........................................ 137,486 70,703
Decrease in accrued compensation and related
benefits........................................ (323,513) (313,563)
Decrease in value added tax and sales tax
payable......................................... (81,350) (109,442)
Increase (decrease) in other accrued
liabilities..................................... 56,440 (11,155)
Decrease in long-term liabilities................ (10,036) (6,879)
Decrease in deferred income taxes................ (744) (1,326)
------------ ----------
Net cash provided by (used for) operating
activities........................................ (873,807) 659,456
------------ ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of cash investments..................... (27,000) (579,526)
Proceeds from maturities of cash investments...... 174,317 394,073
Capital expenditures.............................. (73,397) (54,892)
Proceeds from sale of marketable securities....... 36,252 --
(Increase) decrease in intangible and other
assets........................................... 37,302 (16,022)
------------ ----------
Net cash provided by (used for) investing
activities........................................ 147,474 (256,367)
------------ ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (payments) under notes payable and
long-term debt................................... 2,924 (3,632)
Proceeds from common stock issued................. 130,122 87,190
Repurchase of common stock........................ (1,995,423) (579,895)
------------ ----------
Net cash used for financing activities............. (1,862,377) (496,337)
------------ ----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH.............. (3,399) 25,712
------------ ----------
Net decrease in cash and cash equivalents.......... (2,592,109) (67,536)
CASH AND CASH EQUIVALENTS
Beginning of period................................ 7,429,206 1,785,715
------------ ----------
End of period...................................... $ 4,837,097 $1,718,179
============ ==========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
ORACLE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission ("SEC"). Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed
or omitted pursuant to such rules and regulations. However, the Company
believes that the disclosures are adequate to make the information presented
not misleading. These condensed consolidated financial statements should be
read in conjunction with the financial statements and the notes thereto
included in the Company's Annual Report on Form 10-K for the fiscal year ended
May 31, 2000.
The unaudited condensed consolidated financial statements included herein
reflect all adjustments (which include only normal, recurring adjustments)
which are, in the opinion of management, necessary to state fairly the results
for the three month period ended August 31, 2000. The results for the three
month period ended August 31, 2000 are not necessarily indicative of the
results expected for the full fiscal year.
2. EARNINGS PER SHARE
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 and the employee stock
purchase plan using the "treasury stock" method.
On October 12, 2000, the Company effected a two-for-one stock split in the
form of a common stock dividend to stockholders of record as of September 25,
2000. All per share data and numbers of common shares have been retroactively
adjusted to reflect the stock split.
The following table sets forth the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
Three Months Ended
August 31,
---------------------
2000 1999
(in thousands, except per share data) ---------- ----------
<S> <C> <C>
Net income $ 500,677 $ 236,736
========== ==========
Weighted average shares outstanding..................... 5,604,058 5,721,840
Dilutive effect of employee stock options and employee
stock purchase plan.................................... 328,812 242,964
---------- ----------
Diluted shares outstanding.............................. 5,932,870 5,964,804
========== ==========
Basic earnings per share................................ $ 0.09 $ 0.04
Diluted earnings per share.............................. $ 0.08 $ 0.04
</TABLE>
3. COMPREHENSIVE INCOME
Comprehensive income includes 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 stockholders' equity.
6
<PAGE>
The following table sets forth the calculation of comprehensive income on an
interim basis:
<TABLE>
<CAPTION>
Three Months
Ended August 31,
------------------
2000 1999
(in thousands) -------- --------
<S> <C> <C>
Net income.................................................. $500,677 $236,736
Foreign currency translation gains (losses)................. (2,918) 29,175
Unrealized gains (losses) on equity securities.............. (3,332) --
-------- --------
Total comprehensive income.................................. $494,427 $265,911
======== ========
</TABLE>
4. ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the Financial Accounting Standard Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument be recorded in
the balance sheet as either an asset or liability measured at its fair value.
It requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met and
that a company must formally document, designate, and assess the effectiveness
of transactions that receive hedge accounting. SFAS No. 133 is effective for
fiscal years beginning after June 15, 2000 and cannot be applied
retroactively. The Company is currently evaluating this statement, but does
not expect that it will have a material effect on the Company's financial
position or results of operations.
5. SEGMENT INFORMATION
SFAS No. 131 established standards for reporting information about operating
segments in the Company's financial statements. Operating segments are defined
as components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker,
or decision making group, in deciding how to allocate resources and in
assessing performance. The Company's chief operating decision maker is the
Chief Executive Officer of the Company.
