================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended February 28, 2002
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________.
Commission file number: 0-14376
-----------------
Oracle Corporation
(Exact name of registrant as specified in its charter)
Delaware 94-2871189
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification no.)
500 Oracle Parkway
Redwood City, California 94065
(Address of principal executive offices, including zip code)
(650) 506-7000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [_]
The number of shares of registrant's common stock outstanding as of March 31,
2002 was 5,491,217,094.
================================================================================
ORACLE CORPORATION
FORM 10-Q QUARTERLY REPORT
-----------------
TABLE OF CONTENTS
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at February 28, 2002 and May 31, 2001........... 3
Condensed Consolidated Statements of Operations for the three and nine months ended
February 28, 2002 and February 28, 2001............................................... 4
Condensed Consolidated Statements of Cash Flows for the nine months ended February 28,
2002 and February 28, 2001............................................................ 5
Notes to Condensed Consolidated Financial Statements.................................. 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk............................ 23
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..................................................................... 26
Item 2. Changes in Securities and Use of Proceeds............................................. 27
Signatures............................................................................ 28
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ORACLE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
February 28, May 31,
(in thousands, except share data) 2002 2001
------------------------------------------------------------------------------- ------------ -----------
ASSETS (unaudited)
Current assets:
Cash and cash equivalents.................................................... $ 3,459,191 $ 4,449,166
Short-term cash investments.................................................. 2,151,783 1,438,495
Trade receivables, net of allowance for doubtful accounts of $387,283 and
$403,305, respectively..................................................... 1,621,413 2,432,131
Other receivables............................................................ 210,114 281,782
Prepaid and refundable income taxes.......................................... 457,719 272,742
Prepaid expenses and other current assets.................................... 121,776 88,834
----------- -----------
Total current assets.................................................. 8,021,996 8,963,150
Long-term cash investments...................................................... 329,775 --
Property, net................................................................... 984,766 974,751
Long-term prepaid income taxes.................................................. 396,373 376,030
Other assets.................................................................... 642,012 716,229
----------- -----------
Total assets.......................................................... $10,374,922 $11,030,160
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current maturities of long-term debt....................... $ 2,059 $ 2,849
Accounts payable............................................................. 238,297 270,112
Income taxes payable......................................................... 972,162 767,087
Accrued compensation and related benefits.................................... 410,208 734,705
Customer advances and unearned revenues...................................... 1,013,778 1,213,529
Value added tax and sales tax payable........................................ 77,936 165,210
Other accrued liabilities.................................................... 850,180 763,127
----------- -----------
Total current liabilities............................................. 3,564,620 3,916,619
Long-term debt.................................................................. 300,890 300,847
Deferred income taxes........................................................... 310,173 327,788
Other long-term liabilities..................................................... 209,538 207,135
----------- -----------
Total liabilities..................................................... 4,385,221 4,752,389
----------- -----------
Stockholders' equity:
Preferred stock, $0.01 par value--authorized: 1,000,000 shares; outstanding:
none....................................................................... -- --
Common stock, $0.01 par value, and additional paid in capital--authorized:
11,000,000,000 shares; outstanding: 5,490,340,558 shares at February 28,
2002 and 5,592,360,823 shares at May 31, 2001.............................. 4,972,798 4,820,869
Retained earnings............................................................ 1,235,324 1,610,480
Accumulated other comprehensive loss......................................... (218,421) (153,578)
----------- -----------
Total stockholders' equity............................................ 5,989,701 6,277,771
----------- -----------
Total liabilities and stockholders' equity............................ $10,374,922 $11,030,160
=========== ===========
See notes to condensed consolidated financial statements.
3
ORACLE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended Nine Months Ended
February 28, February 28,
---------------------- ----------------------
(in thousands, except per share data) 2002 2001 2002 2001
-------------------------------------------------- ---------- ---------- ---------- ----------
Revenues:
Licenses and other............................. $ 789,578 $1,125,083 $2,340,334 $3,050,559
Services....................................... 1,439,765 1,549,284 4,488,389 4,545,229
---------- ---------- ---------- ----------
Total revenues............................. 2,229,343 2,674,367 6,828,723 7,595,788
---------- ---------- ---------- ----------
Operating expenses:
Sales and marketing............................ 514,816 665,605 1,621,449 1,879,434
Cost of services............................... 547,467 708,614 1,767,178 2,077,490
Research and development....................... 283,231 301,455 794,014 818,762
General and administrative..................... 105,090 120,570 301,621 337,937
---------- ---------- ---------- ----------
Total operating expenses................... 1,450,604 1,796,244 4,484,262 5,113,623
---------- ---------- ---------- ----------
Operating income.................................. 778,739 878,123 2,344,461 2,482,165
Net investment losses related to equity securities (7,510) (22,437) (14,199) (20,472)
Other income, net................................. 10,271 47,745 82,175 183,862
---------- ---------- ---------- ----------
Income before provision for income taxes.......... 781,500 903,431 2,412,437 2,645,555
Provision for income taxes..................... 273,525 320,718 844,353 939,353
---------- ---------- ---------- ----------
Net income........................................ $ 507,975 $ 582,713 $1,568,084 $1,706,202
========== ========== ========== ==========
Earnings per share:
Basic.......................................... $ 0.09 $ 0.10 $ 0.28 $ 0.30
========== ========== ========== ==========
Diluted........................................ $ 0.09 $ 0.10 $ 0.27 $ 0.29
========== ========== ========== ==========
Weighted average common shares outstanding:
Basic.......................................... 5,492,297 5,595,808 5,533,493 5,594,765
========== ========== ========== ==========
Diluted........................................ 5,669,334 5,851,333 5,715,071 5,886,397
========== ========== ========== ==========
See notes to condensed consolidated financial statements.
4
ORACLE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine Months Ended
February 28,
------------------------
(in thousands) 2002 2001
------------------------------------------------------------------------------- ----------- -----------
Cash Flows From Operating Activities:
Net income....................................................................... $ 1,568,084 $ 1,706,202
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization................................................ 193,657 206,399
Amortization of purchase price in excess of net tangible assets acquired..... 39,785 53,091
Provision for doubtful accounts.............................................. 138,929 134,104
Net investment losses related to equity securities........................... 14,199 20,472
Changes in assets and liabilities:
Decrease in trade receivables............................................. 650,487 414,304
(Increase) decrease in prepaid expenses and other current assets.......... (152,978) 56,295
(Increase) decrease in long-term prepaid income taxes..................... (21,536) 59,679
Decrease in accounts payable.............................................. (30,370) (7,160)
Increase (decrease) in income taxes payable............................... 254,854 (1,669,877)
Decrease in accrued compensation and related benefits..................... (318,377) (180,899)
Decrease in customer advances and unearned revenues....................... (186,684) (74,484)
Decrease in value added tax and sales tax payable......................... (85,006) (24,734)
Increase in other accrued liabilities..................................... 96,638 26,566
Increase (decrease) in deferred income taxes.............................. (6,001) 14,042
Increase in other long-term liabilities................................... 2,517 8,891
----------- -----------
Net cash provided by operating activities........................................ 2,158,198 742,891
----------- -----------
Cash Flows From Investing Activities:
Purchases of cash investments................................................ (4,289,986) (782,900)
Proceeds from maturities of cash investments................................. 3,246,923 359,792
Capital expenditures......................................................... (198,871) (216,689)
Proceeds from sales of marketable securities................................. 10,617 126,988
Increase in other assets..................................................... (9,011) (100,773)
----------- -----------
Net cash used for investing activities........................................... (1,240,328) (613,581)
----------- -----------
Cash Flows From Financing Activities:
Payments for repurchase of common stock...................................... (2,051,176) (3,771,737)
Proceeds from issuance of common stock....................................... 217,168 409,824
Net payments under notes payable and long-term debt.......................... (744) (4)
----------- -----------
Net cash used for financing activities........................................... (1,834,752) (3,361,917)
----------- -----------
Effect of exchange rate changes on cash and cash equivalents........................ (73,093) (67,261)
----------- -----------
Net decrease in cash and cash equivalents........................................ (989,975) (3,299,868)
Cash and cash equivalents at beginning of period................................. 4,449,166 7,429,206
----------- -----------
Cash and cash equivalents at end of period....................................... $ 3,459,191 $ 4,129,338
=========== ===========
See notes to condensed consolidated financial statements.
5
ORACLE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
February 28, 2002
(unaudited)
1. BASIS OF PRESENTATION
The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission ("SEC"). Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States
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 unaudited condensed consolidated financial
statements should be read in conjunction with the financial statements and the
notes thereto included in the Company's Annual Report on Form 10-K for the
fiscal year ended May 31, 2001.
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 interim periods presented. The results of operations for the interim
periods presented are not necessarily indicative of the operating results to be
expected for any subsequent interim period or for the full fiscal year ending
May 31, 2002.
2. EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income for the period by
the weighted average number of common shares outstanding during the period.
