Back to GetFilings.com
1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-14376
Oracle Systems Corporation
(Exact name of registrant as specified in its charter)
Delaware 94-2871189
(State or other jurisdiction of incorporation or organization) (I.R.S. employer identification number)
500 ORACLE PARKWAY, REDWOOD CITY, CALIFORNIA 94065
(Address of principal executive offices, including zip code)
(415) 506-7000
(Registrant's telephone number, including area code)
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 $.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, 1994 was $8,274,092,550. 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, 1994: 286,439,008.
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 10, 1994.
2
ORACLE SYSTEMS CORPORATION
1994 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . 9
Item 4A. Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . 14
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . 21
PART III
Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . 22
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . . 22
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . 22
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K . . . . . . . . . . . . . . . . . 23
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
i
3
PART I
ITEM 1. BUSINESS
The Company designs, develops, markets, and supports computer software products
with a wide variety of uses, including database management and network
products, applications development productivity tools, and end user
applications. The Company's principal product, the ORACLE relational database
management system ("DBMS"), is a SQL-based, relational database management
system that runs on a broad range of computers, including massively parallel,
mainframes, minicomputers, workstations, and personal computers. The Company
also 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 principal operating subsidiary, Oracle
Corporation, a California corporation, was incorporated in June 1977. Unless
the context otherwise requires, the "Company" or "Oracle" refers to Oracle
Systems 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 (415) 506-7000.
BACKGROUND
Computer software can be classified into two broad categories: system software
and applications software. System software includes (1) operating systems,
which control the computer hardware, (2) compilers and interpreters, which
translate programs into a form that can be executed by a computer, (3)
communications software, which permits computers to send data across a network,
and (4) database management systems, which are used to create, retrieve, and
modify data stored in computers. Applications software automates the
performance of specific business 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.
There are several types of database management systems software: hierarchical,
network, relational, and object oriented. Hierarchical, network, and
relational DBMSs have been widely used to support diverse applications in
business, engineering, manufacturing, government, and other applications
domains. Object oriented DBMS software is an emerging software technology that
may permit more complex data structures to be accessed by applications
programs, although such object oriented systems have not yet been proven in
many commercial environments.
In both hierarchical and network DBMS structures, users must know how and where
their data is stored, navigate through the database system, and access that
data step-by-step according to predefined sequences. Consequently, such DBMSs
are not well suited to answering inquiries that were unanticipated by the
programmer when the applications were created and therefore not specifically
predefined in the database structure. Also, developing and maintaining
applications with such systems is time-consuming because the applications
program must be aware of the data storage structure. Despite these
limitations, hierarchical and network DBMSs, which have been available since
the 1960's, have been used for many large-scale business data processing
applications running on large mainframe computers.
In 1970, International Business Machines Corporation ("IBM") published a
proposed theoretical model for a relational DBMS. The comparative advantage of
a relational DBMS is that users need not know how or where their data is stored
in the computer. To access data, users simply specify what data they desire,
not how to retrieve it. Relational systems navigate automatically to the data,
making database information readily accessible by users of all experience
levels. Regardless of how the data is actually stored in the computer memory,
the results of database queries are always presented to users in familiar,
two-dimensional tables of rows and columns of data. Relational DBMSs therefore
have been widely used for management information and decision-support systems
which require flexible access to data. Because they facilitate applications
development and maintenance, relational DBMSs also have become widely used in
mid-range and low-end transaction processing environments. As their
performance and
1
4
reliability have improved, relational DBMSs increasingly have been chosen to
support mission-critical data processing applications.
Object oriented DBMSs are designed to support applications with "advanced" data
management requirements, such as those of certain engineering applications
which historically have not been able to use DBMSs. As compared with
relational DBMSs, object oriented DBMSs permit more complex data structures to
be defined and accessed by applications programs. However, currently available
object oriented systems provide limited capabilities for the ad hoc data access
requirements of decision support systems, and have insufficient performance and
reliability for most business transaction processing applications.
Nevertheless, the Company believes that object oriented techniques can be
incorporated into existing relational DBMSs without sacrificing upward
compatibility and the advantages of existing relational DBMSs. Merging object
oriented capabilities with existing relational DBMSs would further broaden the
applicability of relational DBMSs while providing the reliability, performance
and flexibility that have been lacking in the object oriented DBMSs now
available. While the Company plans to incorporate object oriented technologies
into future versions of the ORACLE relational DBMS, no assurance can be given
that the Company will be able to do so successfully or in a timely fashion as
compared to competitive object oriented DBMSs.
PRODUCT DEVELOPMENT HISTORY
In 1976, IBM published the specifications for a simple, English-like command
language called SQL (pronounced "sequel"), with which users define, retrieve,
manipulate, and control data stored in a relational DBMS. In 1977, the Company
was formed to develop a relational DBMS using IBM's published specifications
for the SQL language. Two years later, in June 1979, the Company introduced
the ORACLE relational DBMS, the first commercially available relational DBMS.
IBM's first relational product, SQL/DS, was released in February 1982. In
1985, IBM announced DB2, its second relational DBMS product, and its second
product to implement SQL. SQL has become the industry standard command
language for relational DBMS products. In October 1986, the American National
Standards Institute ("ANSI") approved a standard definition for the SQL command
language, which was also adopted by the International Standards Organization
("ISO"). The SQL standard was updated with additional capabilities in 1989,
and a second enhanced standard ("SQL2") was finalized in 1992.
Since 1979, the Company has released several new versions of the ORACLE
relational DBMS, each of which contained performance and functional
enhancements. In 1992, the Company introduced Version 7 of the ORACLE
relational DBMS ("ORACLE7"), which was developed to improve the ability of the
Oracle relational DBMS to support large numbers of users and higher rates of
transaction processing, to provide server automation features such as
DBMS-enforced data integrity requirements and to permit multiple computers
running DBMSs of ORACLE and other vendors to cooperatively share data with
other computers across a communications network.
PRODUCTS
The Company's products are contained within three product families: Cooperative
Server Technology, Cooperative Development Environment, and End User
Applications.
Cooperative Server Technology
The Company's Cooperative Server Technology ("CST") products consist of an
integrated set of cooperative-server database and network products. The
principal product is the ORACLE relational DBMS. The ORACLE relational DBMS
gives users the ability to define, retrieve, manipulate, and control data
stored on multiple computers, using the industry standard SQL language. The
ORACLE relational DBMS provides features to support the operational
requirements of on-line transaction processing ("OLTP") environments for high
systems availability and performance. The Oracle relational DBMS provides
optional parallel server technology that further extends the scalability and
availability of CST products by allowing multiple, loosely coupled or clustered
machines to cooperatively access a logical database spread across multiple
disks. Furthermore, Version 7.1 of the ORACLE DBMS provides optional parallel
query capabilities that enable fast searching of large amounts of data for
large-scale decision support and information warehouse applications. In
addition, the ORACLE relational DBMS includes additional capabilities that
allow the DBMS to enforce business policies and data integrity rules. The
ORACLE relational DBMS also permits transparent data sharing across a
communications network, so that applications programs and users can access data
without knowing or specifying the location of the data within the network.
Applications developed with the ORACLE relational DBMS are portable to a wide
variety of hardware and operating system environments, and can
2
5
be redeployed in different environments with little or no change. For a
description of the Company's network products, see "Product Features--
Cooperative and Distributed Processing Capabilities."
Cooperative Development Environment
The Company's Cooperative Development Environment ("CDE") products consist of
an integrated family of applications development productivity tools, CASE
products and document automation products. CDE increases programmer
productivity and allows non-programmers to design, develop, and maintain their
own applications. Applications built with CDE are open and can access data
stored in the ORACLE relational DBMS as well as certain other competitors'
databases. Applications developed with CDE are portable across different
graphical user interfaces, and can incorporate image, sound and voice
multimedia objects.
End User Applications Products
The Company's Oracle Financial products consist of an integrated family of end
user accounting applications products that use the ORACLE relational DBMS and
Oracle's development and decision support tools to provide full-function end
user accounting systems, as well as a similar family of accounting products for
government end users called Oracle Government Financials. The Company also
offers Oracle Manufacturing products, which provide manufacturing companies
with planning and control tools, and Oracle Human Resources products, which
provide users with personnel management tools. The Oracle end user applications
products can be integrated with a customer's existing accounting systems or
other Oracle applications products.
PRODUCT FEATURES
The Company believes that the principal competitive strengths of the ORACLE
relational DBMS are its high performance and availability for OLTP
applications, its cooperative and distributed processing capabilities, its
declarative and procedural data integrity features, its ability to support
tightly and loosely coupled parallel processing platforms, its broad
portability across different computer hardware and operating systems, and its
compatibility with the SQL command language.