The Company is organized geographically and by line of business. The Company
has four major line of business operating segments: license, support,
education and consulting. While the Chief Executive Officer of the Company
evaluates results in a number of different ways, the line of business
management structure is the primary basis for which he assesses financial
performance and allocates resources.
The accounting policies of the line of business operating segments are the
same as those described in the Company's Annual Report on Form 10-K for the
fiscal year ended May 31, 2000. The Company does not track assets by operating
segments. Consequently, it is not practical to show assets by operating
segments.
The following table presents a summary of operating segments:
<TABLE>
<CAPTION>
License Support(3) Education Consulting Total
(in thousands) -------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Three Months Ended
August 31, 2000
---------------
Revenues from unaffiliated
customers(1)............. $794,832 $838,989 $101,263 $526,791 $2,261,875
Distribution Expenses..... 431,836 154,977 71,324 403,145 1,061,282
-------- -------- -------- -------- ----------
Distribution Margin(2).... $362,996 $684,012 $ 29,939 $123,646 $1,200,593
======== ======== ======== ======== ==========
August 31, 1999
---------------
Revenues from unaffiliated
customers(1)............. $623,868 $667,052 $117,116 $576,481 $1,984,517
Distribution Expenses..... 421,753 176,678 79,966 461,898 1,140,295
-------- -------- -------- -------- ----------
Distribution Margin(2).... $202,115 $490,374 $ 37,150 $114,583 $ 844,222
======== ======== ======== ======== ==========
</TABLE>
7
<PAGE>
--------
(1) Operating segment revenues differ from the external reporting
classifications due to certain license products which are classified as
services revenues for management reporting purposes.
(2) The distribution margins reported reflect only the direct controllable
expenses of each line of business and do not represent the actual margins
for each operating segment since they do not contain an allocation for
marketing, corporate, information technology, general and administrative,
product development and other expenses incurred in support of the line of
business.
(3) Support includes update rights which, in certain sectors of the software
industry such as the "shrink wrap sector," would typically be classified
as license revenue.
Profit Reconciliation:
<TABLE>
<CAPTION>
Three Months Ended
August 31,
--------------------
2000 1999
(in thousands) ---------- --------
<S> <C> <C>
Total distribution margin for reportable segments....... $1,200,593 $844,222
Marketing and alliances................................. (106,027) (93,400)
Corporate, information technology & general and
administrative......................................... (148,449) (125,496)
Product development..................................... (263,166) (261,877)
Other income (net)...................................... 77,859 4,101
Net investment gains/(losses) related to marketable
securities............................................. 15,433 (3,340)
---------- --------
Income before provision for income taxes.............. $ 776,243 $364,210
========== ========
</TABLE>
6. LITIGATION
Refer to Part II, Item 1 for a description of legal proceedings.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward-Looking Statements
In addition to historical information, this Quarterly Report contains forward-
looking statements. The forward-looking statements are subject to certain
risks and uncertainties that could cause actual results to differ materially
from those reflected in such 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 SEC, including
the Annual Report on Form 10-K for the fiscal year ended May 31, 2000 and the
Quarterly Reports on Form 10-Q filed by the Company in fiscal 2001.
Results of Operations
Total revenues increased 14% (17% in local currency) in the first quarter of
fiscal 2001 as compared to the corresponding period in fiscal 2000. Domestic
revenues increased 16% in the first quarter of fiscal 2001, while
international revenues increased 12% (18% in local currency) as compared to
the corresponding period in fiscal 2000. Revenues from international customers
were approximately 50% and 51% of total revenues in the first quarters of
fiscal 2001 and 2000, respectively. Management expects that the Company's
international operations will continue to provide a significant portion of
total revenues. International revenues will be adversely affected if the U.S.
dollar continues to strengthen against certain major international currencies.