Diluted earnings per share is computed using the treasury stock method by
dividing net income by the weighted average number of common shares plus the
dilutive effect of outstanding stock options and shares issuable under the
employee stock purchase plan and a forward contract to sell 36.0 million shares
of the Company's Common Stock. Approximately 122.0 million and 106.6 million
outstanding stock options were excluded from the calculation of diluted
earnings per share for the three and nine months ended February 28, 2002,
respectively, because they were anti-dilutive. However, these options could be
dilutive in the future.
The following table sets forth the computation of basic and diluted earnings
per share for the periods indicated:
Three Months Ended Nine Months Ended
February 28, February 28,
--------------------- ---------------------
(in thousands, except per share data) 2002 2001 2002 2001
------------------------------------------------------------ ---------- ---------- ---------- ----------
Net income.................................................. $ 507,975 $ 582,713 $1,568,084 $1,706,202
========== ========== ========== ==========
Weighted average common shares outstanding.................. 5,492,297 5,595,808 5,533,493 5,594,765
Dilutive effect of employee stock plans and forward contract 177,037 255,525 181,578 291,632
---------- ---------- ---------- ----------
Diluted weighted average common shares outstanding.......... 5,669,334 5,851,333 5,715,071 5,886,397
========== ========== ========== ==========
Basic earnings per share.................................... $ 0.09 $ 0.10 $ 0.28 $ 0.30
========== ========== ========== ==========
Diluted earnings per share.................................. $ 0.09 $ 0.10 $ 0.27 $ 0.29
========== ========== ========== ==========
3. COMPREHENSIVE INCOME
Comprehensive income includes foreign currency translation gains and losses and
unrealized gains and losses on equity securities that are reflected in
stockholders' equity instead of net income.
6
ORACLE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
February 28, 2002
(unaudited)
3. COMPREHENSIVE INCOME (continued)
The following table sets forth the calculation of comprehensive income for the
periods indicated:
Three Months Ended Nine Months Ended
February 28, February 28,
------------------ ----------------------
(in thousands) 2002 2001 2002 2001
------------------------------------------ -------- -------- ---------- ----------
Net income................................ $507,975 $582,713 $1,568,084 $1,706,202
Net unrealized losses on equity securities (34,774) (2,835) (22,864) (49,522)
Foreign currency translation losses....... (31,478) (24,452) (41,979) (68,637)
-------- -------- ---------- ----------
Total comprehensive income................ $441,723 $555,426 $1,503,241 $1,588,043
======== ======== ========== ==========
The net unrealized losses on equity securities for the three and nine months
ended February 28, 2002 primarily reflect the net decrease in the quoted market
value of the Company's investment in Liberate Technologies. Effective February
1, 2001, the Company began to account for this investment as available for sale
securities. See Footnote No. 6, Subsidiary Stock Transactions, in the Company's
Form 10-K for the fiscal year ended May 31, 2001, for further information. As
of February 28, 2002, the fair market value of the Company's investment in
Liberate Technologies was approximately $247.5 million, which was recorded in
Other Assets on the accompanying condensed consolidated balance sheet, with an
approximate $36.7 million unrealized loss, net of tax, recorded in
stockholders' equity.
4. STOCK REPURCHASE PROGRAM
Since 1992, the Company's Board of Directors has cumulatively approved the
repurchase of 1.1 billion shares plus an additional amount of $3.0 billion to
reduce the dilutive effect of shares issued under its various employee stock
plans. During the three and nine months ended February 28, 2002, approximately
12.8 million and 137.4 million shares of Common Stock were repurchased for an
aggregate price of approximately $193.3 million and $2.1 billion, respectively.
As of February 28, 2002, the Company has approximately $1.3 billion available
for future repurchases under the stock repurchase program.
5. RECENT ACCOUNTING PRONOUNCEMENTS
As indicated in the Company's Form 10-K for the fiscal year ended May 31, 2001,
the Company adopted Statement of Financial Accounting Standards ("SFAS") 133,
"Accounting for Derivative Instruments and for Hedging Activities," as of June
1, 2001. Under this accounting pronouncement, a company is allowed to measure
the ineffectiveness of net investment hedges by using a method based on changes
in spot exchange rates or a method based on changes in forward exchange rates.
The Company initially elected to use the changes in forward exchange rates to
measure the ineffectiveness of net investment hedges. Upon further review, the
Company concluded that using the changes in spot exchange rates better meets
the Company's risk management strategies, better reflects the economics of
those strategies in the Company's financial statements, and better manages
interest rate differentials between different countries. Under this method, the
change in fair value of the forward contract attributable to the changes in
spot exchange rates ("the effective portion") is reported in the stockholders'
equity section to offset the translation results on the net investments. The
remaining change in fair value of the forward contract ("the ineffective
portion") is recognized in earnings. Accordingly, effective September 1, 2001,
the Company decided to use the changes in spot exchange rates to measure the
ineffectiveness of net investment hedges. The accounting impact for such change
in the methodology was
7
ORACLE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
February 28, 2002
(unaudited)
5. RECENT ACCOUNTING PRONOUNCEMENTS (continued)
immaterial and therefore, the cumulative amount was recorded in the Other
Income, net line in the accompanying condensed consolidated statement of
operations for the quarter ended November 30, 2001 and no prior quarter
restatement was deemed necessary. As of February 28, 2002, the Company had
outstanding forward contracts for these net investment hedges with a total
notional value of approximately $965 million. The fair value of these hedges at
February 28, 2002 was approximately zero as they were entered into at the end
of the quarter. Please see Item 3, Quantitative and Qualitative Disclosures
About Market Risk for further details.
In July 2001, the Financial Accounting Standards Board ("FASB"), issued SFAS
No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 141 provides new guidance on the accounting for a
business combination as of the date a business combination is completed.
Specifically, it requires use of the purchase method of accounting for all
business combinations initiated after June 30, 2001, thereby eliminating use of
the pooling-of-interests method. SFAS No. 142 establishes new guidance on how
to account for goodwill and intangible assets after a business combination is
completed. Among other things, it requires that goodwill and certain other
intangible assets will no longer be amortized and will instead be tested for
impairment at least annually and written down only when impaired. The Company
will adopt this statement beginning June 1, 2002. The Company is currently
evaluating these statements but does not expect that they will have a material
impact on the Company's financial position, results of operations, or cash
flows. As of February 28, 2002, the unamortized balance of goodwill and
acquired intangible assets was approximately $60.5 million, which was recorded
in Other Assets in the accompanying condensed consolidated balance sheet. The
majority of this amount represents acquired intangible assets which would
continue to be amortized upon adoption of the new standard.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets." This statement supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed of." Although retaining many of the fundamental recognition and
measurement provisions of SFAS 121, the new rules significantly change the
criteria that would have to be met to classify an asset as held-for-sale. The
statement also supersedes certain provisions of Accounting Principles Board
Opinion No. 30, "Reporting the Results of Operations--Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions," and will require expected
future operating losses from discontinued operations to be displayed in
discontinued operations in the period(s) in which the losses are incurred
rather than as of the measurement date, as presently required. As required by
SFAS No. 144, the Company will adopt this new statement on June 1, 2002. The
Company is currently evaluating this statement but does not expect that it will
have a material impact on the Company's financial position, results of
operations, or cash flows.
In November 2001, the FASB issued an announcement on the topic of "Income
Statement Characterization of Reimbursements Received for Out of Pocket Expense
Incurred" (the "Announcement"), which was subsequently incorporated in Emerging
Issues Task Force ("EITF") No. 01-14. The Announcement requires companies to
characterize reimbursements received for out of pocket expenses as revenues in
the statement of operations. Historically, the Company has netted
reimbursements received for out of pocket expenses against the related expenses
in the accompanying condensed consolidated statements of operations. The
Announcement is to be applied in financial reporting periods beginning after
December 15, 2001 and comparative financial statements for the prior year are
to be reclassified to comply with the guidance in the Announcement. The Company
will adopt the Announcement in the quarter ending May 31, 2002. The
Announcement is not expected to have a
8
ORACLE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
February 28, 2002
(unaudited)
5. RECENT ACCOUNTING PRONOUNCEMENTS (continued)
material effect on total services revenues or the services gross margin
percentages and will have no effect on net income as it will increase both
services revenues and cost of services.
In July 2001, the FASB reached final consensus on EITF No. 00-25, "Vendor
Income Statement Characterization of Consideration Paid to a Reseller of the
Vendor's Products" ("EITF 00-25"). EITF 00-25 generally requires that
consideration, including equity instruments, given to a customer be classified
in a vendor's financial statements not as an expense, but as a reduction to
revenue up to the amount of cumulative revenue recognized or to be recognized.
In November 2001, the EITF reached consensus on EITF No. 01-09, "Accounting for
a Consideration Given by a Vendor to a Customer or Reseller of the Vendor's
Products" ("EITF 01-09"). EITF 01-09 clarifies and modifies certain items
discussed in EITF 00-25. The Company is required to adopt these new standards
no later than the quarter ending May 31, 2002. In accordance with the
transition guidance in EITF 00-25, adoption will require reclassification of
financial statements for prior periods presented for comparative purposes. The
Company believes that reclassifications under EITF 00-25 and EITF 01-09 will
not materially affect the Company's gross margin percentages and will have no
effect on net income, although reclassification will change the presentation of
certain revenue and expense items contained within the financial statements.
