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-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, lAsoBJTZmY04HdP+eeA8UhpBxZRrTE847Yg+OE6eyVccIsqXgN5rPPcgl09npxgd +yD4gXL438c6SDIVjIj1qg== <IMS-DOCUMENT>0000891618-94-000093.txt : 19940601 <IMS-HEADER>0000891618-94-000093.hdr.sgml : 19940601 ACCESSION NUMBER: 0000891618-94-000093 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940228 FILED AS OF DATE: 19940401 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ORACLE SYSTEMS CORP CENTRAL INDEX KEY: 0000777676 STANDARD INDUSTRIAL CLASSIFICATION: 7372 IRS NUMBER: 942871189 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-14376 FILM NUMBER: 94520095 BUSINESS ADDRESS: STREET 1: 500 ORACLE PKWY CITY: REDWOOD CITY STATE: CA ZIP: 94065 BUSINESS PHONE: 4155067000 MAIL ADDRESS: STREET 1: 500 ORACLE PARKWAY STREET 2: BOX 659506 CITY: REDWOOD CITY STATE: CA ZIP: 94065 </IMS-HEADER> <DOCUMENT> <TYPE>10-Q <SEQUENCE>1 <DESCRIPTION>ORACLE FORM 10Q <TEXT> <PAGE> 1 ============================================================================= SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended February 28, 1994 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________________ to __________________ Commission file number 0-14376 ORACLE SYSTEMS CORPORATION (Exact name of registrant as specified in its charter) <TABLE> <S> <C> DELAWARE 94-2871189 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) </TABLE> 500 ORACLE PARKWAY REDWOOD CITY, CALIFORNIA 94065 (Address of principal executive offices, including zip code) (415) 506-7000 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO _____ Number of shares of registrant's common stock outstanding as of February 28, 1994: 285,646,746. ============================================================================= <PAGE> 2 ORACLE SYSTEMS CORPORATION TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> <C> PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements Condensed Consolidated Balance Sheets at February 28, 1994 and May 31, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Condensed Consolidated Statements of Operations for the three months and nine months ended February 28, 1994 and February 28, 1993 . . . . . . . . . . . 4 Condensed Consolidated Statements of Cash Flows for the nine months ended February 28, 1994 and February 28, 1993 . . . . . . . . . . . . . . . . . . . 5 Notes to Condensed Consolidated Financial Statements . . . . . . . . . . . . . . . . 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 PART II. OTHER INFORMATION Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 </TABLE> 2 <PAGE> 3 PART I. FINANCIAL INFORMATION Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ORACLE SYSTEMS CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) <TABLE> <CAPTION> February 28, May 31, 1994 1993 ---- ---- ASSETS <S> <C> <C> CURRENT ASSETS: Cash and cash equivalents . . . . . . . . . . . . . . . . . $ 254,398 $ 284,560 Short-term cash investments . . . . . . . . . . . . . . . . 69,042 73,215 Trade receivables, net of allowance for doubtful accounts of $33,376 and $34,634, respectively . . . . . . . 380,889 359,360 Prepaid and refundable income taxes . . . . . . . . . . . . 47,318 49,157 Other current assets . . . . . . . . . . . . . . . . . . . . 87,844 76,015 ---------- ---------- Total current assets . . . . . . . . . . . . . . . . . . 839,491 842,307 --------- --------- LONG-TERM CASH INVESTMENTS . . . . . . . . . . . . . . . . . . . 8,538 31,276 PROPERTY, net . . . . . . . . . . . . . . . . . . . . . . . . . . 341,626 189,238 COMPUTER SOFTWARE DEVELOPMENT COSTS, net of accumulated amortization of $100,118 and $71,546, respectively . . . . . . . . . . . . . . . . . . . 100,849 101,580 OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . 38,200 19,619 ----------- ----------- Total assets . . . . . . . . . . . . . . . . . . . . . . $1,328,704 $1,184,020 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable to banks . . . . . . . . . . . . . . . . . . . $ 1,068 $ 1,530 Current maturities of long-term debt . . . . . . . . . . . . 6,624 9,154 Accounts payable . . . . . . . . . . . . . . . . . . . . . . 90,469 72,863 Income taxes . . . . . . . . . . . . . . . . . . . . . . . 57,979 49,729 Accrued compensation and related benefits . . . . . . . . . 85,945 103,099 Customer advances and unearned revenues . . . . . . . . . . 187,714 193,211 Value added tax and sales tax payable . . . . . . . . . . . 26,301 31,192 Other accrued liabilities . . . . . . . . . . . . . . . . . 102,924 90,565 ----------- ----------- Total current liabilities . . . . . . . . . . . . . . . 