8
<PAGE>
REVENUES:
<TABLE>
<CAPTION>
Three Months Ended August
31,
----------------------------
2000 Change 1999
(in thousands) ---------- ------ ----------
<S> <C> <C> <C>
Licenses and other................................. $ 807,238 28% $ 632,181
Percentage of revenues............................. 35.7% 31.9%
Services........................................... 1,454,637 8% 1,352,336
Percentage of revenues............................. 64.3% 68.1%
Total revenues................................... $2,261,875 14% $1,984,517
</TABLE>
Licenses and Other Revenues. License revenues represent fees earned for
granting customers licenses to use the Company's software products. License
and other revenues also include documentation revenues and other miscellaneous
revenues, which constituted 4% and 5% of total license and other revenues in
the first quarters of fiscal 2001 and 2000, respectively. License revenues,
excluding other revenues, grew 28% and 8% in the first quarters of fiscal 2001
and 2000, respectively. Systems software license revenues, which include
server and development tools revenues, grew 25% and 7% in the first quarters
of fiscal 2001 and 2000, respectively. Business applications revenues grew 42%
and 11% in the first quarters of fiscal 2001 and 2000, respectively. The
higher license revenue growth rate experienced in the first quarter of fiscal
2001 was primarily due to stronger demand for the Company's server and
business applications products. The Company believes that the fiscal 2001
license revenue growth rate will exceed the fiscal 2000 growth rate as a
result of increased demand for its business applications products.
Services Revenues. Services revenues consist of support, consulting and
education services revenues which comprised 58%, 36% and 6% of total services
revenues, respectively, during the first quarter of fiscal 2001. Support
revenues grew 26% and 27% in the first quarters of fiscal 2001 and 2000,
respectively, reflecting an increase in the overall customer installed base.
Consulting revenues declined 9% in the first quarter of fiscal 2001, as
compared to a 7% growth rate in the first quarter of fiscal 2000. The decline
in the consulting services revenues experienced in the first quarter of fiscal
2001 is primarily a result of the following: i) a slowdown in the business
applications market in fiscal 2000, ii) part of the business generated in
fiscal 2000 related to Year 2000 upgrades, iii) a push towards a partner
model, leveraging third party consulting firms who provide consulting services
to the Company's customers, iv) a focus on higher margin business at the
expense of revenue growth, and v) shorter implementation engagements for
Oracle's newer generation of products. Education revenues declined 17% in the
first quarter of fiscal 2001 as compared to a 4% growth rate in the first
quarter of fiscal 2000, due in part to the slowdown in the business
applications market in fiscal 2000. Consulting and education revenue growth
rates are expected to increase in fiscal 2001 as compared to the prior year
corresponding periods due to the increased demand for the Company's business
applications products experienced in the latter part of fiscal 2000 and
through the first quarter of fiscal 2001.
OPERATING EXPENSES:
<TABLE>
<CAPTION>
Three Months Ended
August 31,
------------------------
2000 Change 1999
(in thousands) -------- ------ --------
<S> <C> <C> <C>
Sales and marketing................................... $572,964 6% $538,426
Percentage of revenues................................ 25.3% 27.1%
Cost of services...................................... $673,878 (11%) $756,750
Percentage of revenues................................ 29.8% 38.1%
Research and development ............................. $251,027 6% $235,941
Percentage of revenues................................ 11.1% 11.9%
General and administrative............................ $105,965 (1%) $107,537
Percentage of revenues................................ 4.7% 5.4%
</TABLE>
9
<PAGE>
International expenses were favorably affected in the first quarter of fiscal
2001 when compared to the prior year corresponding period 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
the expenses.
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. As a percentage of license and other revenues,
sales and marketing expenses were 71% and 85% in the first quarters of fiscal
2001 and 2000, respectively. The decrease in sales and marketing expenses as a
percentage of license and other revenues was due primarily to increased
revenues and productivity improvements which favorably affected headcount and
headcount related expenditures. The Company anticipates sales and marketing
expenses to increase in fiscal 2001 as compared to the corresponding prior
year period due to the need to add additional sales capacity as a result of an
increase in demand for the Company's products.
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 was 46% and 56% in the first quarters of
fiscal 2001 and 2000, respectively. The decrease in the cost of services as a
percentage of services revenues was due primarily to efficiencies and controls
over headcount and headcount related expenditures in the support and
consulting lines of business as the Company continues to focus on margin
improvement. The Company plans to increase headcount in the consulting line of
business due to the recent increase in demand for consulting services.
Research and Development Expenses. Research and development expenses were 11%
and 12% of total revenues in the first quarters of fiscal 2001 and 2000,
respectively. Research and development expenses increased 6% and 26% in the
first quarters of fiscal 2001 and 2000, 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 were 5% in the first quarters of fiscal 2001 and 2000.