6. SEGMENT REPORTING
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," established standards for reporting information about operating
segments in the Company's financial statements. Operating segments are defined
as components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker, or
decision making group, in deciding how to allocate resources and in assessing
performance. The Company's chief operating decision maker is the Chief
Executive Officer of the Company. The Company is organized geographically and
by line of business. While the Chief Executive Officer of the Company evaluates
results in a number of different ways, the line of business management
structure is the primary basis for which allocation of resources and financial
performance are assessed. The accounting policies of the line of business
operating segments are the same as those described in the Company's Annual
Report on Form 10-K for the fiscal year ended May 31, 2001. The Company does
not track assets by operating segments. Consequently, it is not practical to
show assets by operating segments. The Company has five major line of business
operating segments: new license, license updates, support, education and
consulting. Effective June 1, 2001, the Company expanded its operating segments
to include license updates, which represent the Company's estimate of the
portion of maintenance revenues that relate to license updates. This estimate
is based on the Company's current pricing model, which prices license updates
at 15% of net license price and product support at 7% of net license price.
While these license updates were included in the support operating segment in
the past, the Company believes that for business and management evaluation
purposes, license updates should be viewed separately from support as they
represent a subscription to future license product versions, and their
inclusion would distort the support margins as the majority of the costs
related to such updates are contained in the research and development area.
9
ORACLE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
February 28, 2002
(unaudited)
6. SEGMENT REPORTING (continued)
The following table presents a summary of operating segments:/(1)/
Three Months Ended Nine Months Ended
February 28, February 28,
--------------------- ---------------------
(in thousands) 2002 2001 2002 2001
-------------------------------------------------------- ---------- ---------- ---------- ----------
-------------------------------------------------------- ---------- ---------- ---------- ----------
New license:
New license revenues from unaffiliated customers/(2)/... $ 779,923 $1,113,762 $2,307,344 $3,009,090
Distribution expenses................................... 379,201 503,532 1,210,252 1,404,345
---------- ---------- ---------- ----------
Distribution margin/(3)/................................ $ 400,722 $ 610,230 $1,097,092 $1,604,745
License updates:
Revenues from unaffiliated customers/(2)/............... $ 584,591 $ 561,259 $1,753,810 $1,628,828
Distribution expenses................................... 4,516 6,599 15,466 20,733
---------- ---------- ---------- ----------
Distribution margin/(3)/................................ $ 580,075 $ 554,660 $1,738,344 $1,608,095
New license and license updates:
Revenues from unaffiliated customers/(2)/........ $1,364,514 $1,675,021 $4,061,154 $4,637,918
Distribution expenses............................ 383,717 510,131 1,225,718 1,425,078
---------- ---------- ---------- ----------
Distribution margin/(3)/......................... $ 980,797 $1,164,890 $2,835,436 $3,212,840
Support:/(4)/
Revenues from unaffiliated customers/(2)/............... $ 355,498 $ 350,658 $1,070,707 $1,000,897
Distribution expenses................................... 146,733 159,690 431,959 460,586
---------- ---------- ---------- ----------
Distribution margin/(3)/................................ $ 208,765 $ 190,968 $ 638,748 $ 540,311
Education:
Revenues from unaffiliated customers/(2)/............... $ 76,282 $ 108,316 $ 281,251 $ 336,112
Distribution expenses................................... 50,696 63,658 161,084 206,225
---------- ---------- ---------- ----------
Distribution margin/(3)/................................ $ 25,586 $ 44,658 $ 120,167 $ 129,887
Consulting:
Revenues from unaffiliated customers/(2)/............... $ 433,049 $ 540,372 $1,415,611 $1,620,861
Distribution expenses................................... 321,127 431,670 1,053,918 1,254,028
---------- ---------- ---------- ----------
Distribution margin/(3)/................................ $ 111,922 $ 108,702 $ 361,693 $ 366,833
Totals:
Revenues from unaffiliated customers/(2)/........ $2,229,343 $2,674,367 $6,828,723 $7,595,788
Distribution expenses............................ 902,273 1,165,149 2,872,679 3,345,917
---------- ---------- ---------- ----------
Distribution margin/(3)/......................... $1,327,070 $1,509,218 $3,956,044 $4,249,871
========== ========== ========== ==========
--------
/(1)/For business and management evaluation purposes, the Company from time to
time changes the underlying structure of its operating segments. Segment
data related to prior periods were reclassified, as required by SFAS No.
131, to conform to the current organizational structure.
/(2)/Operating segment revenues differ from the external reporting
classifications due to certain license products which are classified as
services revenues for management reporting purposes. Additionally, the
license updates revenues are classified as services revenues for external
reporting purposes.
10
ORACLE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
February 28, 2002
(unaudited)
6. SEGMENT REPORTING (continued)
/(3)/The distribution margins reported reflect only the direct controllable
expenses of each line of business and do not represent the actual margins
for each operating segment because they do not contain an allocation of
product development and information technology, marketing and partner
programs, and corporate and general and administrative expenses incurred
in support of the line of business.
/(4)/As indicated above, license updates revenues were previously reported
under support but are now separately stated.
Profit reconciliation
Three Months Ended Nine Months Ended
February 28, February 28,
---------------------- ------------------------
(in thousands) 2002 2001 2002 2001
-------------------------------------------------- ---------- ---------- ----------- -----------
Total distribution margin for reportable segments. $1,327,070 $1,509,218 $ 3,956,044 $ 4,249,871
Product development and information technology
expenses........................................ (373,502) (397,784) (1,060,660) (1,109,939)
Marketing and partner program expenses............ (92,702) (110,895) (277,249) (328,002)
Corporate and general and administrative expenses. (68,854) (102,750) (223,754) (266,537)
Net investment losses related to equity securities (7,510) (22,437) (14,199) (20,472)
Other income (loss), net/(1)/..................... (3,002) 28,079 32,255 120,634
---------- ---------- ----------- -----------
Income before provision for income taxes....... $ 781,500 $ 903,431 $ 2,412,437 $ 2,645,555
========== ========== =========== ===========
--------
/(1)/Other income (loss), net differs from those stated on the accompanying
condensed consolidated statements of operations primarily due to the
classification of certain intangible amortization for management reporting
purposes.
7. LEGAL PROCEEDINGS
Refer to Part II, Item 1 for a description of legal proceedings.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Forward-Looking Statements
In addition to historical information, this Quarterly Report contains
forward-looking statements. The forward-looking statements are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those reflected in such forward-looking statements. Factors
that might cause such a difference include, but are not limited to, those
discussed in the section entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Factors That May Affect Future
Results and Market Price of Stock." Readers are cautioned not to place undue
reliance on these forward-looking statements, which reflect management's
opinions only as of the date hereof. The Company undertakes no obligation to
revise or publicly release the results of any revision to these forward-looking
statements. Readers should carefully review the risk factors described in other
documents the Company files from time to time with the SEC, including the
Annual Report on Form 10-K for the fiscal year ended May 31, 2001 and the
Quarterly Reports on Form 10-Q filed by the Company in fiscal 2002.
Results of Operations
Total revenues decreased 17% and 10% for the three and nine month periods ended
February 28, 2002 from the corresponding prior year periods, respectively. The
decrease was primarily attributable to lower license, consulting and education
revenues as a result of a continued weakness in the economy. Although recent
economic data indicate an improvement in overall economic conditions,
technology spending is lagging the overall recovery particularly in industries
where the Company has traditionally been successful, such as
telecommunications, high technology and manufacturing. Excluding the effect of
currency rate fluctuations, total revenues decreased 14% and 8% for the third
quarter and first nine months of fiscal 2002 from the corresponding prior year
periods. Sales and marketing and cost of services expenses continue to
represent significant portions of operating expenses. Sales and marketing as a
percentage of total revenues was 23% and 24% for the three and nine month
periods ended February 28, compared to 25% of total revenues for the
corresponding prior year periods, respectively. Cost of services as a
percentage of total revenues was 25% and 26% for the three and nine month
periods ended February 28, 2002, respectively, compared to 26% and 27% for the
corresponding prior year periods, respectively. Research and development
expenses as a percentage of total revenues was 13% and 12% for the three and
nine month periods ended February 28, 2002, compared to 11% for the
corresponding prior year periods. General and administrative expenses as a
percentage of total revenues remained constant at 5% and 4% for the three and
nine month periods ended February 28, 2002 and 2001, respectively. Overall,
operating income as a percentage of total revenues was 35% and 34% during the
third quarter and first nine months of fiscal 2002, compared to 33% for the
corresponding prior year periods.
Domestic revenues decreased 20% and 15% during the three and nine month periods
ended February 28, 2002 from the corresponding prior year periods,
respectively, due to continued weak economic conditions in the United States.
International revenues decreased 13% and 5% during the third quarter and first
nine months of fiscal 2002 from the corresponding prior year periods also due
to slower economic conditions overseas, particularly in Asia. International
revenues were unfavorably affected during the third quarter and first nine
months of fiscal 2002 as a result of the U.S. dollar strengthening against
certain major international currencies. Excluding the effect of currency rate
fluctuations, international revenues decreased 7% and 1% for the third quarter
and first nine months of fiscal 2002 as compared to the corresponding prior
year periods, respectively. International revenues represented 51% and 57% of
total revenues for the third quarter and first nine months of fiscal 2002, as
compared to 49% of total revenues for the corresponding prior year periods. The
Company expects that its international operations will continue to generate a
significant portion of total revenues, and thus, its revenues may be adversely
affected if the U.S. dollar continues to strengthen relative to international
currencies and if slower economic conditions continue overseas.