High Performance and Availability for OLTP Environments
The Company participates in the on-line transaction processing market with the
ORACLE relational DBMS, which provides the high performance, high availability
and large database support that customers with OLTP environments demand. The
ORACLE relational DBMS has repeatedly established new transaction processing
performance records on industry standard performance measurement tests
("benchmarks") conducted on a variety of hardware platforms. The ORACLE
relational DBMS also has the ability to support environments which require
simultaneous OLTP and query access. This capability allows organizations to
use the same data to operate and manage their business. High availability
allows on- line back-up and recovery to maximize system availability even
during routine maintenance operations without degrading normal OLTP
performance.
Cooperative and Distributed Processing Capabilities
The ORACLE relational DBMS works with the Company's SQL*Net product to connect
applications using the ORACLE relational DBMS on different computers running
under different operating systems and using different network communications
protocols. SQL*Net supports a client/server architecture, allowing an
application using the ORACLE relational DBMS and running on one machine to
access remote databases on other machines running the ORACLE relational DBMS
anywhere within a communications network.
SQL*Net also supports a distributed database architecture, where multiple
copies of the ORACLE relational DBMS running on multiple physically separated
computers communicate with one another, permitting applications and users to
view multiple databases as if they were a single database. This distributed
architecture is designed with functionality which makes it suitable for
production OLTP distributed applications. The same non-procedural SQL language
commands that are used to access data in a single database are used to access
data in a distributed database, and the applications and users need not know or
specify the location of the data. Version 5.1 of the ORACLE relational DBMS,
when introduced in 1986, was among the first commercial relational DBMSs to
support
3
6
queries (retrieval) of data from a distributed database. ORACLE7 extends this
distributed database architecture with distributed update transactions and data
replication facilities.
The Company's Oracle Open Gateway products (Oracle Transparent Gateways, Oracle
Procedural Gateways and Oracle Procedural Developer's Kit) 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 as well as data stored in older hierarchical DBMSs or file systems.
The Company believes that the ability to access data from non-ORACLE DBMSs from
applications using the ORACLE relational DBMS is attractive to customers
because it preserves an organization's investment in existing application
systems, and also makes it easier to migrate existing applications and develop
new applications using the ORACLE relational DBMS.
Declarative and Procedural Data Integrity Features
ORACLE7 provides advanced capabilities for centrally defining business policies
and data integrity rules within a database, and for automatic enforcement of
those policies and rules by the DBMS. Simple data integrity rules, such as a
requirement that data values in one table match values stored in another, can
be specified declaratively (non-procedurally) using industry standard SQL
commands. More complex business policies can be encapsulated in "stored
procedures" and "database triggers," which are collections of SQL language
statements and procedural logic statements that are stored in a database and
executed implicitly when other database changes occur.
Support for Tightly and Loosely-Coupled Parallel Processing Platforms
The Parallel Server configuration of ORACLE7 permits multiple computers using a
common operating system to access a single database stored on shared disk
devices. The ORACLE Parallel Server runs on hardware platforms comprised of a
small number of large processors ("clusters") as well as massively parallel
platforms comprised of hundreds or thousands of small processors, where the
processors do not share access to common main memory. The Company believes
that hardware clusters and massively parallel platforms are attractive
alternatives to traditional mainframe computers, because they can provide
exceptionally high performance at significantly lower cost than mainframe
systems. The Company also believes that the ability of the Oracle Parallel
Server configuration of ORACLE7 to exploit hardware clusters and massively
parallel platforms for OLTP applications gives the Company a significant
competitive strength with respect to other DBMS suppliers.
Portability Across Computer Hardware and Operating Systems
The ORACLE relational DBMS was designed and written to make it
adaptable--"portable"--to most computer hardware and operating systems, while
optimizing and taking full advantage of the unique functional and performance
capabilities of each platform. All implementations of the ORACLE relational
DBMS--massively parallel, mainframes, minicomputers, workstations, and personal
computers--are functionally identical, although the performance, size of
database and complexity of applications may be limited by the capacity of the
computer on which the ORACLE relational DBMS is running. The portability of
the ORACLE relational DBMS makes it possible for customers to use different
sizes of computers from different vendors but still use the same database
management software on all of their machines. This allows customers to migrate
to the most cost effective hardware platforms and protects their investment in
hardware technology by allowing them to take advantage of new hardware
innovations. The Company has ported the ORACLE relational DBMS to over 100
distinct computer hardware and operating system environments.
Compatibility with SQL
The ORACLE relational DBMS was the first commercial relational DBMS to use the
SQL command language, which was subsequently used commercially by IBM and other
DBMS vendors. SQL is a non-procedural language, meaning that users specify
database operations in terms of what is to be done, not how to do it. The
ORACLE relational DBMS automatically navigates through the internal storage
mechanism of the computer to locate and then retrieve or modify data as
requested. Because the ORACLE relational DBMS performs the navigation,
applications programs developed with the ORACLE relational DBMS can be written
without regard to database structure. Therefore, applications programs require
little or no modification when the database structure is changed, thus reducing
the costs of software development and maintenance. The Company believes that
the close compatibility of the implementation of SQL in the ORACLE relational
DBMS with both IBM and ANSI/ISO standard SQL is a significant competitive
strength with respect to other DBMS products. Because the ORACLE relational
DBMS
4
7
has been certified by the U.S. Government's National Institute of Standards and
Technology ("NIST") as fully compliant with the 1989 SQL standard, it is
attractive to government agencies and other organizations which choose to
implement standards-based systems. The Company is an active participant in the
industry standards development process, and develops products to comply with
such standards where appropriate. While no assurance can be made that the
ORACLE relational DBMS will fully comply with the SQL92 standard, the Company
plans to incorporate SQL92 into future versions of the ORACLE relational DBMS.
In addition, close compatibility with IBM's SQL makes the ORACLE relational
DBMS an attractive choice for minicomputer, workstation, and personal computer
users who have or intend to use IBM's relational DBMS products for their
mainframes. Through the Company's Oracle Open Gateway products, ORACLE
relational DBMS users can access IBM's DB2 and SQL/DS databases.
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 23%, 21%, and 21%,
of total revenues in fiscal 1994, 1993, and 1992, respectively.
The Company's support services are generally priced based on the level of
support services provided, along with the number of users authorized to access
the Company's software products. Support revenues represented approximately
19% of total revenues in fiscal 1994, 1993, and 1992.
The Company believes that its broad-based service offerings, in conjunction
with its current and planned product offerings, facilitate the transfer of
technology to customers and stimulate demand for the Company's products.
SYSTEMS INTEGRATION
The Company is also in the systems integration business through its subsidiary,
Oracle Complex Systems Corporation ("OCSC"), and certain of its international
subsidiaries. The Company delivers complete information systems by combining
the ORACLE relational DBMS and other Oracle products with various non-Oracle
hardware, communications technologies and software, and with various service
offerings.
MARKETING AND SALES
Direct Sales Organization
In the United States, the Company markets its products and services primarily
through its own direct sales and service organization, Oracle USA. As of May
31, 1994, Oracle USA consisted of 3,124 sales and service employees. Sales and
service groups are based in the Company's headquarters in Redwood City,
California, and in field offices that, as of May 31, 1994, were located in
approximately 35 United States metropolitan areas.
Outside the United States, the Company markets its products primarily through
the sales and service organizations of approximately 50 subsidiaries. As of
May 31, 1994, the international sales and service groups consisted of 5,130
employees. These subsidiaries license and support the Company's products both
within their local countries as well as into a number of other foreign
countries. See Note 8 of Notes to Consolidated Financial Statements for a
summary of operations by geographic region.
The Company faces significant competition in the DBMS marketplace, and
prospective customers often perform a detailed technical evaluation or
benchmark of competitive products as a part of the DBMS selection process.
Technical support is, therefore, a critical element in the Company's sales
process. Consequently, sales representatives typically are teamed with
technical support specialists who can answer
5
8
technical questions, help customers run benchmarks against competitive
products, and develop prototype databases and ORACLE-based applications.
OEMs, VARs, PSIs, ISVs, and Distributors
The Company also markets its products through original equipment manufacturers
("OEMs"), software value-added relicensors ("VARs"), preferred systems
integrators ("PSIs") and independent software vendors ("ISVs") that combine the
ORACLE relational DBMS with computer hardware or software applications packages
for redistribution.
The Company also markets its products through approximately 30 independent
distributors in international territories not covered by its subsidiaries'
direct sales organizations.
Additional Customer Information
Revenues from international customers (including end users and resellers)
amounted to approximately 60%, 63%, and 64% of the Company's total revenues in
fiscal 1994, 1993, and 1992, respectively. See Note 8 of Notes to Consolidated
Financial Statements for a summary of operations by geographic region.