NET INVESTMENT GAINS/(LOSSES) RELATED TO MARKETABLE SECURITIES:
<TABLE>
<CAPTION>
Three Months Ended
August 31,
-----------------------
2000 Change 1999
(in thousands) ------- ------ --------
<S> <C> <C> <C>
Net investment gains/(losses) related to marketable
securities........................................... $15,433 * $(3,340)
</TABLE>
--------
* Not Meaningful
The gain on sale of marketable securities in the first quarter of fiscal 2001
relates to the sale of marketable securities, offset by the Company's equity
share in the results of non-consolidated subsidiaries. In the first quarter of
fiscal 2000, the net investment loss represents the Company's equity share in
the results of non-consolidated subsidiaries as the Company did not sell any
marketable securities.
OTHER INCOME, NET:
<TABLE>
<CAPTION>
Three Months Ended
August 31,
-----------------------
2000 Change 1999
(in thousands) -------- ------ -------
<S> <C> <C> <C>
Other income, net...................................... $102,769 374% $21,687
Percentage of revenues................................. 4.5% 1.1%
</TABLE>
10
<PAGE>
Other income, net includes interest income and expense, foreign currency
exchange gains and losses, as well as the minority interest share in the
income or loss of consolidated subsidiaries. Other income increased in fiscal
2001, primarily due to increased net interest income related to higher cash
and investment balances.
PROVISION FOR INCOME TAXES:
<TABLE>
<CAPTION>
Three Months Ended
August 31,
------------------------
2000 Change 1999
(in thousands) -------- ------ --------
<S> <C> <C> <C>
Provision for income taxes............................ $275,566 116% $127,474
Percentage of revenues................................ 12.2% 6.4%
</TABLE>
The Company's effective tax rates have historically differed from the federal
statutory rate primarily because of state taxes. The effective tax rate was
35.5% and 35% in the first quarters of fiscal 2001 and 2000, respectively.
NET INCOME AND EARNINGS PER SHARE:
<TABLE>
<CAPTION>
Three Months Ended
August 31,
------------------------
2000 Change 1999
(in thousands, except per share data) -------- ------ --------
<S> <C> <C> <C>
Net income............................................. $500,677 111% $236,736
Percentage of revenues................................. 22.1% 11.9%
Earnings per share:
Basic................................................ $ 0.09 125% $ 0.04
Diluted.............................................. $ 0.08 100% $ 0.04
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES:
<TABLE>
<CAPTION>
Three Months Ended August 31,
------------------------------
2000 Change 1999
(in thousands) ----------- ------ ----------
<S> <C> <C> <C>
Working capital............................... $ 3,951,486 76% $2,239,259
Cash and cash investments..................... $ 5,132,572 75% $2,930,224
Cash provided by (used for) operating
activities................................... $ (873,807) (233)% $ 659,456
Cash provided by (used for) investing
activities................................... $ 147,474 158% $ (256,367)
Cash used for financing activities............ $(1,862,377) 275% $ (496,337)
</TABLE>
Working capital increased in the first quarter of fiscal 2001 over the
corresponding period in fiscal 2000, due primarily to higher cash and cash
investment balances.
The Company generated negative cash flows from operations in the first quarter
of fiscal 2001 as compared to fiscal 2000, due primarily to payment of taxes
related to the gain on sale of Oracle Japan stock that occurred in the fourth
quarter of fiscal 2000.
Cash provided by investing activities increased in the first quarter of fiscal
2001 as compared to the corresponding prior year period due primarily to
changes in the levels and maturities of cash investments. In each period, the
Company made significant investments in capital expenditures and other assets.
The Company expects to continue to invest in capital and other assets to
support its growth.
Cash used for financing activities increased in the first quarter of fiscal
2001 as compared to the corresponding prior year period due primarily to the
repurchase of the Company's Common Stock. The Company's Board of Directors has
approved the cumulative repurchase of up to 1,096,000,000 shares of Common
Stock on the open market to reduce the dilutive effect of the Company's stock
plans. The Company has repurchased a total of 986,172,806 shares for
approximately $ 9,720,912,000 as of August 31, 2000. The Company purchased
51,807,656 and 78,052,000 shares of the Company's Common Stock in the first
quarter of fiscal 2001 and 2000,
11
<PAGE>
respectively. The amounts paid for the repurchased shares were approximately
$1,995,423,000 and $579,895,000. The Company has primarily used cash flows from
operations and investing activities to repurchase the Company's Common Stock.