12
Revenues
Three Months Ended February 28, Nine Months Ended February 28,
------------------------------ -----------------------------
Percent Percent
(in thousands) 2002 2001 Change 2002 2001 Change
-------------------- ---------- ---------- ------- ---------- ---------- -------
Licenses and other.. $ 789,578 $1,125,083 (30%) $2,340,334 $3,050,559 (23%)
Services............ 1,439,765 1,549,284 (7%) 4,488,389 4,545,229 (1%)
---------- ---------- ---------- ----------
Total revenues... $2,229,343 $2,674,367 (17%) $6,828,723 $7,595,788 (10%)
========== ========== ========== ==========
Percent of Revenues:
Licenses and other.. 35% 42% 34% 40%
Services............ 65% 58% 66% 60%
---------- ---------- ---------- ----------
Total revenues... 100% 100% 100% 100%
========== ========== ========== ==========
Licenses and Other Revenues. License revenues represent fees earned for
granting customers new licenses to use the Company's software products.
Licenses and other revenues also include revenues relating to documentation and
other miscellaneous revenues. License and other revenues decreased 30% and 23%
for the third quarter and first nine months of fiscal 2002 from the
corresponding prior year periods, respectively. Systems software license
revenues, which include database server, application server and development
tools revenues, decreased 26% and 20% for the three and nine month periods
ended February 28, 2002 from the corresponding prior year periods,
respectively. Business applications revenues decreased 41% and 33% for the
three and nine month periods ended February 28, 2002 from the corresponding
prior year periods, respectively. The decrease in license and other revenues in
the three and nine month periods ended February 28, 2002 was primarily due to
continuing weak economic conditions, both domestically and internationally,
which has caused companies to delay or lower their technology capital spending,
as well as the decline of the "dot com" and telecommunications markets, that
negatively impacted demand for the Company's systems and business application
products for the nine month period ended February 28, 2002. As a percentage of
revenues, licenses and other revenues represented 35% and 34% of total revenues
for the three and nine month periods ended February 28, 2002, as compared to
42% and 40% of total revenues for the corresponding prior year periods,
respectively.
Effective June 1, 2001, the Company expanded its operating segments to include
license updates which represent the Company's estimate of the portion of
maintenance revenues that relate to license updates. The Company believes that
for business and management evaluation purposes, license updates should be
viewed separately from support as they represent a subscription to future
license product versions, and their inclusion would distort the support margins
as the majority of the costs related to such updates are contained in the
research and development area. Had these license updates been reclassified out
of support revenues, license revenues including these license updates would
have decreased 18% and 12% in the third quarter and first nine months of fiscal
2002 from the corresponding prior year periods, respectively. License updates
alone increased 5% and 8% for the third quarter and first nine months of fiscal
2002 over the corresponding prior year periods, respectively, reflecting an
increase in the overall customer installed base.
Services Revenues. Services revenues consist of support, consulting and
education services revenues which comprised 65%, 31% and 4% of total services
revenues, respectively, for the three month period ended February 28, 2002 and
63%, 32% and 5% of total services revenues for the nine month period ended
February 28, 2002, respectively.
Support revenues increased 3% and 7% for the third quarter and first nine
months of fiscal 2002 from the corresponding prior year periods, respectively,
primarily reflecting an increase in the overall customer installed base.
Support revenues excluding license updates remained constant in the third
quarter of fiscal 2002 with the corresponding prior year and increased 6% for
the nine month period ended February 28, 2002 over the corresponding prior year
period.
13
Consulting revenues decreased 20% and 12% for the three and nine month periods
ended February 28, 2002 from the corresponding prior year periods,
respectively. The decline in the consulting services revenues experienced
during the three and nine month periods ended February 28, 2002 was primarily
due to a decrease in the demand for these services as a result of the
following: i) continuing weak economic conditions, ii) a slowdown in the
business applications market, iii) a push towards a partner model, leveraging
third party consulting firms who provide consulting services to the Company's
customers, and iv) shorter implementation engagements for Oracle's newer
generation of products.
Education revenues decreased 34% and 20% for the three and nine month periods
ended February 28, 2002 from the corresponding prior year periods,
respectively, primarily due to negative growth in license revenues, as well as
customers reducing discretionary spending due to the weak economic conditions
both domestically and internationally.
Operating expenses
Three Months Ended February 28, Nine Months Ended February 28,
------------------------------ -----------------------------
Percent Percent
(in thousands) 2002 2001 Change 2002 2001 Change
------------------------------- ---------- ---------- ------- ---------- ---------- -------
Sales and marketing............ $ 514,816 $ 665,605 (23%) $1,621,449 $1,879,434 (14%)
Cost of services............... 547,467 708,614 (23%) 1,767,178 2,077,490 (15%)
Research and development....... 283,231 301,455 (6%) 794,014 818,762 (3%)
General and administrative..... 105,090 120,570 (13%) 301,621 337,937 (11%)
---------- ---------- ---------- ----------
Total operating expenses.... $1,450,604 $1,796,244 (19%) $4,484,262 $5,113,623 (12%)
========== ========== ========== ==========
Percent of Revenues:
Sales and marketing............ 23% 25% 24% 25%
Cost of services............... 24% 26% 26% 27%
Research and development....... 13% 11% 12% 11%
General and administrative..... 5% 5% 4% 4%
---------- ---------- ---------- ----------
Total operating expenses.... 65% 67% 66% 67%
========== ========== ========== ==========
Total Operating Expenses. Total operating expenses decreased 19% and 12% for
the three and nine month periods ended February 28, 2002 from the corresponding
prior year periods. Operating expenses were favorably affected during the three
and nine month periods ended February 28, 2002 as a result of the U.S. dollar
strengthening against certain major international currencies. Excluding the
effect of currency rate fluctuations, total operating expenses decreased 17%
and 11% in the three and nine month periods ended February 28, 2002 from the
corresponding prior year periods, respectively. Total operating expenses for
the three and nine month periods ended February 28, 2002 were favorably
affected by reduced compensation expenses as a result of the elimination of
discretionary bonuses for the U.S. operations due to lower than planned Company
financial performance, as well as lower commission related expenses as a result
of lower sales and other cost control measures.
Sales and Marketing Expenses. The Company continues to place significant
emphasis, both domestically and internationally, on direct sales through its
own sales force. However, the Company also continues to market its products
through indirect channels. Sales and marketing expenses decreased 23% and 14%
for the three and nine month periods ended February 28, 2002 from the
corresponding prior year periods, respectively. Excluding the effect of
currency rate fluctuations, sales and marketing expenses decreased 20% and 12%
for the three and nine month periods ended February 28, 2002 from the
corresponding prior year periods, respectively. The decrease was primarily due
to lower commission and bonuses as a result of lower sales, as well as lower
sales headcount. As a percentage of licenses and other revenues, sales and
marketing expenses were 65% and 69% for the three and nine month periods ended
February 28, 2002 compared to 59% and 62% for the corresponding prior year
14
periods, respectively. The increase in sales and marketing expenses as a
percentage of licenses and other revenues in the three and nine month periods
ended February 28, 2002 was due primarily to a decrease in license revenues.
Cost of Services. The cost of providing services consists largely of
consulting, education and support personnel expenses. Cost of services expenses
decreased by 23% and 15% in the three and nine month periods ended February 28,
2002 from the corresponding prior year periods, respectively. Excluding the
effect of currency rate fluctuations, cost of services decreased 21% and 13%
for the three and nine month periods ended February 28, 2002 from the
corresponding prior year periods, respectively. The cost of services decrease
was primarily due to increased productivity efficiencies and controls over
headcount and headcount related expenditures in the support, consulting, and
education lines of business. The decrease was also due in part to the
elimination of discretionary bonuses discussed previously. As a percentage of
services revenues, cost of services was 38% and 39% for the three and nine
month periods ended February 28, 2002, compared to 46% for the corresponding
prior year periods, respectively. The decrease in cost of services as a
percentage of services revenues was due primarily to an increase in support
revenues, which have relatively higher margins, constituting a higher
percentage of total services revenues.
Research and Development Expenses. Research and development expenses decreased
6% and 3% for the three and nine month periods ended February 28, 2002 from the
corresponding prior year periods, respectively. Excluding the effect of
currency rate fluctuations, research and development expenses decreased 5% and
3% for the three and nine month periods ended February 28, 2002 from the
corresponding prior year periods, respectively. The decrease was due primarily
to reduced compensation expenses as a result of the elimination of
discretionary bonuses discussed previously as well as on-going growth in
headcount in lower cost areas outside the U.S., offset partially by a 13%
increase in headcount from February 28, 2001. As a percentage of total
revenues, research and development expenses was 13% and 12% for the three and
nine month periods ended February 28, 2002 as compared to 11% for the
corresponding prior year periods. The Company believes that research and
development expenditures are essential to maintaining its competitive position
and expects these costs to continue to increase and constitute a significant
percentage of revenues.