559,024 551,343 ----------- ----------- LONG-TERM DEBT . . . . . . . . . . . . . . . . . . . . . . . . . 84,072 86,380 OTHER LONG-TERM LIABILITIES . . . . . . . . . . . . . . . . . . . 10,974 10,035 DEFERRED INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . 20,901 8,223 STOCKHOLDERS' EQUITY . . . . . . . . . . . . . . . . . . . . . . 653,733 528,039 ----------- ----------- Total liabilities and stockholders' equity . . . . . . . $1,328,704 $1,184,020 ========== ========== </TABLE> See notes to condensed consolidated financial statements. 3 <PAGE> 4 ORACLE SYSTEMS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS AND NINE MONTHS ENDED FEBRUARY 28, 1994 AND 1993 (IN THOUSANDS, EXCEPT PER SHARE DATA) <TABLE> <CAPTION> Three Months Ended Nine Months Ended February 28, February 28, ----------------------- ------------------------ 1994 1993 1994 1993 -------- -------- ---------- ---------- <S> <C> <C> <C> <C> REVENUES: Licenses and other . . . . . . . . . . . . . $276,488 $221,461 $ 745,481 $ 598,947 Services . . . . . . . . . . . . . . . . . . 206,302 148,634 587,533 431,206 -------- -------- ---------- ---------- Total revenues . . . . . . . . . . . . . 482,790 370,095 1,333,014 1,030,153 -------- -------- ---------- ---------- OPERATING EXPENSES: Sales and marketing . . . . . . . . . . . . 172,738 149,979 503,624 455,040 Cost of services. . . . . . . . . . . . . . 127,408 83,776 343,784 248,118 Research and development. . . . . . . . . . 48,496 38,252 140,929 102,713 General and administrative. . . . . . . . . 30,278 30,259 94,131 88,815 Provision for settlement of litigation . . -- 24,000 -- 24,000 -------- -------- ---------- ---------- Total operating expenses . . . . . . . . 378,920 326,266 1,082,468 918,686 -------- -------- ---------- ---------- Operating income . . . . . . . . . . . 103,870 43,829 250,546 111,467 OTHER INCOME (EXPENSE), net . . . . . . . . . . 240 1,035 2,062 250 -------- -------- ---------- ---------- Income before provision for income taxes and cumulative effect of change in accounting principle . . . . 104,110 44,864 252,608 111,717 PROVISION FOR INCOME TAXES . . . . . . . . . . . 34,362 15,702 83,375 39,101 -------- -------- ---------- ---------- Income before cumulative effect of change in accounting principle . . . . 69,748 29,162 169,233 72,616 CUMULATIVE EFFECT ON PRIOR YEARS OF CHANGE IN SOFTWARE REVENUE RECOGNITION METHOD, NET OF RELATED INCOME TAX EFFECT (See Note 2) . . . . . . . . -- -- -- (43,470) -------- -------- ---------- ---------- Net income . . . . . . . . . . . . . . $ 69,748 $ 29,162 $ 169,233 $ 29,146 ======== ======== ========== ========== EARNINGS PER SHARE: Income before cumulative effect of change in accounting principle . . . . . . $ 0.24 $ 0.10 $ 0.57 $ 0.25 -------- -------- ---------- ---------- Cumulative effect of change in accounting principle . . . . . . . . . . . $ 0.00 $ 0.00 $ 0.00 $ (0.15) -------- -------- -------- -------- Net income . . . . . . . . . . . . . . . . $ 0.24 $ 0.10 $ 0.57 $ 0.10 ======== ======== ========== ========== COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING (See Note 5) . . . . . 295,770 294,332 295,905 292,262 ======== ======== ========== ========== </TABLE> See notes to condensed consolidated financial statements. 4 <PAGE> 5 ORACLE SYSTEMS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED FEBRUARY 28, 1994 AND 1993 (IN THOUSANDS) <TABLE> <CAPTION> Nine Months Ended February 28, ----------------------------- 1994 1993 ---------- --------- <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net income . . . . . . . . . . . . . . . . . . . . . . . . . $169,233 $ 29,146 Adjustments to reconcile net income to net cash provided by operating activities: Cumulative effect of accounting change . . . . . . . . . -- 43,470 Depreciation and amortization . . . . . . . . . . . . . 75,296 60,185 Provision for doubtful accounts . . . . . . . . . . . . 22,707 15,407 (Increase) decrease in receivables . . . . . . . . . . . (65,995) 13,671 Decrease in prepaid and refundable income taxes . . . . 1,840 8,460 (Increase) decrease in other current assets . . . . . . (3,595) 10,345 Increase (decrease) in accounts payable . . . . . . . . 19,707 (4,628) Increase in income taxes . . . . . . . . . . . . . . . 19,458 3,579 Decrease in customer advances and unearned revenues . . . . . . . . . . . . . . . . . . (1,716) (27,136) Increase (decrease) in other accrued liabilities . . . . (5,979) 18,268 Increase in other long-term liabilities . . . . . . . . 939 1,089 Increase (decrease) in deferred income taxes . . . . . . 12,709 (4,481) ---------- --------- Net cash provided by operating activities . . . . . . . . . 