The Company, as part of its authorized stock repurchase program, has sold put
warrants and purchased call options through private placements with
institutional investors. The transactions were exempt under Section 4(2) of the
Securities Act of 1933. The put warrants, if exercised, would entitle the
holder to sell one share of Common Stock to the Company at a specified price.
Similarly, the call options entitle the Company to buy, on a specified day, one
share of the Company's Common Stock at a specified price.
As of August 31, 2000, the Company had a maximum potential obligation under the
put warrants to buy back 8,000,000 shares of its Common Stock for a price of
$4.85 per share for an aggregate price of approximately $38,800,000. The put
warrants will expire at various dates through October 2000.
As of August 31, 2000, the Company had the right to purchase under the call
options up to a maximum of 4,000,000 shares of its Common Stock at a price of
$6.52 per share for an aggregate price of approximately $26,080,000. The call
options will expire at various dates through October 2000.
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 parity with all other unsecured and unsubordinated
indebtedness of the Company that may be outstanding. At August 31, 2000, the
Company also had other outstanding debt of approximately $4,391,000, 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 the next twelve months.
Factors That May Affect Future Results and Market Price of Stock
The Company operates in a rapidly changing environment that involves numerous
risks, some of which are beyond the Company's control. The following discussion
highlights some of these risks.
Revenue Growth and Economic Conditions. The revenue growth 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 may result in decreased revenues or lower revenue growth rates.
In particular, one of the challenges the Company continues to face in promoting
future growth in license revenues is the successful refocusing of its marketing
and sales efforts to the Customer Relationship Management ("CRM") and Internet
procurement areas of its applications business, as well as to its e-Business
suite. There can be no assurances that the Company will be able to effectively
promote future revenue growth in its systems software and business applications
areas.
In October 1997, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") No. 97-2, "Software Revenue
Recognition" which superseded SOP No. 91-1. SOP No. 97-2 was effective for the
Company's fiscal year beginning June 1, 1998, as amended by SOP No. 98-4 and
SOP No. 98-9, and provides guidance on applying generally accepted accounting
principles for software revenue recognition transactions. Based on the
Company's interpretation of the requirements of SOP No. 97-2, as amended,
application of this statement did not and is not expected to have a material
impact on the Company's revenue. In December 1999, the Securities and Exchange
Commission issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue
Recognition in Financial Statements" which provides further revenue recognition
guidance. The accounting profession continues to review certain provisions of
SOP No. 97-2 and SAB 101 with the objective of providing additional guidance on
implementing its provisions. Depending upon the outcome of
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<PAGE>
these reviews and the issuance of implementation guidelines and
interpretations, the Company may be required to change its revenue recognition
policies and business practices, and such changes could have a material adverse
effect on the Company's business, results of operations or financial position.
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.
The Company's inability to 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 position.
Significant undetected errors or delays in new products or new versions of a
product, especially in the area of CRM, 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 position. 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 position.
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.
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 markets where certain vendors offer deep discounts in an
effort to recapture or gain market share or to sell other software or hardware
products. Moreover, the Company has recently changed its pricing model and any
broadly based changes to the Company's prices and pricing policies could lead
to a decline or delay in sales as the Company's sales force and its customers
adjust to the new pricing policies. The bundling of software products for
promotional purposes or as a long-term pricing strategy or guarantees of
product implementations 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. Changes in the customer's use of the Company's
products could also result in lower license revenues if the Company's pricing
model is not adapted to such usage. 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. Additionally, while the distribution of applications through
application service providers may provide a new market for the Company's
products, these new distribution methods could also reduce the price paid for
the Company's products or adversely affect other sales of the Company's
products. 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 position if the Company cannot offset these price reductions with
a corresponding increase in sales volumes or lower spending.
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 becoming more intense due to lower overall unemployment
rates, the boom in information technology spending and private companies that
can offer equity incentives that provide the potential of greater compensation
in connection with an initial public offering. Accordingly, the Company expects
to experience increased compensation costs that may not be offset through
either improved productivity or higher prices. There can be
13
<PAGE>
no assurances that the Company will be successful in continuously recruiting
new personnel and in retaining existing personnel. In general, the Company does
not have long-term employment or non-competition agreements with its employees.
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.