General and Administrative Expenses. General and administrative expenses
decreased 13% and 11% for the three and nine month periods ended February 28,
2002 from the corresponding prior year periods, respectively. Excluding the
effect of currency rate fluctuations, general and administrative expenses
decreased 10% and 8% for the three and nine month periods ended February 28,
2002 from the corresponding prior year periods, respectively. The decrease was
primarily due to the reduction of compensation expenses discussed previously,
as well as savings from productivity efficiencies and cost control measures. As
a percentage of revenues, general and administrative expenses were 5% and 4%
for the three and nine month periods ended February 28, 2002 and 2001,
respectively.
Net Investment Losses Related To Equity Securities
The net investment losses for the three and nine month periods ended February
28, 2002 primarily reflect the write-down of certain investments in other
companies, partially offset by gains realized from sales of marketable
securities. The net investment loss for the three and nine month periods ended
February 28, 2001 also included the Company's equity share in the results of
Liberate Technologies. Effective February 1, 2001, the Company began to account
for this investment as available for sale securities; therefore, no further
equity share of results was recorded. See Footnote No. 3, Comprehensive Income,
in this Form 10-Q as well as Footnote No. 6, Subsidiary Stock Transactions, in
the Company's Form 10-K for the fiscal year ended May 31, 2001, for further
information.
Other Income, Net
Other income, net, consists primarily of interest income, interest expense,
foreign currency exchange gains and losses, and the minority interest's share
in the net profits of Oracle Japan. Other income, net, for the three and
15
nine month periods ended February 28, 2002 decreased 78% and 55% from the
corresponding prior year periods, respectively. The decrease was primarily due
to lower interest income as a result of lower average cash balances throughout
the three and nine month periods ended February 28, 2002 and lower interest
rates in fiscal 2002. The lower average cash balances were primarily due to the
payment of taxes related to the gain on sale of Oracle Japan stock that
occurred in the fourth quarter of fiscal 2000 as well as stock repurchases. The
decrease in other income, net, was also caused, to a lesser extent, by
increased foreign currency losses primarily as a result of the devaluation of
the Argentine Peso.
Provision for Income Taxes
The Company's effective tax rates have historically differed from the federal
statutory rate primarily because of state taxes. The effective tax rate was
35.0% for the three and nine month periods ended February 28, 2002, as compared
to 35.5% for the corresponding prior year periods.
Liquidity and Capital Resources:
Nine Months Ended February 28,
--------------------------------
Percent
(in thousands) 2002 Change 2001
-------------------------------------------- ----------- ------- -----------
Working capital............................. $ 4,457,376 7% $ 4,153,382
Cash and cash investments................... 5,940,749 19% 4,995,238
Cash provided by operating activities....... 2,158,198 191% 742,891
Cash used for investing activities.......... (1,240,328) 102% (613,581)
Cash used for financing activities.......... (1,834,752) (45%) (3,361,917)
Working capital as of February 28, 2002 was 7% higher than at the end of the
corresponding prior year period, due primarily to higher cash flows from
operations which was partially offset by cash used for the repurchase of the
Company's Common Stock and cash used for other long-term investing activities.
The positive cash flows generated from operations during the first nine months
of fiscal 2002 were primarily attributable to the net income for the period and
cash collections from trade receivables. The lower positive cash flows from
operations generated in the first nine months of fiscal 2001 were primarily due
to the payment of taxes related to the gain on sale of Oracle Japan stock that
occurred in the fourth quarter of fiscal 2000.
The negative cash flows from investing activities during the first nine months
of fiscal 2002 and fiscal 2001 related to cash investment purchases and
investments in capital expenditures, partially offset by maturities of cash
investments. The Company expects to continue to invest in capital and other
assets to support its growth.
As previously discussed in the Company's Form 10-Ks, in December 1996, the
Company entered into a seven-year master lease facility with a banking
institution that provides for the construction or purchase of up to
$150.0 million of property and improvements to be leased to the Company. In May
1998, this facility was increased by $32.0 million to a total of $182.0
million. The Company may, at its option, purchase the leased properties during
the term of the lease at approximately the same amount expended by the lessor
to construct or purchase such properties. In the event that the Company does
not exercise its purchase option, the Company has agreed to guarantee that the
properties will have a specified residual value, which will be determined at
the lease inception date for each property. The total amount utilized under
this master lease facility was approximately $167.7 million. The Company
currently intends to exercise its option to purchase the leased properties upon
maturity of the leases, which would be in December 2003, for approximately the
same amount.
The Company incurred negative cash flows from financing activities during the
first nine months of fiscal 2002 and fiscal 2001, primarily reflecting Common
Stock repurchases. Since 1992, the Company's Board of Directors
16
has cumulatively approved the repurchase of 1.1 billion shares, plus an
additional amount of $3.0 billion to reduce the dilutive effect of shares
issued under its various employee stock plans. During the first nine months of
fiscal 2002, approximately 137.4 million shares of Common Stock were
repurchased for an aggregate price of approximately $2.1 billion. The Company
repurchased approximately 108.0 million shares for approximately $3.8 billion
during the first nine months of fiscal 2001. As of February 28, 2002, the
Company had approximately $1.3 billion available under existing Board
authorizations for future repurchases. The Company has primarily used cash
flows from operations and investing activities to fund its repurchases.
As previously discussed in the Company's Form 10-Ks, in February 1998, the
Company entered into a forward contract to sell 36,000,000 shares of the
Company's Common Stock at $4.42 per share plus accretion, subject to
adjustments over time. The forward contract has a stated maturity of February
13, 2003. Under the contract, the Company has the right to issue unregistered
shares for settlement of the contract or for net share settlement. The
potential dilutive effect of this forward contract is currently being reflected
in the Company's earnings per share calculation. To eliminate such dilution
from this contract, the Company, at its sole discretion, may decide to
repurchase shares and then use those shares to settle the contract. If this
were to happen, additional Common Stock repurchases may be needed, which would
amount to approximately $410 million based on the closing market price of its
Common Stock as of February 28, 2002.
The Company offers its customers the option to acquire its software and
services through separate long term payment contracts, which contain industry
standard financing terms. The Company generally sells such contracts on a non
recourse basis to financial institutions, including the right to directly
enforce the payments due. As previously discussed in the Company's Form 10-Ks,
the Company records the transfers of amounts due from customers to financial
institutions as sales of financial assets, as it is considered to have
surrendered control of such financial assets under the provisions of SFAS No.
140, issued in September 2000, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities," a replacement of SFAS No.
125. Contracts transferred under these programs were approximately $522 million
and $610 million for the first nine months of fiscal 2002 and 2001,
respectively.
During fiscal 1997, the Company issued $150.0 million in 6.72% Senior Notes due
in the year 2004 and $150.0 million in 6.91% Senior Notes due in the year 2007.
The Senior Notes are unsecured general obligations that rank on parity with all
of its other unsecured and unsubordinated indebtedness that may be outstanding.
In February 2002, the Company entered into two interest-rate swap agreements to
modify the interest characteristics of these Senior Notes so that the interest
payable on the Senior Notes effectively becomes variable. The notional amount
of the interest rate swap and its termination date match the value and maturity
of the outstanding Senior Notes. As a result of the two interest rate swaps,
the effective interest rates on the Senior Notes due in 2004 and 2007 as of
February 28, 2002 were 6.52% and 6.54%, respectively.
The Company believes that its current cash and cash investment balances, as
well as anticipated cash flows generated from operations, will be sufficient to
meet its working capital, capital expenditure, and investment needs through at
least the next 12 months.
Factors That May Affect Future Results and Market Price of Stock
The Company operates in a rapidly changing environment that involves numerous
risks, many of which are beyond its control. The following discussion
highlights some of these risks.
Revenue Growth and Economic Conditions. The revenue growth and profitability
of the Company's business depends on the overall demand for computer software
and services, particularly in the product segments in which the Company
competes. Because the Company's sales are primarily to corporate and government
customers, its business also depends on general economic and business
conditions. A softening of demand for computer software, particularly in
industry sectors such as high technology, telecommunications and manufacturing,
caused by a weakening of the economy has resulted in decreased revenues and may
continue to result in lower
17
revenue growth rates. In particular, one of the challenges the Company
continues to face in promoting future growth in license revenues is the
successful refocusing of its marketing and sales efforts to its business
applications suite and internet application server products. In addition,
terrorist attacks upon the United States have added (or exacerbated) economic,
political and other uncertainties, which could adversely affect the Company's
revenue growth. There can be no assurances that the Company will be able to
effectively promote future revenue growth in its systems software and business
applications areas.