Revenues from most of the Company's international subsidiaries are denominated
in local currencies. As a consequence, if the United States dollar strengthens
against any local currency, the Company's reported revenues from such country
will be adversely affected. The Company's international revenues also are
subject to other risks common to export sales, such as governmental regulation,
political and economic disruptions and the imposition of tariffs and other
trade barriers.
PRODUCT DEVELOPMENT
In order to meet its customers' ever-changing requirements and to expand its
product base, the Company must continue to enhance its existing products and
develop new products. This development requires a continued high level of
research and development expenditures, which were 12% of total revenues during
both fiscal 1994 and fiscal 1993, and 13% during fiscal 1992 (in each case
prior to the effect of amounts capitalized in accordance with Statement of
Financial Accounting Standards No. 86).
Significant areas of product development expenditures include the following:
--enhancing and extending the ORACLE relational DBMS, including
extending its distributed database capability, optimizing its
performance in production applications, adding additional security
features, providing stored procedures and integrity constraints, and
designing object oriented extensions which add the ability to manage
large objects, including voice, graphics, text, and more complex
structures of data;
--developing and enhancing networking software products, including
application development tools for networks and network management
products;
--developing new and enhanced applications development productivity
tools, CASE products and document automation products;
--developing and enhancing end-user applications in the Oracle
Financials, Oracle Government Financials, Oracle Manufacturing, and
Oracle Human Resources product families; and
--porting new versions and releases of the Company's products to the
numerous computer models on which prior versions and releases operate,
as well as extending the Company's products to make effective use of
new hardware technologies.
6
9
COMPETITION
The computer software industry is intensely competitive. The Company competes
with different companies in the various markets it addresses. The principal
independent software vendor competitors in the DBMS marketplace include
Informix Corporation, Sybase Inc., The ASK Group, Inc., which was acquired in
June 1994 by Computer Associates International, Inc., and Progress Software
Corporation. In addition, hardware systems vendors sell or license database
software with which the Company competes, including Digital Equipment
Corporation ("DEC"), in the DEC VAX minicomputer market, and IBM, in the
mainframe market. The Company also competes with various other companies in
its other product areas, including SAP in the financial applications market and
Powersoft Corporation in the development tools market, and system integrators
and consulting organizations in the services marketplace.
In the massively parallel, mainframe, minicomputer and workstation markets, the
Company believes that the most important considerations for end user software
customers are ease of use, product reliability, quality of technical support
and price. With OEM customers, product capabilities are also important. In
the personal computer market, the Company believes that the principal
competitive factors are strength in distribution and marketing, brand name
recognition, price/performance characteristics, reliability, ability to link
with massively parallel, mainframe, minicomputer and workstation DBMSs, and
product integration. The Company believes that it competes favorably in each
of these areas.
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 on a specified
computer. 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 program copies, the
number of users, the number of CPUs, or the license term. Fees from licenses
with standard acceptance periods (15 days for commercial customers, and 30 days
for government and telemarketing customers) are recognized as revenue upon
shipment if there are no, or insignificant, post-delivery obligations, and
payment is due within one year. If the acceptance period is longer than
standard, revenues are not recognized until the end of the acceptance period.
In general, the Company's products are priced based on the number of users
authorized to access the programs.
The Company generally receives sublicense fees from distributors, OEMs, VARs,
PSIs, and ISVs based on the revenues generated by the distributor, OEM, VAR,
PSI or ISV. Sublicense fees are typically based on a percentage of the
Company's list price. OEM agreements may include an initial non-refundable
payment (in the form of an initial fee plus advance sublicense fees, some or
all of which is payable upon the signing of the contract) and sublicense fees
based on the value of copies of the Company's products distributed by the OEM.
Agreements with VARs typically include a development license for ORACLE and may
include an initial non-refundable payment as well. License fees are based on
the value of copies of the Company's products distributed by the VAR.
Guaranteed sublicense fees from distributors, OEMs, VARs, PSIs, and ISVs are
recognized as revenue upon shipment if there are no, or insignificant,
post-delivery obligations, and if the terms of the agreement are such that the
payment obligation is noncancellable and nonrefundable, and due within one
year. Non-guaranteed per-copy sublicense fees from distributors, OEMs, VARs,
PSIs, and ISVs are recognized as revenues when they are reported by the
distributor, OEM, VAR, PSI or ISV.
In general, the Company's support services are priced based on the level of
support services provided, along with the number of users authorized to access
the Company's software products. Most customers renew their support
agreements. Support consists of technical support, including telephone
consultation on the use of the products and problem resolution, and system
updates for software products and user documentation. The Company generally
bills support fees at the beginning of each support period, either on an annual
or quarterly basis. Support revenues are recognized ratably over the contract
period.
7
10
Revenue related to consulting and education services to be performed by the
Company are recognized either proportionately over the period during which the
applicable service is to be performed or on a services-performed basis.
The Company's quarterly revenues 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, trademark, and
other proprietary rights laws, license agreements, and technical measures to
protect its rights to its software products. The Company does not own any
issued patents at present, but has 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 90 foreign countries and has additional registrations pending. The Company
also has registered over 30 other trademarks in the United States for other
product names and also has registrations pending for various product 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 perpetual license that is nontransferable and that
restricts the use of the products to the customer's internal purposes on either
a single computer or up to a maximum 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
massively parallel, mainframe, minicomputer and workstation products are
licensed pursuant to signed license agreements. Consistent with standard
industry practice, the Company's personal computer products generally are
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 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, trademark, copyright, and other
proprietary 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
recognition, and ongoing product support may be more significant in maintaining
the Company's competitive advantages.
EMPLOYEES
As of May 31, 1994, the Company employed 12,058 full-time persons, including
8,254 in sales and services, 615 in marketing, 1,757 in research and
development, and 1,432 in general and administrative positions. Of such
employees, 5,022 were located in the United States and 7,036 were employed in
approximately 50 other countries.
None of the Company's employees are 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 currently leases substantially all of its administrative,
marketing, and research and development facilities under long-term operating
leases. The Company owns the land underneath its headquarters buildings, which
are located in Redwood City, California, and as discussed in Note 2 of Notes to
Consolidated Financial Statements, has capitalized certain of these building
leases. In addition,
8
11
the Company has purchased land to be used for its UK subsidiary's headquarters,
and is in the process of constructing facilities there and at its headquarters
location. The Company also leases space in approximately 50 domestic office
facilities throughout the United States, and approximately 120 office
facilities internationally.
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
Class action and derivative lawsuits were filed in the United States District
Court, Northern District of California, on and after March 29, 1990. The class
actions were brought by and on behalf of purchasers of the Common Stock of the
Company (and purchasers of call options for the Company's Common Stock) during
the period July 11, 1989 through September 26, 1990, and named as defendants
the Company and certain of its present and former officers and directors.
Plaintiffs in the class action alleged that during the class period the
defendants violated federal securities laws and state common law by
artificially inflating the price of the Company's Common Stock (and call
options for the Company's Common Stock) through alleged misrepresentations and
nondisclosures regarding the Company's actual and prospective financial
condition. The derivative lawsuits were brought by Company stockholders,
allegedly on behalf of the Company, against certain of the Company's present
and former officers and directors. The derivative suit claimed that these
officers and directors breached their fiduciary duties to the Company and its
stockholders through similar alleged misrepresentations and nondisclosures, and
by selling the Company's securities while allegedly in possession of material
nonpublic information. Collectively, the plaintiffs in the suits sought
compensatory and other damages and disgorgement of profits from the individual
defendants. The plaintiffs in the derivative suit also sought to order a new
election of directors of the Company. An action against the Company's
independent auditors, containing allegations related to those alleged in the
class action, was filed on April 2, 1991 and was consolidated with the pending
class action and derivative lawsuits. The Court certified a plaintiff class
consisting of purchasers of Common Stock (and call options for the Common
Stock) of the Company during the period from July 11, 1989 through September
26, 1990.
On February 1, 1993, all parties entered into agreements to settle the class
action and derivative lawsuits. The class agreement provided for payment by
the Company of $23.25 million in five installments to a custodial account for
disbursement upon order of the Court. As of May 31, 1994, all installment
payments had been made. The derivative agreement provided for payment by the
Company of up to $750,000 in attorney's fees if so ordered by the Court.