Competitive Environment. The computer software industry is an intensely
competitive industry with several large vendors that develop and market
databases, application development tools, business applications and business
intelligence products. Certain of these vendors have significantly greater
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 position. In addition, new distribution methods (e.g. electronic
channels) and opportunities presented by the Internet and electronic commerce
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.
Uneven Patterns of Quarterly Operating Results and Revenues. 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, the closing of which tend
to be delayed by customers until 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,
(vi) seasonality of technology purchases and other general economic conditions,
and (vii) changes in the pricing policies of the Company or its competitors.
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 have historically caused and 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 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.
International Sales. A substantial portion of the Company's revenues is derived
from international sales and is therefore subject to the related risks,
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, longer payment cycles and volatilities
of exchange rates in certain 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 the first quarter of fiscal 2001, particularly in Europe,
and will continue to do so throughout fiscal 2001 if the U.S. dollar
strengthens relative to foreign 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
14
<PAGE>
hedge transaction and translation exposures in major currencies. The Company
finds it impractical to hedge all foreign currencies in which it conducts
business. As a result, the Company will continue to experience foreign currency
gains and losses.
Management of Growth. The Company has a history of rapid growth. However, the
Company has experienced slowing growth rates in a number of areas, including
consulting and education services. 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
position.
Uncertainty of Emerging Areas. Despite tremendous growth in emerging areas such
as the Internet, on-line services and electronic commerce, the impact on the
Company of this growth 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 on-
line auctions, or exchanges, for a number of business procurement needs,
Internet/electronic commerce, interactive media, on-line business services and
Internet 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 Internet computing and, in particular, the Company's
current Internet computing software products is difficult to predict because
Internet computing represents a method of computing that is new to the entire
computer industry. The successful introduction of Internet computing to the
market will depend in large measure on (i) the lower cost of ownership of
Internet computing relative to client/server architecture, (ii) the ease of use
and administration relative to client/server architecture, and (iii) how
hardware and software vendors choose to compete in this market. There can be no
assurances that sufficient numbers of vendors will undertake this commitment,
that the market will accept Internet computing or that Internet computing will
generate significant revenues for the Company. See "New Products."
Sales Force Restructuring. The Company historically has relied heavily on its
direct sales force. For the past several years, the Company has restructured or
made other adjustments to its sales force at least once a year. These changes
have generally resulted in a temporarily lack of focus and reduced productivity
by the Company's sales force that may have affected revenues in a quarter.
There can be no assurances that the Company will not continue to restructure
its sales force or that the related transition issues associated with
restructuring the sales force will not recur.
Future Acquisitions. As part of its business strategy, the Company has made 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 possibility that the Company pays much more than the acquired
company or assets are worth, the difficulty of assimilating the operations and
personnel of the acquired businesses, the potential product liability
associated with the sale of the acquired company's products, 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 position, particularly
in the case of a larger acquisition. Consideration paid for future
acquisitions, if any, could
15
<PAGE>
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.
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, 2001 include significant
investments in software research and development and related product
opportunities from which significant revenues are not anticipated for several
years.
Sales Forecasts. The Company uses a "pipeline" system, a common industry
practice, to forecast sales and trends in the Company's business. The Company's
sales personnel monitor the status of all proposals, such as the date when they
estimate that a customer will make a purchase decision and the potential dollar
amount of the sale. Management aggregates these estimates periodically in order
to generate a sales pipeline. Management compares the pipeline at various
points in time to look for trends in the Company's business. While this
pipeline analysis may provide some guidance to management in business planning
and budgeting, these pipeline estimates are necessarily speculative and may not
correlate to revenues in a particular quarter or over a longer period of time.
A variation in the conversion of the pipeline into contracts or in the pipeline
itself could cause the Company to improperly plan or budget and thereby
adversely affect its business or results of operations.
Enforcement of the Company's Intellectual Property Rights. The Company relies
on a combination of copyright, patent, trademark, trade secrets,
confidentiality procedures and contractual procedures to protect its
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. There can also be no assurances that the Company's intellectual
property rights would survive a legal challenge to their validity or provide
significant protection for the Company. 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 grow and
the functionality of products overlaps. In addition, the Company expects to
receive more patent infringement claims as companies increasingly seek to
patent their software, especially in light of recent developments in the law
that extend the ability to patent software. 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 position could be materially adversely affected.