In October 1997, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") No. 97-2, "Software Revenue
Recognition," which superceded SOP No. 91-1. SOP No. 97-2, as amended by SOP
No. 98-4 and SOP No. 98-9, provides guidance on applying generally accepted
accounting principles for software revenue recognition transactions. In
December 1999, the SEC issued Staff Accounting Bulletin ("SAB") No. 101,
"Revenue Recognition in Financial Statements," which provides further revenue
recognition guidance. The Company adopted SAB No. 101, as amended, in the
fourth quarter of fiscal 2001 as required. The adoption of SAB No. 101 did not
have a material effect on the Company's consolidated financial position,
results of operations or cash flows. The accounting profession continues to
review certain provisions of SOP No. 97-2 and SAB No. 101 with the objective of
providing additional guidance on implementing its provisions. Depending upon
the outcome of these reviews and the issuance of implementation guidelines and
interpretations, the Company may be required to change its revenue recognition
policies and business practices and such changes could have a material adverse
effect on the Company's business, results of operations or financial position.
New Products and Enhancements. The markets for the Company's products are
characterized by rapid technological advances in hardware and software
development, evolving standards in computer hardware and software technology
and frequent new product introductions and enhancements, like Oracle9i
database, Oracle 9iAS application server, Oracle eBusiness Suite and the
enhanced version of each of these products. Product introductions and short
product life cycles necessitate high levels of expenditures for research and
development. To maintain its competitive position, the Company must enhance and
improve existing products and continue to introduce new products and new
versions of existing products that keep pace with technological developments,
satisfy increasingly sophisticated customer requirements and achieve market
acceptance. The Company's inability to run on new or increasingly popular
operating systems, or the Company's failure to successfully enhance and improve
its products in a timely manner and position and/or price its products to meet
market demands, could have a material adverse effect on the Company's business,
results of operations, financial condition or cash flows.
Significant undetected errors or delays in new products or new versions of a
product may affect market acceptance of the Company's products and could have a
material adverse effect on the Company's business, results of operations,
financial condition or cash flows. If the Company were to experience delays in
the commercialization and introduction of new or enhanced products, if
customers were to experience significant problems with the implementation and
installation of products, or if customers were dissatisfied with product
functionality or performance, this could have a material adverse effect on the
Company's business, results of operations, financial condition or cash flows.
There can be no assurance that the Company's new products will achieve broad
market acceptance or will generate significant revenue. Additional products
that the Company plans to directly or indirectly market in the future are in
various stages of development.
Sales Forecasts. Management uses a "pipeline" system, a common industry
practice, to forecast sales and trends in the Company's business. The Company's
sales personnel monitor the status of all proposals, such as the date when they
estimate that a customer will make a purchase decision and the potential dollar
amount of the sale. The Company aggregates these estimates periodically in
order to generate a sales pipeline. The Company compares the pipeline at
various points in time to look for trends in its business. While this pipeline
analysis may provide the Company with some guidance in business planning and
budgeting, these pipeline estimates are necessarily speculative and may not
consistently correlate to revenues in a particular quarter or over a longer
18
period of time. A variation in the conversion rate of the pipeline into
contracts or in the pipeline itself could cause the Company to improperly plan
or budget and thereby adversely affect its business or results of operations.
In particular, as was the case in the second half of fiscal 2001 and the first
three quarters of fiscal 2002, a slowdown in information technology spending or
economic conditions may cause purchasing decisions to be delayed, reduced in
amount or cancelled which will therefore reduce the overall license pipeline
conversion rates in a particular period of time. In addition, to the extent
that increases in demand for computer software and services lags any general
economic recovery, as was the case in the third quarter of fiscal 2002, the
overall license pipeline conversion rate may also be reduced. There can be no
assurances as to when or if conversion of the sales pipeline into contracts
will return to historical rates when information technology spending and the
economy begin to recover.
Management of Operating Margins. The Company's future operating results will
depend on its ability to accurately forecast revenues and control expenses. The
Company's future operating results may also be adversely impacted by external
factors, such as a slowing in demand for hardware used in conjunction with its
software. An unexpected decline in revenues without a corresponding and timely
slowdown in expense growth could have a material adverse effect on the
Company's business, results of operations, financial condition, or cash flows.
International Sales. A substantial portion of the Company's revenues is
derived from international sales and is therefore subject to the related risks,
including the general economic conditions in each country, the overlap of
different tax structures, the difficulty of managing an organization spread
over various countries, changes in regulatory requirements, compliance with a
variety of foreign laws and regulations, longer payment cycles and volatilities
of exchange rates in certain countries. There can be no assurances that the
Company will be able to successfully address each of these challenges. A
softening in demand for computer software and services in any particular
region, as was the case in Asia in the third quarter of fiscal 2002, may
adversely affect the Company's future operating results. Other risks associated
with international operations include import and export licensing requirements,
trade restrictions and changes in tariff rates.
A significant portion of the Company's business is conducted in currencies
other than the U.S. dollar. Changes in the value of major foreign currencies
relative to the value of the U.S. dollar adversely affected revenues and
operating results in the first three quarters of fiscal 2002 and will continue
to do so throughout fiscal 2002 if the U.S. dollar strengthens relative to
foreign currencies.
Foreign currency transaction gains and losses are primarily related to
sublicense fee and other agreements between the Company and its subsidiaries
and selling distributors. These gains and losses are charged against earnings
in the period incurred. The Company has reduced its transaction and translation
gains and losses associated with converting foreign currencies into U.S.
dollars by using foreign exchange forward contracts to hedge transaction and
translation exposures in major currencies. The Company finds it impractical to
hedge all foreign currencies in which it conducts business. As a result, the
Company will continue to experience foreign currency gains and losses. In
addition, while the Company has limited exposure to the political and economic
difficulties in Argentina, there can be no assurances about the magnitude and
timing of any future impact on the Company or that the difficulties will not
impact other regions.
Competitive Environment. The computer software industry is an intensely
competitive industry with several large vendors that develop and market
databases, internet application server products, application development tools,
business applications and business intelligence products. Certain of these
vendors have significantly greater financial and technical resources than the
Company. The introduction of new competitive products into one or more of the
Company's various markets, the addition of new functionality into an existing
competitive product or the acquisition by one of its competitors of a product
could have a material adverse effect on the Company's business, results of
operations, financial condition or cash flows. In addition, new distribution
methods (e.g. electronic channels) and opportunities presented by the internet
and electronic commerce have removed many of the barriers to entry historically
faced by small and start-up companies in the software industry. The Company
expects to continue to face intense competition in the various markets in which
it competes.
19
Pricing. Intense competition in the various markets in which the Company
competes may put pressure on the Company to reduce prices on certain products,
particularly in markets where certain vendors offer deep discounts in an effort
to recapture or gain market share or to sell other software or hardware
products. Moreover, the Company has recently changed its pricing model for its
eBusiness Suite and system software products and any broadly based changes to
the Company's prices and pricing policies could lead to a decline or delay in
sales and license revenue as the Company's sales force implements and its
customers adjust to the new pricing policies. The bundling of software products
for promotional purposes or as a long-term pricing strategy or guarantees of
prices and product implementations by certain of the Company's competitors
could, over time, significantly reduce the prices that the Company can charge
for its products. Changes in customer use of the Company's products could also
result in lower license revenues if the Company's pricing model is not adapted
to such usage. Shifts toward the use of operating systems on which the Company
experiences relatively greater price competition could result in lower average
license prices, thereby reducing the Company's license revenues. Additionally,
while the distribution of applications through application service providers
may provide a new market for the Company's products, these new distribution
methods could also reduce the price paid for the Company's products or
adversely affect other sales of its products. Any such price reductions and
resulting lower license revenues could have a material adverse effect on the
Company's business, results of operations, financial condition, or cash flows
if the Company cannot offset these price reductions with a corresponding
increase in sales volumes or lower spending.
Uncertainty of New Business Areas. The Company has in recent years expanded
its technology into a number of new business areas, including
internet/electronic commerce, on-line business services, wireless initiatives,
internet computing, on-line exchanges and electronic sourcing for a number of
business procurement needs. These areas are relatively new to the Company's
product development and sales and marketing personnel. There can be no
assurances that the Company will compete effectively or will generate
significant revenues in these new areas. In addition, despite tremendous growth
in some of these new areas, the impact on the Company of this growth is
uncertain. There can be no assurances that the Company will be able to provide
a product offering that will satisfy new customer demands in these areas and
the growth patterns of these areas may vary significantly. In addition,
standards for network protocols, as well as other industry adopted and de facto
standards for the internet, are evolving rapidly. There can be no assurances
that standards chosen by the Company will position its products to compete
effectively for business opportunities as they arise on the internet and in
other emerging areas.
Hiring and Retention of Employees. The Company's continued growth and success
depend to a significant extent on the continued service of its senior
management and other key employees and the hiring of new qualified employees.
The Company expects substantial continued competition for highly-skilled
business, product development, technical and other personnel. Accordingly, the
Company may experience increased compensation costs that may not be offset
through either improved productivity or higher prices. There can be no
assurances that the Company will be successful in continuously recruiting new
personnel and in retaining existing personnel. In general, the Company does not
have long-term employment or non-competition agreements with its employees. The
loss of one or more senior managers or other key employees or the Company's
inability to attract additional qualified employees or retain other employees
could have a material adverse effect on its continued growth.