On May 24, 1994, the Court issued an order approving the class and derivative
settlements. In its order, the Court awarded derivative counsel $525,000 in
attorney's fees and $69,385 in costs, which fees and costs must be paid by the
Company on or before August 9, 1994. On July 5, 1994, the Court dismissed the
class and derivative actions and entered final judgment in both actions.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
9
12
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are as follows:
Name Office(s)
- - ---- ---------
Lawrence J. Ellison President and Chief Executive Officer
James A. Abrahamson Chairman of the Board
Jeffrey O. Henley Executive Vice President and Chief Financial Officer
Raymond J. Lane Executive Vice President and President, Worldwide Operations
Raymond L. Ocampo, Jr. Senior Vice President, General Counsel and Corporate Secretary
Thomas A. Williams Vice President and Corporate Controller
Mr. Ellison, 49, is one of the Company's founders and has been President and
Chief Executive Officer of the Company since May 1977. He served as Chairman
of the Board from April 1990 to September 1992. Prior to 1977, Mr. Ellison
served as Vice President of Systems Development at Omex Corporation, a
manufacturer of laser recording devices for image processing, and in various
technical positions at Ampex Corporation, Advanced Research Division, an
electronics manufacturer, and Amdahl Corporation, an IBM-compatible computer
manufacturer. Mr. Ellison is also a director of NeXT Computer, Inc., a
computer software company.
Mr. Abrahamson, 61, has been Chairman of the Board since September 1992. Prior
to joining the Company, he served as Executive Vice President for Corporate
Development and, subsequently, President of the Transportation Sector for
Hughes Aircraft Company from October 1989 to September 1992. Mr. Abrahamson
directed the Strategic Defense Initiative from April 1984 until he retired from
the United States Air Force in January 1989 at the rank of Lieutenant General.
Mr. Abrahamson is also a director of Western Digital Corporation, a
semi-conductor company.
Mr. Henley, 49, has been Executive Vice President and Chief Financial Officer
of the Company since March 1991. Before 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. Prior to August 1986, he was
Executive Vice President and Chief Financial Officer at Saga Corporation, a
diversified food service company, and he held various finance positions at
Memorex Corporation and Fairchild Camera and Instrument Corporation. Mr.
Henley is also a director of Tricord, Inc., a computer hardware company.
Mr. Lane, 47, has been Executive Vice President of the Company and President of
Worldwide Operations since October 1993. 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 was a Senior Vice President and Managing
Partner of the Worldwide Information Services Group at Booz-Allen & Hamilton
from July 1986 to May 1992. He served on the Booz-Allen & Hamilton's Executive
Committee from April 1987 to May 1992, and its Board of Directors from April
1985 to April 1988, and from April 1991 to May 1992. From October 1983 to June
1986 he served as Managing Partner of Booz-Allen & Hamilton's Southwest Region,
and from April 1980 to October 1983 he served as Principal of the Information
Systems Practice in the western United States. From 1977 to 1980, Mr. Lane
was a Division Vice President for EDS. Prior to 1977, he held various product
and marketing positions at IBM. Mr. Lane is also a director of Cadence Designs
Systems, a computer software company, and a member of the Board of Trustees of
Carnegie Mellon University.
Mr. Ocampo, 41, has been Senior Vice President, General Counsel and Corporate
Secretary of the Company since October 1992. He was Vice President, General
Counsel and Corporate Secretary from September 1990 to September 1992. He
served as General Counsel, Legal Operations from July 1989 to August 1990, and
as Associate General Counsel from July 1986 to June 1989. Mr. Ocampo was an
10
13
attorney specializing in antitrust and complex litigation from June 1976 to
July 1986, and taught at Hastings College of the Law from August 1977 to May
1983.
Mr. Williams, 42, has been a Vice President of the Company since October 1990
and Corporate Controller since May 1989. In the fourteen years prior to joining
Oracle, Mr. Williams held various positions in the Audit Division of Arthur
Andersen & Co., an international public accounting firm, including Partner from
September 1987 to May 1989.
11
14
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 System since the Company's initial public offering
in 1986. According to records of the Company's transfer agent, the Company had
approximately 3,300 stockholders of record as of May 31, 1994. 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 of the Company's Common Stock in each of the
Company's last eight fiscal quarters.
Low High
Sale Sale
Price Price
----- -----
Fiscal 1993:
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7.00 $ 9.57
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . 8.69 12.38
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . 9.44 18.19
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . 15.63 22.32
Fiscal 1994:
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19.88 $ 28.44
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . 23.81 33.00
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . 27.25 37.75
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . 26.25 35.88
On October 11, 1993, the Company effected a two-for-one stock split in the form
of a 100% common stock dividend distributed November 8, 1993 to stockholders of
record as of October 22, 1993. All per share data have been retroactively
adjusted to reflect the stock split.
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. If the
Company is not in compliance with the financial covenants of its financing
agreement with Nippon Steel Corporation, then the Company is restricted from
making dividend payments by this agreement. The Company is in compliance with
these covenants. See Note 4 of Notes to Consolidated Financial Statements.
12
15
ITEM 6. SELECTED FINANCIAL DATA
Year Ended May 31,
------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(in thousands, except per share data)
Revenues $2,001,147 $1,502,768 $1,178,496 $1,027,949 $916,390
Operating income 419,953 216,979 113,663 17,907 135,341
Net income (loss) 283,720 98,256 61,510 (12,401) 80,877
Earnings (loss) per share .96 .34 .22 (.05) .30
Total assets 1,594,984 1,184,020 955,572 857,640 764,198
Short-term debt 6,898 10,684 16,512 180,065 42,501
Long-term debt 82,845 86,380 95,935 17,991 89,129
Stockholders' equity 740,553 528,039 435,034 344,685 336,813
Effective June 1, 1992, the Company adopted Statement of Position 91-1,
"Software Revenue Recognition," which addresses the accounting for software
revenues. The cumulative effect, net of tax, of the change in accounting
principle was $43,470,000, and was charged against net income in fiscal 1993.
Fiscal 1993 net income and earnings per share before the change in accounting
principle were $141,726,000 and $0.48, respectively.
13
16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
In fiscal 1994 and 1993, the Company continued to improve its operating margins
over the corresponding prior year periods due to increases in revenue growth
rates, coupled with lower operating expenses as a percentage of revenues. The
Company's revenue growth rate was 33%, 28% and 15% in fiscal 1994, 1993, and
1992, respectively. Sales and marketing expenses continued to represent the
largest category of operating expenses, though decreasing to 37% of revenues in
fiscal 1994 from 43% in fiscal 1993, and 48% in fiscal 1992. Cost of services
as a percentage of total revenues increased to approximately 25% of revenues in
fiscal 1994, having decreased in fiscal 1993 to 23% from 24% in fiscal 1992.
The Company's investment in research and development was 12% of revenues in
both fiscal 1994 and fiscal 1993, and 13% in fiscal 1992, prior to the impact
of capitalized software development costs. General and administrative expenses
as a percentage of revenues were 7%, 8%, and 9% in fiscal 1994, 1993, and 1992,
respectively. Overall, operating income as a percentage of revenues increased
to 21% in fiscal 1994, from 14% in fiscal 1993, and 10% in fiscal 1992.
Domestic revenues increased 44% and 29% in fiscal 1994 and 1993, respectively,
while international revenues increased 27% in both fiscal 1994 and 1993.
International revenues were negatively affected in both fiscal 1994 and 1993
when compared to the corresponding prior year periods as a result of the
strengthening of the U.S. dollar against the major international currencies.
International revenues expressed in local currency increased by approximately
34% and 28% in fiscal 1994 and 1993, respectively. Revenues from international
customers were approximately 60%, 63%, and 64% of revenues in fiscal 1994,
1993, and 1992, respectively. Management expects that the Company's
international operations will continue to provide a significant portion of
total revenues. However, international revenues will continue to be adversely
affected if the U.S. dollar strengthens against the major international
currencies.
Quarterly revenues reflect distinct seasonality. This seasonality, combined
with uneven changes in sales and marketing expenses, created marked
fluctuations in quarterly results of operations. Similar fluctuations may be
expected in the future, although they will be somewhat mitigated as service
revenues increase as a percentage of total revenues. See "Quarterly Results of
Operations" below.
Effective June 1, 1992, the Company adopted Statement of Position 91-1,
"Software Revenue Recognition," which addresses the accounting for software
revenues. Because it was impracticable to restate prior financial statements,
the Company recorded the cumulative effect of the change in accounting
principle, in the amount of $43,470,000, which is net of an income tax benefit
of $24,452,000, as a non-cash charge in its statement of operations in the
first quarter of fiscal 1993. Additionally, it was not practicable to present
the pro forma effect of the change in accounting principle on the comparative
prior periods.
14
17
REVENUES:
FY94 Change FY93 Change FY92
---- ------ ---- ------ ----
Licenses and Other $1,163,808 30% $ 895,711 26% $709,227
Percentage of revenues 58.2% 59.6% 60.2%
Services $ 837,339 38% $ 607,057 29% $469,269
Percentage of revenues 41.8% 40.4% 39.8%
Total revenues $2,001,147 33% $1,502,768 28% $1,178,496
LICENSES AND OTHER REVENUES. 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 tools and applications products have been introduced.