Possible Volatility of Stock Price. The market price of the Company's Common
Stock has experienced significant fluctuations and may continue to fluctuate
significantly. The market price of the Common Stock may be significantly
affected by factors such as the announcement of new products or product
enhancements by the Company or its competitors, technological innovation by the
Company or its competitors, quarterly variations in the Company's or its
competitors' results of operations, changes in prices of the Company's or its
competitors'
16
<PAGE>
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 3. Quantitative and Qualitative Disclosures About Market Risk
Disclosures About Market Risk
Interest Rate Risk. The Company's exposure to market risk for changes in
interest rates relates primarily to the Company's investment portfolio. The
Company places its investments with high credit quality issuers and, by policy,
limits the amount of credit exposure to any one issuer. As stated in its
policy, the Company is averse to principal loss and seeks to preserve its
invested funds by limiting default risk, market risk, and reinvestment risk.
The Company mitigates default risk by investing in only high credit quality
securities that it believes to be low risk and by positioning its portfolio to
respond appropriately to a significant reduction in a credit rating of any
investment issuer or guarantor. The portfolio includes only marketable
securities with active secondary or resale markets to ensure portfolio
liquidity.
The table below presents the principal amount, related weighted average
interest rates and maturities for the Company's investment portfolio. Short
term and long term investments are all in fixed rate instruments. The principal
amount approximates fair value at August 31, 2000.
Table of Investment Securities:
<TABLE>
<CAPTION>
Principal Average
Amount Interest Rate
---------- -------------
<S> <C> <C>
Cash and cash equivalents....................... $4,837,097 5.34%
Short term investment (0-1 years)............... 225,475 5.66%
Long term investment (1-2 years)................ 70,000 5.93%
----------
Total cash and investment securities............ $5,132,572
==========
</TABLE>
Foreign Currency Risk. The Company transacts business in various foreign
currencies and the Company has established a foreign currency hedging program,
utilizing foreign currency forward exchange contracts (forward contracts) to
hedge certain foreign currency transaction exposures. Under this program,
increases or decreases in the Company's foreign currency transactions are
offset by gains and losses on the forward contracts, so as to mitigate the
possibility of foreign currency transaction gains and losses. The Company does
not use forward contracts for trading purposes. All foreign currency
transactions and all outstanding forward contracts are marked-to-market at the
end of the period with unrealized gains and losses included in other income
(expense). As the foreign currency transactions are realized as cash flows
against the maturing forward contracts, the realized gains and losses are
recorded in net income as a component of other income (expense). The Company's
ultimate realized gain or loss with respect to currency fluctuations will
depend on the currency exchange rates and other factors in effect as the
contracts mature. The unrealized gain (loss) on the outstanding forward
contracts at August 31, 2000 was immaterial to the Company's consolidated
financial statements. The Company also hedges the net assets of certain of its
international subsidiaries.
The net gains on equity hedges are recorded as a component of accumulated
foreign currency translation adjustments in stockholders' equity. The Company's
outstanding forward contracts and equity hedges as of August 31, 2000 are
presented in the tables below.
17
<PAGE>
The tables present the notional amounts (at contract exchange rates) and the
weighted average contractual foreign currency exchange rates. Notional
weighted average exchange rates are quoted using market conventions where the
currency is expressed in currency units per U.S. dollar, except for Australia,
Ireland, New Zealand and the UK. All of these forward contracts and equity
hedges mature in ninety days or less as of August 31, 2000.
Table of Forward Contracts:
<TABLE>
<CAPTION>
Notional
Notional Weighted Average
Functional Currency Amount Exchange Rate
------------------- ------------- ----------------
<S> <C> <C>
Australian Dollar........................... $ 16,693,932 0.57
Canadian Dollar............................. 48,595,676 1.48
Danish Krone................................ 2,988,852 8.30
Euro........................................ 97,261,560 0.90
Irish Punt.................................. 2,056,220 1.14
Japanese Yen................................ 12,619,243 104.62
New Zealand Dollar.......................... 4,293,400 0.43
Norwegian Krone............................. 10,819,730 9.03
Singapore Dollar............................ 31,514,085 1.70
Swedish Krona............................... 12,746,618 9.35
Swiss Franc................................. 5,356,516 1.71
Thai Baht................................... 10,726,174 40.56
UK Pound.................................... 130,080,678 1.46
-------------
$ 385,752,684
=============
</TABLE>
Table of Equity Hedges:
<TABLE>
<CAPTION>
Notional
Notional Weighted Average
Functional Currency Amount Exchange Rate
------------------- ------------ ----------------
<S> <C> <C>
Japanese Yen................................. $ 15,075,850 106.13
Singapore Dollars............................ 16,727,315 1.70
UK Pound..................................... 22,539,750 1.50
------------
$ 54,342,915
============
</TABLE>
Equity Price Risk. The Company, as part of its authorized stock repurchase
program, has sold put warrants and purchased call options through private
placements with institutional investors. The transactions were exempt under
Section 4(2) of the Securities Act of 1933. The put warrants, if exercised,
would entitle the holder to sell one share of Common Stock to the Company at a
specified price. Similarly, the call options entitle the Company to buy, on a
specified day, one share of the Company's Common Stock at a specified price.