Uneven Patterns of Quarterly Operating Results and Revenues. The Company's
revenues in general and its license revenues in particular, are relatively
difficult to forecast and vary from quarter to quarter due to various factors,
including the (i) relatively long sales cycles for the Company's products, (ii)
size and timing of individual license transactions, the closing of which are
often delayed by customers until the end of a fiscal quarter, (iii)
introduction of new products or product enhancements by the Company or its
competitors, (iv) potential for delay or deferral of customer implementations
of the Company's software, (v) changes in customer budgets, (vi) seasonality of
technology purchases and other general economic conditions, (vii) changes in
the product selection purchasing patterns between standard edition products and
higher premium products and (viii) changes in the Company's pricing policies or
those of its competitors. Accordingly, the Company's
20
quarterly results are difficult to predict until the very end of the quarter,
and delays in product delivery or closing of sales near the end of a quarter
have historically caused and could cause quarterly revenues and net income to
fall significantly short of anticipated levels.
The Company's license revenues in any quarter are substantially dependent on
orders booked and shipped in that quarter. Because the Company's operating
expenses are based on anticipated revenue levels and because a high percentage
of its expenses are relatively fixed, a delay in the recognition of revenue
from even a limited number of license transactions could cause significant
variations in operating results from quarter to quarter and could cause net
income to fall significantly short of anticipated levels.
In 2001, California experienced ongoing power system shortages, which resulted
in "rolling blackouts," and the bankruptcy filing by one of the major
California public utilities, may increase the number and severity of these
blackouts. These blackouts, blackouts in other regions or procedures
implemented to avert blackouts could cause disruptions to the Company's
operations and the operations of the Company's customers. Although the
likelihood of such disruptions has diminished, such disruptions, particularly
at the end of a quarter, could adversely affect quarterly revenues and net
income by delaying the closing of a number of licensing transactions.
Sales Force Restructuring. The Company historically has relied heavily on its
direct sales force. In many years, the Company has restructured or made other
adjustments to its sales force at least once a year. These changes have
generally resulted in a temporary lack of focus and reduced productivity by the
Company's sales force that may have affected revenues in a quarter. There can
be no assurances that the Company will not continue to restructure its sales
force or that the related transition issues associated with restructuring the
sales force will not recur.
Future Acquisitions. As part of its business strategy, the Company has made
and expects to continue to make acquisitions of, or investments in, businesses
that offer complementary products, services and technologies. Any acquisitions
or investments will be accompanied by the risks commonly encountered in
acquisitions of businesses. Such risks include, among other things, the
possibility that the Company pays much more than the acquired company or assets
are worth, the difficulty of assimilating the operations and personnel of the
acquired businesses, the potential product liability associated with the sale
of the acquired company's products, the potential disruption of the Company's
ongoing business, the distraction of management from the Company's business,
the inability of management to maximize the Company's financial and strategic
position, the maintenance of uniform standards, controls, procedures and
policies and the impairment of relationships with employees and clients as a
result of any integration of new management personnel. These factors could have
a material adverse effect on the Company's business, results of operations,
financial condition or cash flows, particularly in the case of a larger
acquisition. Consideration paid for future acquisitions, if any, could be in
the form of cash, stock, stock purchase rights or a combination thereof.
Dilution to existing stockholders and to earnings per share may result in
connection with any such future acquisitions.
Relative Product Profitability. Certain of the Company's revenues are derived
from products that, as a percentage of revenues, currently require a higher
level of development, distribution and support expenditures compared to certain
of its other products. To the extent that revenues generated from such products
become a greater percentage of the Company's total revenues, the Company's
operating margins may be adversely affected, unless the expenses associated
with such products decline as a percentage of revenues.
Long-term Investment Cycle. Developing and localizing software is expensive
and the investment in product development often involves a long payback cycle.
The Company's plans for the fiscal year ending May 31, 2002 include significant
investments in software research and development and related product
opportunities from which significant revenues are not anticipated for several
years.
Enforcement of the Company's Intellectual Property Rights. The Company relies
on a combination of copyright, patent, trademark, trade secrets,
confidentiality procedures and contractual procedures to protect its
21
intellectual property rights. Despite the Company's efforts to protect its
intellectual property rights, it may be possible for unauthorized third parties
to copy certain portions of the Company's products or to reverse engineer or
obtain and use technology or other information that the Company regards as
proprietary. There can also be no assurances that the Company's intellectual
property rights would survive a legal challenge to their validity or provide
significant protection for the Company. In addition, the laws of certain
countries do not protect the Company's proprietary rights to the same extent as
do the laws of the United States. Accordingly, there can be no assurances that
the Company will be able to protect its proprietary technology against
unauthorized third party copying or use, which could adversely affect the
Company's competitive position.
Possibility of Infringement Claims. The Company from time to time receives
notices from third parties claiming infringement by the Company's products of
third party patent and other intellectual property rights. The Company expects
that software products will increasingly be subject to such claims as the
number of products and competitors in the Company's industry segments grows and
the functionality of products overlaps. In addition, the Company expects to
receive more patent infringement claims as companies increasingly seek to
patent their software, especially in light of recent developments in the law
that extend the ability to patent software. Regardless of its merit, responding
to any such claim could be time-consuming, result in costly litigation and
require the Company to enter into royalty and licensing agreements that may not
be available on terms acceptable to the Company. If a successful claim is made
against the Company and the Company fails to develop or license a substitute
technology, the Company's business, results of operations, financial condition
or cash flows could be materially adversely affected.
Possible Volatility of Stock Price. The market price of the Company's Common
Stock has experienced significant fluctuations and may continue to fluctuate
significantly. The market price of the Company's Common Stock may be
significantly affected by factors such as the announcement of new products or
product enhancements by the Company or its competitors, technological
innovation by the Company or its competitors, quarterly variations in the
Company's or its competitors' results of operations, changes in prices of the
Company's or its competitors' products and services, changes in revenue and
revenue growth rates for the Company as a whole or for specific geographic
areas, business units, products or product categories, changes in earnings
estimates by market analysts, speculation in the press or analyst community and
general market conditions or market conditions specific to particular
industries. The stock prices for many companies in the technology sector have
experienced wide fluctuations that often have been unrelated to their operating
performance. Such fluctuations may adversely affect the market price of the
Company's Common Stock.
22
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk. The Company's exposure to market risk for changes in
interest rates relates primarily to the Company's investment portfolio. The
Company places its investments with high credit quality issuers and, by policy,
limits the amount of credit exposure to any one issuer. As stated in its
policy, the Company is averse to principal loss and seeks to preserve its
invested funds by limiting default risk, market risk and reinvestment risk.
The Company mitigates default risk by investing in only high credit quality
securities that it believes to be low risk and by positioning its portfolio to
respond appropriately to a significant reduction in a credit rating of any
investment issuer or guarantor. The portfolio includes only marketable
securities with active secondary or resale markets to ensure portfolio
liquidity.
The table below presents the amortized principal amount, related weighted
average interest rates and maturities for the Company's investment portfolio.
Short-term and long-term investments are all in fixed rate instruments. The
amortized principal amount approximates fair value at February 28, 2002.
Table of Investment Securities:
Weighted
Principal Average
Amount Interest Rate
---------------------------------- -------------- -------------
(in thousands)
Cash and cash equivalents.......... $3,459,191 1.83%
Short-term investments (0-1 year).. 2,151,783 2.63%
Long-term investments (1-2 years).. 329,775 2.94%
----------
Total cash and cash investments. $5,940,749
==========
The Company is also subject to interest rate risk in its two Senior Notes.
During fiscal 1997, the Company issued $150.0 million in 6.72% Senior Notes due
in the year 2004 and $150.0 million in 6.91% Senior Notes due in the year 2007.
The Senior Notes are unsecured general obligations that rank on parity with all
of its other unsecured and unsubordinated indebtedness that may be outstanding.
In February 2002, the Company entered into two interest-rate swap agreements to
modify the interest characteristics of these Senior Notes so that the interest
payable on the Senior Notes effectively becomes variable. The notional amount
of the interest rate swap and its termination date match the value and maturity
of the outstanding Senior Notes. As a result of the two interest rate swaps,
the effective interest rates on the Senior Notes due in 2004 and 2007 as of
February 28, 2002 were 6.52% and 6.54%, respectively. The table below outlines
the details of the interest rate swaps:
Table of Interest Rate Swaps:
Notional Receive Fixed Pay Variable
Amount Interest Rate Interest Rate
--------------------- -------------- ------------- -------------
(in thousands)
Matures February 2004 $150,000 3.35% 3 Month LIBOR
Matures February 2007 $150,000 4.82% 3 Month LIBOR
Foreign Currency Risk. The Company transacts business in various foreign
currencies. The Company has established a foreign currency hedging program,
which was approved by the Board of Directors, that primarily utilizes foreign
currency forward exchange contracts to hedge certain foreign currency
transaction exposures. Under this program, increases or decreases in the
Company's foreign currency transactions are offset by gains and losses on the
forward contracts, so as to mitigate the possibility of foreign currency
transaction gains and losses. These foreign currency transactions typically
arise from the accrual of sub license fees and other inter company activities.