During this period, there has been a continued increase in the percentage of
licenses for computers utilizing the UNIX operating system and desktop
operating systems. License revenues for software used on computers utilizing
the UNIX operating system increased to 71% of license revenues in fiscal 1994
from 69% in fiscal 1993 and 62% in fiscal 1992. Similarly, license revenues
for use on desktop computers increased from 11% of license revenues in fiscal
1992 to 14% in fiscal 1993 and 17% in fiscal 1994. License revenues for use on
computers utilizing other proprietary operating systems, including DEC
minicomputers, IBM mainframes, and other proprietary minicomputers have
declined from 27% of license revenues in fiscal 1992 to 17% in fiscal 1993 and
12% of license revenues in fiscal 1994.
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 and other revenues, which include
documentation revenues, certain software development revenues, as well as other
miscellaneous revenues. Excluding the systems integration business, which
continues to be phased down, license and other revenues increased 37% and 26%
in fiscal 1994 and 1993, respectively. The Company believes that the strong
revenue growth rate in both fiscal 1994 and fiscal 1993 is due primarily to an
overall increase in market demand for database products, increased market
acceptance of the Company's relational DBMS, and increased penetration in the
financial and manufacturing applications markets.
SERVICES REVENUES. Support, consulting and education services revenues each
increased in fiscal 1994 and 1993 over the corresponding prior year levels.
The Company's support revenues continued to constitute the largest portion of
services revenues, and grew 35% and 27% in fiscal 1994 and 1993, respectively,
reflecting the continued increase in the installed base of the Company's
products under support contracts. Consulting and education services likewise
grew 41% and 31% in fiscal 1994 and 1993, respectively, as the Company
continued to expand its services toassist customers in the use and
implementation of applications based on the Company's products.
15
18
OPERATING EXPENSES:
FY94 Change FY93 Change FY92
---- ------ ---- ------ ----
Sales and Marketing $749,796 16% $646,027 14% $566,431
Percentage of revenues 37.5% 43.0% 48.1%
Cost of Services $499,213 44% $346,633 23% $281,562
Percentage of revenues 24.9% 23.1% 23.9%
Research and Development (1) $197,086 35% $146,420 32% $110,641
Percentage of revenues 9.8% 9.7% 9.4%
General and Administrative $135,099 10% $122,709 16% $106,199
Percentage of revenues 6.8% 8.2% 9.0%
Provision for Settlement
of Litigation $ -- * $ 24,000 * $ --
Percentage of revenues 0.0% 1.6% 0.0%
- - -----------------------------
* Not meaningful
(1) Pursuant to Statement of Financial Accounting Standards No. 86, the Company
capitalized software development costs equal to 1.9%, 2.0%, and 3.5% of total
revenues during fiscal 1994, 1993, and 1992, respectively.
Similar to the trend in international revenues, the Company's international
expenses were favorably affected in both fiscal 1994 and 1993 when compared to
the prior year due to changes in the value of the U.S. dollar against certain
major international currencies.
SALES AND MARKETING EXPENSES. The Company continues to place significant
emphasis, both domestically and internationally, on direct sales through its
own sales force. However, the Company has also began to place more emphasis on
marketing its products through indirect channels in order to increase market
share, while reducing distribution costs. As a percentage of total revenues,
sales and marketing expenses decreased in both fiscal 1994 and 1993 when
compared to the corresponding prior years, as a result of higher revenue
levels, and controls over expenses in order to improve the Company's sales
margins. 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 60% in fiscal 1994, having
decreased to 57% in fiscal 1993 from 60% in fiscal 1992. In fiscal 1994, the
Company's service margins decreased from the prior year, in part, due to a
higher percentage of service revenues being comprised of consulting and
education revenues, which have lower margins than the support business, as well
as the effect of higher headcount levels to support future growth. The service
margins in fiscal 1993 were higher than fiscal 1992 due primarily to the effect
of higher support revenues which had a higher margin than consulting and
education revenues.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses would
have been 12% of total revenues in both fiscal 1994 and fiscal 1993, and 13% of
total revenues in 1992 without the capitalization of software development costs
in accordance with Statement of Financial Accounting Standards No. 86. Before
considering the impact of software capitalization, research and development
expenses increased
16
19
33% in fiscal 1994 over fiscal 1993 levels, versus a 16% increase in fiscal
1993 over 1992. The Company capitalized approximately $38,067,000,
$30,647,000, and $41,825,000 of computer software development costs in fiscal
1994, 1993, and 1992, respectively, which represented 16%, 17%, and 27% of
total expenditures for research and development during those respective
periods. Amortization of capitalized software development costs is charged to
sales and marketing expenses and totalled $39,318,000, $23,043,000, and
$14,855,000 in fiscal 1994, 1993, and 1992, 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 1994 and 1993 as compared to
their corresponding prior year periods, reflecting higher revenue levels as
well as controls over spending.
PROVISION FOR SETTLEMENT OF LITIGATION. In the third quarter of fiscal 1993,
the Company entered into agreements to settle pending class action and
derivative lawsuits in exchange for payments totalling $24,000,000. See Note 9
of Notes to Consolidated Financial Statements for a description of legal
proceedings.
OTHER INCOME (EXPENSE):
FY94 Change FY93 Change FY92
---- ------ ---- ------ ----
Other Income (Expense) $ 3,510 231% $ 1,062 * $(17,533)
Percentage of revenues 0.2% 0.1% (1.5%)
_____________________________
* Not meaningful
Changes in other income and non-operating expenses 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 other
miscellaneous items. In fiscal 1992, non-operating expenses were also affected
by the write-off of certain fees and expenses associated with the originally
proposed financing transaction with Nippon Steel Corporation that was not
consummated.
PROVISION FOR INCOME TAXES:
FY94 Change FY93 Change FY92
---- ------ ---- ------ ----
Provision for Income Taxes $ 139,743 83% $ 76,315 120% $ 34,620
Percentage of revenues 7.0% 5.1% 2.9%
Effective June 1, 1992, the Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," which requires recognition of
deferred tax liabilities and assets for the expected future tax consequences of
events that have been included in the financial statements or tax returns.
Under this statement, deferred tax liabilities and assets are determined based
on the difference between the financial statement and tax bases of assets and
liabilities, using enacted tax rates in effect for the year in which the
differences are expected to reverse.
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
17
20
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.
NET INCOME AND EARNINGS PER SHARE:
FY94 Change FY93 Change FY92
---- ------ ---- ------ ----
Income before Cumulative
Effect of Change in
Accounting Principle $283,720 100% $141,726 130% $ 61,510
Percentage of revenues 14.2% 9.4% 5.2%
Net Income $ 283,720 189% $ 98,256 60% $ 61,510
Percentage of revenues 14.2% 6.5% 5.2%
Earnings Per Share:
Income before Cumulative
Effect of Change in
Accounting Principle $.96 100% $.48 126% $.22
Net Income $.96 182% $.34 56% $.22
QUARTERLY RESULTS OF OPERATIONS
Historically, the Company's business has been seasonal, with the Company
generally experiencing a decline in revenues in the first quarter of each
fiscal year from the final quarter of the preceding fiscal year. Because the
first fiscal quarter, which ends in August, is typically a period of slow
business activity in both the United States and Europe, the Company anticipates
that the first quarter of each fiscal year will continue to show relatively
weak operating results as compared to each of the other quarters. Operating
income also has fluctuated significantly from quarter to quarter as the result
of quarterly revenue fluctuations, together with uneven changes in sales and
marketing expenses.
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.
Fiscal 1994 Quarter Ended
-------------------------------------------------
Aug. 31 Nov. 30 Feb. 28 May 31
------- ------- ------- -------
(in thousands, except per share data)
Revenues $398,054 $452,170 $482,790 $668,133
Operating income $ 54,755 $ 91,921 $103,870 $169,407
Net income $ 37,360 $ 62,125 $ 69,748 $114,487
Earnings per share $.13 $.21 $.24 $.39
Number of common and common
equivalent shares outstanding 296,012 295,932 295,770 295,220
18
21
Fiscal 1993 Quarter Ended
---------------------------------------
Aug. 31 Nov. 30 Feb. 28 May 31
------- ------- ------- -------
(in thousands, except per share data)
Revenues $ 306,889 $353,169 $370,095 $472,615
Operating income $16,033 $51,605 $43,829 $105,512
Net income (loss) $(33,505) $33,489 $29,162 $69,110
Earnings (loss) per share $(.12) $.11 $.10 $.23
Number of common and common
equivalent shares outstanding 290,432 292,024 294,332 295,022
LIQUIDITY AND CAPITAL RESOURCES
FY94 Change FY93 Change FY92
------- ------ ---- ------ ----
Working Capital $ 393,511 35% $ 290,964 24% $ 234,724
Cash and short-term
investments $ 464,758 30% $ 357,775 103% $ 176,501
Long-term cash investments $ -- * $ 31,276 * --
Cash provided by operating
activities $ 443,451 40% $ 317,483 31% $ 242,320
Cash used for investing
activities $ (269,888) 71% $(158,021) 36% $(116,358)
Cash used for financing
activities $ (51,305) 111% $ (24,271) (68%) $ (76,400)
- - ----------------------------
* Not meaningful
Working capital increased in both fiscal 1994 and 1993 over the corresponding
prior year periods, primarily due to increased cash flow from operations, which
resulted in higher cash levels.