244,604 167,375 ---------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: (Increase) decrease in cash investments . . . . . . . . 26,911 (60,791) Capital expenditures . . . . . . . . . . . . . . . . . . (197,847) (28,923) Capitalization of computer software development costs . . . . . . . . . . . . . . . . . . (27,802) (24,469) Increase in other assets . . . . . . . . . . . . . . . . (20,619) (99) ---------- --------- Net cash used for investing activities . . . . . . . . . . . (219,357) (114,282) ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Net payments on debt obligations . . . . . . . . . . . . (6,020) (9,538) Proceeds from common stock issued . . . . . . . . . . . 22,090 19,088 Repurchase of common stock . . . . . . . . . . . . . . . (65,130) (24,630) ---------- ---------- Net cash used for financing activities . . . . . . . . . . . (49,060) (15,080) ---------- ---------- EFFECT OF EXCHANGE RATE CHANGES ON CASH . . . . . . . . . . . . . (6,349) (5,344) ---------- ---------- Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . (30,162) 32,669 CASH AND CASH EQUIVALENTS: Beginning of period . . . . . . . . . . . . . . . . . . . . 284,560 153,283 --------- --------- End of period . . . . . . . . . . . . . . . . . . . . . . . $254,398 $185,952 ========= ========= </TABLE> See notes to condensed consolidated financial statements. 5 <PAGE> 6 ORACLE SYSTEMS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The condensed consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. These condensed consolidated financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended May 31, 1993. The unaudited condensed consolidated financial statements included herein reflect all adjustments (which include only normal, recurring adjustments) which are, in the opinion of management, necessary to state fairly the results for the nine month period ended February 28, 1994. The results for the nine month period ended February 28, 1994 are not necessarily indicative of the results expected for the full fiscal year. 2. SOFTWARE REVENUE RECOGNITION Effective June 1, 1992, the Company adopted Statement of Position 91-1, "Software Revenue Recognition," which addresses the accounting for software revenues. The Company recorded the cumulative effect of the change in accounting principle, net of tax, in the amount of $43,470,000 as a non-cash charge in its statement of operations in the first quarter of fiscal 1993. 3. PROPERTY In August 1993, to reduce its net facilities costs, 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 of the three buildings leased by the Company for its headquarters. In December 1993, the Company became a 74% limited partner in IV Centrum 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 property in the accompanying condensed consolidated balance sheet. In addition to the above expenditures, during the second quarter of 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. 4. NOTES PAYABLE 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 final maturity date of December 9, 1998, subject to a one-time call option that may reduce the maturity to May 1, 1995 if the strategic relationship is terminated after May 1, 1994. 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. Additionally, NSC acquired warrant rights 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. 6 <PAGE> 7 The exercise price for the warrants is based on a $400 million valuation of Oracle Corporation Japan if shares are purchased prior to May 1, 1994. If NSC does not exercise this option, it may select other options to purchase an ownership in Oracle Corporation Japan of up to twenty-five percent at fair market value prior to December 1, 1998, subject to potential extensions. NSC has also 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. 5. EARNINGS PER SHARE 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 and numbers of common shares, where appropriate, have been retroactively adjusted to reflect the stock split. Earnings per share was computed based on the weighted average number of common and common equivalent shares outstanding during the period. Common equivalent shares are calculated using the treasury stock method, and represent shares issuable upon the exercise of outstanding stock options. 6. LITIGATION Refer to Part II, Item 1 for a description of legal proceedings. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS International revenues (including end users and resellers) increased 31% and 24% in the third quarter and first nine months of fiscal 1994, as compared to the corresponding periods in fiscal 1993, while revenues in the United States increased 29% and 38% from the third quarter and first nine months of fiscal 1993, respectively. International revenues were negatively affected in fiscal 1994 when compared to the corresponding period of the prior year as a result of the strengthening of the U.S. dollar against certain major international currencies. International revenues expressed in local currency increased in both the third quarter and first nine months of fiscal 1994 by approximately 34%, from the corresponding periods of fiscal 1993. International revenues constituted approximately 61% and 60% of total revenues in the third quarters of fiscal 1994 and 1993, respectively, and 61% and 63% of total revenues in the first nine months of fiscal 1994 and 1993, respectively. Management expects that the Company's international operations will continue to provide a significant portion of total revenues. However, international revenues will be adversely affected if the U.S. dollar continues to strengthen against certain major international currencies. <TABLE> <CAPTION> REVENUES: Three Months Ended Nine Months Ended ----------------------------- ----------------------------- Feb 28, Feb 28, Feb 28, Feb 28, 1994 Change 1993 1994 Change 1993 ------- ------ ------- ------- ------ ------- <S> <C> <C> <C> <C> <C> <C> Licenses and other $276,488 25% $221,461 $ 745,481 24% $ 598,947 Percentage of revenues 57.3% 59.8% 55.9% 58.1% Services $206,302 39% $148,634 $ 587,533 36% $ 431,206 Percentage of revenues 42.7% 40.2% 44.1% 41.9% Total revenues $482,790 30% $370,095 $1,333,014 29% $1,030,153 </TABLE> 7 <PAGE> 8 LICENSES AND OTHER REVENUES. License revenues represent fees earned for granting customers licenses to use the Company's software products. License revenues also include revenues from the Company's systems integration business 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 31% and 32% in the third quarter and first nine months of fiscal 1994, respectively, when compared to the corresponding periods in fiscal 1993. The Company believes that the strong revenue growth rate in the first nine months of fiscal 1994 is primarily due to an overall increase in market demand for database and tools products, increased market acceptance of the Company's relational DBMS, as well as increased penetration in the financial and manufacturing applications markets. SERVICE REVENUES. Support, consulting and education services revenues each increased from the corresponding period of fiscal 1993. The Company's support revenues continued to constitute the largest portion of services revenues, and grew 37% and 34% in the third quarter and first nine months of fiscal 1994, 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 39% in the third quarter and first nine months of fiscal 1994, as the Company continued to expand its services to assist customers in the use and implementation of applications based on the Company's products. OPERATING EXPENSES: <TABLE> <CAPTION> Three Months Ended Nine Months Ended ---------------------------- ---------------------------- Feb 28, Feb 28, Feb 28, Feb 28, 1994 Change 1993 1994 Change 1993 ------- ------ ------- ------- ------ ------- <S> <C> <C> <C> <C> <C> <C> Sales and marketing $172,738 15% $149,979 $503,624 11% $455,040 Percentage of revenues 35.8% 40.5% 37.8% 44.2% Cost of services $127,408 52% $ 83,776 $343,784 39% $248,118 Percentage of revenues 26.4% 22.6% 25.8% 24.1% Research and development (1) $ 48,496 27% $ 38,252 $140,929 37% $102,713 Percentage of revenues 10.0% 10.3% 10.6% 10.0% General and administrative $ 30,278 0% $ 30,259 $ 94,131 6% $ 88,815 Percentage of revenues 6.3% 8.2% 7.1% 8.6% Provision for settlement of litigation $ -- * $ 24,000 $ -- * $ 24,000 Percentage of revenues * 6.5% * 2.3% __________________________ </TABLE> * Not meaningful (1) Pursuant to Statement of Financial Accounting Standards No. 86, the Company capitalized software development costs equal to 2.1% and 1.5% of total revenues during the third quarters of fiscal 1994 and 1993, respectively, and 2.1% and 2.4% of total revenues in the first nine months of fiscal 1994 and 1993, respectively. Similar to the trend in international revenues, the Company's international expenses were favorably affected in the third quarter and first nine months of fiscal 1994 when compared to the corresponding periods in the prior year due to changes in the value of the U.S. dollar against certain major international currencies. SALES AND MARKETING EXPENSES. The Company continues to place significant emphasis, both domestically and (Note: Example File has been truncated)