The Company does not use forward contracts for trading purposes. All foreign
currency
23
transactions and all outstanding forward contracts are marked to market at the
end of the period with unrealized gains and losses included in other income
(expense). The Company's ultimate realized gain or loss with respect to
currency fluctuations will depend on the currency exchange rates and other
factors in effect as the contracts mature. The unrealized gain (loss) on the
outstanding forward contracts at February 28, 2002 was immaterial to the
Company's consolidated financial statements.
The Company also hedges the net assets of certain of its international
subsidiaries ("net investment hedges"). As indicated in the Company's Form 10-K
for the fiscal year ended May 31, 2001, the Company adopted SFAS No. 133,
"Accounting for Derivative Instruments and for Hedging Activities," as of June
1, 2001. Under this accounting pronouncement, a company is allowed to measure
the ineffectiveness of net investment hedges by using a method based on changes
in spot exchange rates or a method based on changes in forward exchange rates.
The Company initially elected to use the changes in forward exchange rates to
measure the ineffectiveness of net investment hedges. Upon further review, the
Company concluded that using the changes in spot exchange rates better meets
the Company's risk management strategies, better reflects the economics of
those strategies in the Company's financial statements, and better manages
interest rate differentials between different countries. Under this method, the
change in fair value of the forward contract attributable to the changes in
spot exchange rates ("the effective portion") is reported in the stockholders'
equity section to offset the translation results on the net investments. The
remaining change in fair value of the forward contract ("the ineffective
portion") is recognized in earnings. Accordingly, effective September 1, 2001,
the Company decided to use the changes in spot exchange rates to measure the
ineffectiveness of net investment hedges. The gains or losses on these net
investment hedge contracts were not material to the Company's consolidated
financial statements. The tables below presents the notional amounts (at
contract exchange rates) and the weighted average contractual foreign currency
exchange rates for the Company's net investment hedges and outstanding forward
contracts as of February 28, 2002. Notional weighted average exchange rates are
quoted using market conventions where the currency is expressed in currency
units per U.S. dollar, except for Australia, New Zealand, UK and the Euro. The
forward contracts mature in ninety days or less as of February 28, 2002.
Table of Net Investment Hedges
Notional
Notional Weighted Average
Amount Exchange Rate
-------------------------------------------- -------------- ----------------
(in thousands)
Functional Currency:
Japanese Yen............................. $544,975 133.22
Euro..................................... 419,702 0.8681
--------
Total................................ $964,677
========
24
Table of Forward Contracts
Notional
Notional Weighted Average
Amount Exchange Rate
---------------------- -------------- ----------------
(in thousands)
Functional Currency:
Argentine Peso...... $ 5,864 3.27
Australian Dollar... 8,584 0.51
Brazilian Real...... 16,449 2.51
Canadian Dollar..... 684 1.61
Chilean Peso........ 4,952 673.20
Chinese Renminbi.... 81,143 8.28
Colombian Peso...... 3,180 2313.50
Danish Krone........ 2,540 8.56
Euro................ 58,343 0.87
Indian Rupee........ 12,793 48.77
Israeli Shekel...... 41,916 4.64
Japanese Yen........ 3,289 134.58
Korean Won.......... 7,279 1352.36
Mexican Peso........ 8,188 9.09
New Zealand Dollar.. 962 0.42
Norwegian Krone..... 6,843 8.92
Peruvian New Sol.... 5,063 3.48
Philippine Peso..... 14,792 51.40
Polish Zloty........ 13,216 4.21
Saudi Arabian Riyal. 20,930 3.75
Singapore Dollar.... 28,631 1.83
Slovakian Koruna.... 1,718 48.55
South African Rand.. 13,295 11.43
Swedish Krona....... 8,006 10.49
Swiss Franc......... 13,610 1.70
Taiwan Dollar....... 2,204 35.08
Thai Baht........... 5,740 43.87
UK Pound............ 45,506 1.42
--------
Total........... $435,720
========
25
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Shareholder class actions were filed in the United States District Court for
the Northern District of California against the Company and its Chief Executive
Officer on and after March 9, 2001. On June 20, 2001, the Court consolidated
the class actions into a single action and appointed lead plaintiff and class
counsel. A consolidated amended complaint adding the Chief Financial Officer
and an Executive Vice President as defendants was filed on August 3, 2001. The
consolidated amended complaint was brought on behalf of purchasers of the stock
of the Company during the period December 15, 2000 through March 1, 2001.
Plaintiffs alleged that the defendants made false and misleading statements
about the Company's actual and expected financial performance and the
performance of certain of its applications products, while certain individual
defendants were selling Company stock, in violation of Federal securities laws.
Plaintiffs further alleged that certain individual defendants sold Company
stock while in possession of material non-public information. On March 22,
2002, the Court granted the Company's motion to dismiss the consolidated action
without prejudice and the plaintiffs filed an amended complaint on April 10,
2002. The Company believes that it has meritorious defenses against this action
and will continue to vigorously defend it.
Shareholder derivative lawsuits were filed in the Superior Court of the State
of California, County of San Mateo and County of Santa Clara on and after March
12, 2001. Three similar shareholder derivative lawsuits were filed in the Court
of Chancery in the State of Delaware in and for New Castle County. A revised
amended consolidated complaint was filed on October 9, 2001. On March 15, 2002,
a similar derivative suit was filed in the United States District Court for the
Northern District of California. The derivative suits were brought by Company
stockholders, allegedly on behalf of the Company, against some or all of the
Company's current and former directors. The derivative plaintiffs allege that
these directors breached their fiduciary duties to the Company by making or
causing to be made alleged misstatements about the Company's revenue, growth,
and the performance of certain of its applications products while certain
officers and directors sold Company stock and by allowing the Company to be
sued in the shareholder class actions. The derivative plaintiffs seek
compensatory and other damages, disgorgement of compensation received, and a
declaration that the defendants breached their fiduciary duties. On February 8,
2002, the Company answered the Delaware complaint. On March 14, 2002, the
Company moved to dismiss portions of the San Mateo derivative suit. A hearing
on that motion and related motions currently is scheduled for April 19, 2002.
The Board of Directors established a Special Litigation Committee to
investigate the allegations in the Delaware derivative suit and in the
California state and federal derivative suits. The Company expects to respond
to the federal derivative suit shortly.
The Company filed petitions with the United States Tax Court on July 29, 1998,
challenging notices of deficiency issued by the Commissioner of Internal
Revenue that disallowed certain foreign sales corporation commission expense
deductions taken by the Company in its 1988 through 1991 tax years and assessed
additional taxes for those years of approximately $20 million plus interest. In
a separate action filed by Microsoft Corporation, the Tax Court ruled on
September 15, 2000, in favor of the Commissioner of Internal Revenue on the
same legal issue presented in the Company's case. If allowed to stand and if
followed by the Tax Court in the Company's case, the Microsoft ruling may be
dispositive of that issue in the Company's case and the Company's financial
statements could be adversely impacted by approximately $180 million which
includes estimated interest of approximately $85 million as of February 28,
2002. This amount includes the assessment for the tax years at issue in Tax
Court plus an estimate for the Company's subsequent tax filings. The Company's
case was reassigned to the judge presiding in the Microsoft action and the Tax
Court issued an order staying the Company's case until a final adjudication of
the same legal issue in the Microsoft action. Microsoft filed a notice of
appeal of the Tax Court's decision in the U.S. Court of Appeals for the Ninth
Circuit on September 21, 2001 and filed its opening brief on appeal on December
20, 2001. The Company filed an amicus brief in the Microsoft appeal on December
26, 2001. The Company intends to vigorously defend its position.
The Company is currently party to various legal proceedings and claims, either
asserted or unasserted, which arise in the ordinary course of business. While
the outcome of these claims cannot be predicted with certainty,
26
the Company does not believe that the outcome of any of these or any of the
above mentioned legal matters will have a material adverse effect on the
Company's consolidated financial position, results of operations or cash flows.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In the third quarter of fiscal 2002, the Company sold an aggregate of 3,804
shares of Common Stock to eligible employees of Oracle EMEA Limited, an
indirect subsidiary of the Company, who are participants in the Oracle Ireland
Approved Profit Sharing Scheme (the "Ireland APSS") at an aggregate purchase
price of approximately $64,000. There were no underwriting discounts or
commissions. The Ireland APSS permits an eligible employee to receive shares of
Common Stock in a tax efficient manner as a portion of such employee's bonus,
as well as to contribute a portion of their base salary towards the purchase of
additional shares in certain circumstances. The securities are held in trust
for the employees for a minimum of two years. The shares of Common Stock were
offered and sold in reliance upon Section 4(2) of the Securities Act of 1933,
as amended (the "Securities Act"), and the safe harbor provided by Rule 903 of
Regulation S ("Reg. S") under the Securities Act, to employees of Oracle EMEA
Limited who are not "U.S. Persons" as that term is defined in Reg. S.
27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Oracle
Corporation has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ORACLE CORPORATION
Dated: April 12, 2002 By: /s/ JEFFREY O. HENLEY
----------------------------
Jeffrey O. Henley
Executive Vice President and
Chief Financial Officer
Dated: April 12, 2002 By: /s/ JENNIFER L. MINTON
----------------------------
Jennifer L. Minton
Senior Vice President,
Finance and Operations
28
[GRAPHIC]
ARTWORK OF RECYCLE SYMBOL
C14108-01