As of August 31, 2000, the Company had a maximum potential obligation under
the put warrants to buy back 8,000,000 shares of its Common Stock for a price
of $4.85 per share for an aggregate price of approximately $38,800,000. The
put warrants will expire at various dates through October 2000.
As of August 31, 2000, the Company had the right to purchase, under the call
options, up to a maximum of 4,000,000 shares of its Common Stock at a price of
$6.52 per share for an aggregate price of approximately $26,080,000. The call
options will expire at various dates through October 2000.
18
<PAGE>
The table below presents the shares, the weighted average strike prices, the
contract amount and the estimated fair value of the put warrants and call
options as of August 31, 2000:
<TABLE>
<CAPTION>
2000 Estimated
Maturity Fair Value
----------- ------------
<S> <C> <C>
Put Warrants:
Shares......................................... 8,000,000
Weighted average stock price................... $ 4.85
Contract amount................................ $38,800,000 $ --
Call Options:
Shares......................................... 4,000,000
Weighted average stock price................... $ 6.52
Contract amount................................ $26,080,000 $156,080,000
</TABLE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Shareholder class actions were filed in the Superior Court of the State of
California, County of San Mateo against the Company and its Chief Financial
Officer and former 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 false and misleading statements about the Company's
actual and expected financial performance, while selling Company stock, in
violation of state securities laws. Plaintiffs further allege that the
individual defendants sold Company stock while in possession of material non-
public information. The Company believes that it has meritorious defenses to
these actions and intends to vigorously defend them.
A related shareholder derivative lawsuit was filed in the Superior Court of
the State of California, County of San Mateo on November 17, 1998. The
derivative suit was brought by Company stockholders, allegedly on behalf of
the Company, against certain of the Company's current and former officers and
directors. The derivative plaintiffs allege that these officers and directors
breached their fiduciary duties to the Company by making or causing to be made
alleged misstatements about the Company's revenue, growth, and financial
status while certain officers and directors sold Company stock and by allowing
the Company to be sued in the shareholder class actions. The derivative
plaintiffs seek compensatory and other damages, disgorgement of compensation
received and temporary and permanent injunctions requiring the defendants to
relinquish their directorships. On January 15, 1999, the Court entered a
stipulation and order staying the action until further notice.
The Company filed petitions with the United States Tax Court on July 29, 1998,
challenging notices of deficiency issued by the Commissioner of Internal
Revenue that disallowed certain foreign sales corporation commission expense
deductions taken by the Company in its 1988 through 1991 tax years and
assessed additional taxes for those years in excess of $20 million, plus
interest. This matter was stayed by the Tax Court pending resolution of a
similar petition filed by Microsoft Corporation. On September 15, 2000, the
Tax Court issued its decision in the Microsoft action and ruled in favor of
the Commissioner of Internal Revenue. If allowed to stand and if followed by
the Tax Court in the Company's case, the Microsoft ruling may be dispositive
of certain issues in the Company's case and could result in additional tax
liability to the Company for the tax years at issue in the case and for
subsequent tax years through 1997. The Company is currently evaluating the
implications of the Tax Court ruling on the Company.
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.
19
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Oracle
Corporation has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ORACLE CORPORATION
Dated: October 16, 2000 /s/ Jeffrey O. Henley
By: _________________________________
Jeffrey O. Henley
Executive Vice President and Chief
Financial Officer
Dated: October 16, 2000 /s/ Jennifer L. Minton
By: _________________________________
Jennifer L. Minton
Senior Vice President and
Corporate Controller
21