The Company generated higher positive cash flows from operations in both fiscal
1994 and 1993, primarily due to improved profitability and strong cash
collections.
Cash used for investing activities increased in fiscal 1994 as compared to the
corresponding period of the prior year due primarily to the purchase of
mortgage notes on buildings the Company occupies, partnership interest and the
acquisition of land discussed below, and the acquisition of an additional 60%
ownership of the distribution entity for the Company's products in Italy. Cash
used for investing activities increased in fiscal 1993 over fiscal 1992 due
primarily to investments in short and long term cash investments, which were
partially offset by lower capital spending and lower capitalized computer
software development costs as compared to fiscal 1992. The Company expects to
continue to invest in capital assets and capitalized software development
activities to support its growth.
19
22
During fiscal 1994, the Company purchased $85.1 million of 10.375% mortgage
notes due July 31,1995. 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 million.
The Company has the right to leave the partnership in 1996 and take full title
to both buildings without making further capital contributions. As a result of
the note purchases and capital contribution, the Company has capitalized the
two building leases, and the $89.1 million 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 $22.1 million. 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 $22.1 million in payments have been classified as land
and buildings and improvements.
In addition to the above expenditures, in fiscal 1994, the Company purchased
land and construction materials for an additional facility at its headquarters
site for approximately $17 million and land to be used for its UK subsidiary's
headquarters for approximately $31 million.
The Company's Board of Directors has approved the repurchase of up to 12
million shares of Common Stock on the open market to reduce the dilutive effect
of the Company's stock plans. Pursuant to this repurchase program, the Company
purchased 2,765,000 shares of the Company's Common Stock for approximately
$81,157,000 in fiscal 1994, and in fiscal 1993, repurchased a total of
3,207,000 shares of the Company's Common Stock for approximately $43,626,000.
The Company used cash flow from operations to repurchase the Company's Common
Stock, and to invest in working capital and other assets to support its growth.
During fiscal 1994, the Company sold in a private transaction 1,556,500 put
warrants that entitle the holder of each warrant to sell one share of Common
Stock to the Company at a weighted average price of $24.69 per share.
Additionally, the Company purchased in a private transaction 973,000 call
options that entitle the Company to buy one share of Common Stock at a weighted
average price of $31.57 per share. These put warrants and call options expire
in July and August 1995. The amount related to the Company's potential
repurchase obligation under the put warrants ($38,430,000) has been
reclassified from stockholder's equity to put warrants in the accompanying
consolidated balance sheet.
As discussed in Note 4 of Notes to Consolidated Financial Statements, in
December 1991, the Company entered into an $80 million subordinated debt
agreement with Nippon Steel Corporation ("NSC"). In connection with this
agreement, the Company also entered into a strategic relationship with NSC to
target major customers and industries in Japan. The subordinated debt
agreement has a maturity date of December 9, 1998. Interest is charged at
LIBOR plus three-quarters of one percent, payable semi-annually in arrears.
The Company is required to maintain certain financial covenants under the
agreement. NSC has committed to purchase from the Company an ownership
position of up to twenty-five percent of Oracle Corporation Japan, an indirect
wholly owned subsidiary of the Company, in the event that shares in Oracle
Corporation Japan are sold to the public as a part of an initial public
offering. The per share price of the stock would be the same as that offered
in the initial public offering. NSC has agreed not to acquire shares of Oracle
Corporation Japan beyond the twenty-five percent interest, nor any shares of
the Company, subject to certain exceptions.
20
23
At May 31, 1994, the Company also had outstanding debt of $9,743,000 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 needs at
least through May 31, 1995.
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.
21
24
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 10, 1994.
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 10, 1994. 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 10, 1994 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 10, 1994.
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 10, 1994.
22
25
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
Page
----
(a)1. Financial Statements
--------------------
The following financial statements are filed as a part of this report:
Report of Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Consolidated Financial Statements:
Balance Sheets as of May 31, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . 28
Statements of Operations for the years ended
May 31, 1994, 1993, and 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Statements of Stockholders' Equity for the years ended
May 31, 1994, 1993, and 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Statements of Cash Flows for the years ended
May 31, 1994, 1993, and 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . 32
(a)2. Financial Statement Schedules
-----------------------------
The following financial statement schedules are filed as a part of this report:
II. Amounts Receivable from Related Parties and Employees . . . . . . . . . . . . . . . . 44
VIII. Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
IX. Short-Term Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
X. Supplementary Income Statement Information . . . . . . . . . . . . . . . . . . . . . . 48
All other schedules are omitted because they are not required or the required
information is shown in the financial statements or notes thereto.
(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.
Exhibit
- - --------
Number Exhibit Title
- - ------ -------------
3.01 (1) Registrant's Restated Certificate of Incorporation, as amended to March 11, 1987.
23
26
3.02 (4) Certificate of Amendment of Certificate of Incorporation, dated June 30, 1989.
3.03 (1) Registrant's Bylaws, as adopted October 30, 1986.
3.04 (7) Amendment to Registrant's Bylaws, dated January 13, 1989.
3.05 (6) Amendment to Registrant's Bylaws, dated December 3, 1990.
3.06 (6) 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 (6) Rights Agreement between Oracle Systems Corporation and the Bank of America, N.T. & S.A., dated December 3, 1990.
3.08 (1) Specimen Certificate of Registrant's Common Stock.
3.09 (15) Certificate of Amendment to Oracle Systems Corporation Certificate of Incorporation, dated November 4, 1993.
3.10 (16) Amendment Number One to Rights Agreement dated December 3, 1990, between Oracle Systems Corporation and the
Bank of America, N.T. & S.A.
3.11 (16) Rights Agreement dated August 1, 1991, between Oracle Systems Corporation and Harris Trust Company of California.
4.07 (11) Note Purchase Agreement among Nippon Steel Corporation, Nippon Steel U.S.A., Oracle Systems Corporation, and Oracle
Corporation, dated December 9, 1991.
4.08 (11) Subordinated Note by and between Oracle Corporation and Nippon Steel U.S.A., dated December 9, 1991.
4.09 (11) Guaranty made by Oracle Systems Corporation in favor of Nippon Steel Corporation, Nippon Steel U.S.A., and any
and all future holders of the Subordinated Note by and between Oracle Corporation and Nippon Steel U.S.A., dated
December 9, 1991.
4.10 (11) Preferred Strategic Relationship Agreement by and among Oracle Systems Corporation, Oracle Corporation,
Oracle Corporation Japan, and Nippon Steel Corporation, dated December 9, 1991.
4.11 (11) Holding Warrant Agreement by and among Oracle Systems Corporation, Oracle Corporation, Oracle Japan Holding,
Inc., Nippon Steel Corporation, and Nippon Steel Europe B.V., dated December 9, 1991.
4.12 (11) Common Stock Warrant Certificate of Oracle Japan Holding, Inc., dated December 9, 1991.
4.13 (11) Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock of Oracle Japan
Holding, Inc., dated December 9, 1991.
4.14 (11) Oracle Japan Warrant Agreement by and among Oracle Systems Corporation, Oracle Corporation, Oracle Japan Holding,
Inc., Nippon Steel Corporation, and Nippon Steel Europe B.V., dated December 9, 1991.
4.15 (11) Common Stock Warrant Certificate of Oracle Corporation Japan, dated December 9, 1991.
4.16 (11) Product Activities Agreement by and among Oracle Systems Corporation, Oracle Corporation, and Nippon Steel
Corporation, dated December 9, 1991.
24
27
4.17 (11) Integration Agreement among Oracle Systems Corporation, Oracle Corporation, Oracle Corporation Japan, Oracle
Japan Holding, Inc., Nippon Steel Corporation, Nippon Steel U.S.A., and Nippon Steel Europe B.V., dated
December 9, 1991.
4.18 (11) Tax Sharing and Payment Agreement by and between Oracle Systems Corporation, Oracle Corporation, Oracle Japan
Holding, Inc., Nippon Steel Corporation, and Nippon Steel Europe B.V., dated December 9, 1991.
10.01 (2) * Registrant's Stock Option Plan (1985), as amended to date, and related documents.
10.02 (2) * Stock Option Agreement with Lawrence J. Ellison for the purchase of 320,000 shares of the Registrant's Common
Stock, dated October 2, 1986.
10.03 (5) * 1990 Directors' Stock Option Plan as adopted July 30, 1990, and related documents.
10.04 (9) * 1990 Executive Officers' Stock Option Plan as adopted October 15, 1990, and related documents.
10.05 (10)* 1991 Long-Term Equity Incentive Plan, as adopted July 31, 1991.
10.06 (12) * Oracle Systems Corporation Employee Stock Purchase Plan (1992), as adopted August 24, 1992.
10.07 (13)* 1993 Directors' Stock Option Plan as adopted May 24, 1993.
10.08 * Amendment to 1993 Directors' Stock Option Plan as adopted May 31, 1994.
10.09 (4) Lease Agreement for 500 Centrum Plaza Drive by and between Oracle Corporation and Centrum V Associates dated
May 10, 1989.
10.10 (4) Lease Agreement for 400 Centrum Plaza Drive by and between Oracle Corporation and Centrum V Associates dated
May 10, 1989.
10.11 (5) Lease Agreement for 300 Centrum Plaza Drive by and between Oracle Corporation and Centrum V Associates dated
December 11, 1989.
10.12 (5) Lease Agreement for 100 Square by and between Oracle Corporation UK Limited, Oracle Systems Corporation and
Guidefront Limited dated June 8, 1989.
10.13 (12) * Letter, dated July 9, 1992, from Oracle Corporation to James A. Abrahamson, and amendment, dated January 6, 1993.
10.14 (14) Loan purchase and sale agreement among Oracle Corporation and Connecticut General Life Insurance Company, dated
August 19, 1993, the related notes, and related documents.
10.15 (15)* 1993 Oracle Corporation Deferred Compensation Plan.
21.01 Subsidiaries of the Registrant.
23.01 Consent of Arthur Andersen & Co.
__________________________
* 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.
25
28
(3) Incorporated by reference to the Form S-8 Registration
Statement filed September 15, 1987, File No. 33-16749.
(4) Incorporated by reference to the Form 10-K filed August 25, 1989.
(5) Incorporated by reference to the Form 10-K filed on August 27, 1990.
(6) Incorporated by reference to the Form 8-K filed on December 10, 1990.
(7) Incorporated by reference to the Form 10-Q filed on January 11, 1991.
(8) Incorporated by reference to the Form 10-Q filed on April 12, 1991.
(9) Incorporated by reference to the Form 10-K filed on August 28, 1991.
(10) Incorporated by reference to the Form S-8 Registration
Statement filed December 23, 1991, File No. 33-44702.
(11) Incorporated by reference to the Form 10-Q filed on January 13, 1992.
(12) Incorporated by reference to the Form 10-Q filed on January 7, 1993.
(13) Incorporated by reference to the Form 10-K filed on July 22, 1993.
(14) Incorporated by reference to the Form 10-Q filed on September 23, 1993.
(15) Incorporated by reference to the Form 10-Q filed on January 11, 1994.
(16) Incorporated by reference to the Form 8-A filed on February 28, 1994.
__________________________
(b) Reports on Form 8-K
None.
26
29
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Oracle Systems Corporation:
We have audited the accompanying consolidated balance sheets of Oracle Systems
Corporation (a Delaware corporation) and subsidiaries as of May 31, 1994 and
1993, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended May 31,
1994. These financial statements and the schedules referred to below are the
responsibility of the company's management. Our responsibility is to express an
opinion on these financial statements and schedules 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 Systems Corporation and
subsidiaries as of May 31, 1994 and 1993, and the results of their operations
and their cash flows for each of the three years in the period ended May 31,
1994, in conformity with generally accepted accounting principles.
As explained in Note 1 to the consolidated financial statements, effective June
1, 1992, the Company changed its method of accounting for software revenues to
comply with the provisions of Statement of Position 91-1, "Software Revenue
Recognition."
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed under Item 14(a)2.
are presented for purposes of complying with the Securities and Exchange
Commission's rules and are not a required part of the basic financial
statements. These schedules have been subjected to the auditing procedures
applied in our audits of the basic financial statements and, in our opinion,
fairly state in all material respects the financial data required to be set
forth therein in relation to the basic financial statements taken as a whole.
/s/ ARTHUR ANDERSEN & CO.
San Jose, California
June 22, 1994
27
30
ORACLE SYSTEMS CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF MAY 31, 1994 AND 1993
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
May 31,
---------------
1994 1993
---------- ---------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . $ 404,810 $ 284,560
Short-term cash investments . . . . . . . . . . . . . . . . . . . 59,948 73,215
Trade receivables, net of allowance for doubtful
accounts of $39,777 in 1994 and $34,634
in 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . 455,884 359,360
Other receivables . . . . . . . . . . . . . . . . . . . . . . . . 59,785 46,229
Prepaid and refundable income taxes . . . . . . . . . . . . . . . 53,765 49,157
Prepaid expenses and supplies . . . . . . . . . . . . . . . . . . 41,420 29,786
----------- -----------
Total current assets . . . . . . . . . . . . . . . . . . . . . 1,075,612 842,307
LONG-TERM CASH INVESTMENTS . . . . . . . . . . . . . . . . . . . . . . -- 31,276
PROPERTY, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 378,483 189,238
COMPUTER SOFTWARE DEVELOPMENT COSTS, net of
accumulated amortization of $107,087 in 1994 and
$71,546 in 1993 . . . . . . . . . . . . . . . . . . . . . . . . . 100,329 101,580
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,560 19,619
----------- -----------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . $1,594,984 $1,184,020
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable to banks . . . . . . . . . . . . . . . . . . . . . . $ 551 $ 1,530
Current maturities of long-term debt . . . . . . . . . . . . . . . 6,347 9,154
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . 95,799 72,863
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 62,591 49,729
Accrued compensation and related benefits . . . . . . . . . . . . 136,488 103,099
Customer advances and unearned revenues . . . . . . . . . . . . . 227,118 193,211
Value added tax and sales tax payable . . . . . . . . . . . . . . 44,781 31,192
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . 108,426 90,565
----------- -----------
Total current liabilities . . . . . . . . . . . . . . . . . . 682,101 551,343
LONG-TERM DEBT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82,845 86,380
OTHER LONG-TERM LIABILITIES . . . . . . . . . . . . . . . . . . . . . . 12,139 10,035
DEFERRED INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . . 38,916 8,223
PUT WARRANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,430 --
COMMITMENTS (Note 5) . . . . . . . . . . . . . . . . . . . . . . . . . -- --
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value - authorized,
1,000,000 shares; outstanding: none . . . . . . . . . . . . . -- --
Common stock ($.01 par value) and additional paid
in capital - authorized, 400,000,000 shares; outstanding:
286,360,783 shares in 1994 and 284,455,798 shares in 1993 . . 254,500 202,913
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . 488,595 322,429
Accumulated foreign currency translation adjustments . . . . . . . (2,542) 2,697
------------ ------------
Total stockholders' equity . . . . . . . . . . . . . . . . . . 740,553 528,039
----------- -----------
Total liabilities and stockholders' equity . . . . . . . . . . $1,594,984 $1,184,020
========== ==========
See notes to consolidated financial statements.
28
31
ORACLE SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MAY 31, 1994, 1993, AND 1992
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Year Ended May 31,
-------------------
1994 1993 1992
----------- ----------- ----------
REVENUES:
Licenses and other . . . . . . . . . . . . . . . . . . . $1,163,808 $ 895,711 $ 709,227
Services . . . . . . . . . . . . . . . . . . . . . . . . 837,339 607,057 469,269
----------- ---------- ----------
Total revenues . . . . . . . . . . . . . . . . . . . 2,001,147 1,502,768 1,178,496
----------- ---------- ----------
OPERATING EXPENSES:
Sales and marketing . . . . . . . . . . . . . . . . . . 749,796 646,027 566,431
Cost of services . . . . . . . . . . . . . . . . . . . . 499,213 346,633 281,562
Research and development . . . . . . . . . . . . . . . . 197,086 146,420 110,641
General and administrative . . . . . . . . . . . . . . . 135,099 122,709 106,199
Provision for settlement of litigation . . . . . . . . . -- 24,000 --
------------- ----------- --------------
Total operating expenses . . . . . . . . . . . . . . 1,581,194 1,285,789 1,064,833
----------- ---------- ----------
Operating income . . . . . . . . . . . . . . . . . . 419,953 216,979 113,663
----------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest income . . . . . . . . . . . . . . . . . . . . 17,943 13,801 6,165
Interest expense . . . . . . . . . . . . . . . . . . . . (6,871) (8,961) (18,649)
Other expense . . . . . . . . . . . . . . . . . . . . . (7,562) (3,778) (5,049)
------------ ----------- -----------
Total other income (expense) . . . . . . . . . . . . 3,510 1,062 (17,533)
------------ ----------- ----------
Income before provision for income taxes and
cumulative effect of change in accounting principle 423,463 218,041 96,130
PROVISION FOR INCOME TAXES . . . . . . . . . . . . . . . . . 139,743 76,315 34,620
----------- ----------- ----------
Income before cumulative effect of
change in accounting principle . . . . . . . . 283,720 141,726 61,510
CUMULATIVE EFFECT ON PRIOR YEARS OF CHANGE IN
SOFTWARE REVENUE RECOGNITION METHOD, NET
OF RELATED INCOME TAX EFFECT (See Note 1) . . . . . . . . -- (43,470) --
------------- ---------- ------------
Net income . . . . . . . . . . . . . . . . . . . . $ 283,720 $ 98,256 $ 61,510
=========== ========== ==========
EARNINGS PER SHARE:
Income before cumulative effect of change
in accounting principle . . . . . . . . . . . . . . $ .96 $ .48 $.22
Cumulative effect of change in accounting principle . . -- (.14) --
------------- ------------ ------------
Net income . . . . . . . . . . . . . . . . . . . . . . $ .96 $ .34 $.22
============= ============ ===========
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING . . . . . . . . . . . . . . . . . . . 295,734 292,952 285,538
=========== ========== ===========
See notes to consolidated financial statements.
29
32
ORACLE SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MAY 31, 1994, 1993, AND 1992
(DOLLARS IN THOUSANDS)
Common Stock and Additional Accumulated
Paid-In Capital Foreign
--------------- Currency
Number Retained Translation
of Shares Amount Earnings Adjustments Total
--------- ------ -------- ----------- -----
BALANCES, May 31, 1991 . . . . . 272,594,044 $138,801 $204,302 $ 1,582 $344,685
Common stock issued under
stock option plans, net . . 3,697,240 6,139 -- -- 6,139
Common stock issued under
stock purchase plan . . . . 3,501,876 16,100 -- -- 16,100
Tax benefits from stock plans . . -- 2,890 -- -- 2,890
Foreign currency translation
adjustments . . . . . . . . -- -- -- 3,710 3,710
Net income . . . . . . . . . . . -- -- 61,510 -- 61,510
---------- ------------ ---------- ----------- ----------
BALANCES, May 31, 1992 . . . . . 279,793,160 163,930 265,812 5,292 435,034
Common stock issued under
stock option plans, net . . 4,853,262 11,032 -- -- 11,032
Common stock issued under
stock purchase plan . . . . 3,016,376 20,666 -- -- 20,666
Repurchase of common stock . . . (3,207,000) (1,987) (41,639) -- (43,626)
Tax benefits from stock plans . . -- 9,272 -- -- 9,272
Foreign currency translation
adjustments . . . . . . . . -- -- -- (2,595) (2,595)
Net income . . . . . . . . . . . -- -- 98,256 -- 98,256
---------- ------------ ---------- ----------- ----------
BALANCES, May 31, 1993 . . . . . 284,455,798 202,913 322,429 2,697 528,039
Common stock issued under
stock option plans, net . . 3,265,361 10,868 -- -- 10,868
Common stock issued under
stock purchase plan . . . . 1,404,624 27,844 -- -- 27,844
Reclassification of put warrant
obligations . . . . . . . . -- (1,381) (37,049) -- (38,430)
Repurchase of common stock . . . (2,765,000) (2,078) (79,079) -- (81,157)
Effect of common stock dividend . -- 1,426 (1,426) -- --
Tax benefits from stock plans . . -- 14,908 -- -- 14,908
Foreign currency translation
adjustments . . . . . . . . -- -- -- (5,239) (5,239)
Net income . . . . . . . . . . . -- -- 283,720 -- 283,720
---------- ------------ ---------- ----------- ---------
BALANCES, May 31, 1994 . . . . . 286,360,783 $254,500 $488,595 $ (2,542) $740,553
============ ========= ========= ========= =========
See notes to consolidated financial statements.
30
33
ORACLE SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MAY 31, 1994, 1993, AND 1992
(IN THOUSANDS)
Year Ended May 31,
--------------------
1994 1993 1992
-------- --------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $283,720 $ 98,256 $ 61,510
Adjustments to reconcile net income to net cash
provided by operating activities--
Cumulative effect of change in accounting principle -- 43,470 --
Depreciation and amortization 104,563 79,204 65,778
Provision for doubtful accounts 33,830 26,059 32,665
Provision for settlement of litigation -- 24,000 --
Increase in receivables (147,502) (39,186) (4,122)
(Increase) decrease in prepaid and refundable taxes (4,608) 11,553 (1,713)
(Increase) decrease in prepaid expenses and supplies (11,887) 8,652 (1,762)
Increase in accounts payable 23,465 11,339 12,260
Increase in income taxes 30,334 18,539 24,230
Increase in other accrued liabilities 65,632 37,145 37,489
Increase (decrease) in customer advances and
unearned revenues 35,049 (3,460) 13,137
Increase in deferred income taxes 28,752 401 3,655
Increase (decrease) in other non-current liabilities 2,103 1,511 (807)
---------- ---------- ----------
Net cash provided by operating activities 443,451 317,483 242,320
-------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) decrease in cash investments 44,543 (81,273) (23,218)
Capital expenditures (250,650) (41,313) (46,631)
Capitalization of computer software
development costs (38,067) (30,647) (41,825)
Increase in other assets (25,714) (4,788) (4,684)
----------- ---------- ----------
Net cash used for investing activities (269,888) (158,021) (116,358)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments under lines of credit (987) (1,206) (140,122)
Payments of capital leases (7,873) (10,825) (11,556)
Borrowings under notes payable and
long-term debt -- -- 80,410
Payments of notes payable and long-term debt -- (312) (27,371)
Proceeds from common stock issued 38,712 31,698 22,239
Repurchase of common stock (81,157) (43,626) --
---------- ---------- ----------
Net cash used for financing activities (51,305) (24,271) (76,400)
---------- ---------- ----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (2,008) (3,914) 2,240
---------- ----------- ----------
Net increase in cash and cash equivalents 120,250 131,277 51,802
CASH AND CASH EQUIVALENTS:
Beginning of year 284,560 153,283 101,481
--------- -------- ---------
End of year $404,810 $284,560 $153,283
========= ======== ========
See notes to consolidated financial statements.
31
34
ORACLE SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
Oracle Systems Corporation designs, develops, markets, and supports computer
software products with a wide variety of uses, including database management
and network products, applications development productivity tools, and end
user applications. The Company also offers consulting, education, support and
systems integration 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.
Certain prior year amounts have been reclassified to conform to the current
year's presentation.
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 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.
The Company hedges certain portions of its exposure to foreign currency
fluctuations through a variety of strategies and financial instruments,
including the use of forward foreign exchange contracts. At May 31, 1994, the
Company had approximately $107,838,000 of forward foreign exchange contracts
outstanding used to hedge intercompany accounts of certain of its international
subsidiaries, and $54,112,000 of equity hedges outstanding used to hedge the
net assets of certain of its international subsidiaries. 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. 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. Net foreign exchange transaction losses and
expenses were $6,589,000, $826,000, and $933,000 in fiscal 1994, 1993, and
1992, respectively, and are included in other income and expense. Net losses
on equity hedges were $2,239,000 in fiscal 1994 and were recorded as a
component of accumulated foreign currency translation adjustments in
stockholders' equity.
As of May 31, 1994, the fair value (and carrying amount) of these foreign
forward exchange contracts were as follows:
Contract Fair
Amount Value
------------ ------------
Intercompany Account Hedges $107,838,000 $107,842,000
Equity Hedges $ 54,112,000 $ 51,859,000
Statements of Cash Flows
The Company paid income taxes in the amount of $69,267,000, $32,130,000, and
$7,301,000, and interest expense of $6,887,000, $9,161,000, and $20,318,000
during the fiscal years ended 1994, 1993, and 1992, respectively. In fiscal
1994, 1993, and 1992, the Company received income tax refunds in the amount of
$467,000, $2,378,000 and $23,042,000, respectively. The Company purchased
equipment under capital leases in the amount of $1,702,000, $1,102,000, and
$12,215,000 in fiscal 1994, 1993, and 1992, respectively.
32
35
Cash and C