1. FINANCE 295: ORACLE CORPORATION PRESENTED BY: SAURIN MEHTA CRAIG COHEN MARCH 2, 2000

2. ORCL: Quick Facts Initial public offering in 1986 Current corporate headquarters are in Redwood City, CA World’s largest maker of database management systems (DBMS) World’s second largest software company Over $9.3 billion in revenue over past 4 quarters Over 43,000 employees – Lawrence J. Ellison CEO/Chairman $10,000 invested in 1994 would be worth over $900,000 today We are looking at a ten year time horizon for this stock

3. ORCL: Business Description Five Major Software Products Oracle Application Server – combines Oracle DB technology with the Internet to form a cross-platform environment Oracle Applications – helps companies who wish to improve and streamline their operations to transform into an e-business Data Warehousing and BIS – complete data warehousing solution with the Oracle DB and over 60 3 rd party programs Oracle DB – flagship product – relational DB that allows users to manipulate data by using SQL language Oracle Tools – mainly Internet based – helps build and complement a company’s Web applications and DB

4. Non-software products Oracle Alliance Program Oracle Consulting Oracle Support Services Oracle Education – world’s largest IT training provider Venture Capital Fund Invests in small Internet companies with the hopes of them one day becoming customers Oracle is the first software company to deploy 100% Internet enabled enterprise software across its entire product line Oracle is currently the only company offering complete e- business solutions ORCL: Business Description Contd.

5. ORCL: Oracle in the News Acquired Datalogix International 1997 – enhance company’s technology offering in the consumer packaged goods industry Acquired Treasury Services Corporation 1998 – enhance company’s offering in the financial services industry Deal with Sears Roebuck and Carrefour Supermarche SA to launch the first global online exchange for the retail industry Deal with Ford to provide software, consulting and hosting for the entire business supply-chain Alliance with Novistar to offer its products to the energy industry Alliance with Telia to provide mobile Internet service in the international marketplace

6. ORCL: Who Uses Oracle? According to Morgan Stanley Dean Witter 24 of the top 25 Internet companies by market capitalization are Oracle customers According to USA Today e-Business Composite 48 of the top 50 companies are Oracle customers According to USA Today e-Consumer Composite 44 of the top 50 companies are Oracle customers 93% of all Public.com companies run Oracle 65 of Fortune 100 companies use Oracle for e-businesses

7. ORCL: Oracle’s Market Share Source: Oracle’s Corporate Website www.oracle.com

8. ORCL: Insider and Institutional Holdings Officers and Directors own approximately 25% of the stock 15 sell transactions in the past 6 months 2.34 million shares were sold in the time period 1,616 Institutions Hold approximately 49.0% of the stock Massachusetts Financial Services106 million shares Barclays Bank85 million shares Putnam Investment Management53 million shares Fidelity Management 46 million shares Vanguard Group45 million shares Institutions have purchased 67.6 million shares over the last quarter

9. ORCL: Income Statement Analysis 5/31/995/31/985/31/97 Revenues: Licensing Fees Services Total Revenues Cost of Sales Operating Expenses Interest Expense Net Income EPS 3,688.37 5,138.87 8,827.25 3,064.14 3,890.21 21.42 1,289.75 $0.89 (61.8%) 3,193.49 3,950.38 7,143.86 2,273.60 3,459.00 16.65 813.69 $0.55 2,896.70 2,787.64 5,684.34 1,550.47 2,870.89 6.81 821.46 $0.55

10. 5/31/995/31/985/31/97 Revenues: License Fees Services Total Revenues Cost of Sales Operating Expenses Interest Expense Net Income EPS % of Revenues 41.8% 58.2% 100% 34.7% 44.1% 0.2% 14.6% $0.89 % of Revenues 44.7% 55.3% 100% 31.8% 48.4% 0.2% 11.4% $0.55 % of Revenues 51.0% 49.0% 100% 27.3% 50.5% 0.1% 14.5% $0.55 ORCL: Income Statement Analysis Contd.

11. ORCL: Balance Sheet Analysis 5/31/995/31/985/31/97 Cash Receivables Prop, Plant, Equip Investments (FMV) Total Assets Notes Payable Accounts Payable Accrued Expenses Long-Term Debt Total Liabilities Common Stock Retained Earnings Total Owner’s Equity 2,562.75 2,238.20 987.48 249.54 7,259.65 3.63 283.89 1,474.04 304.14 3,564.38 1,475.76 2,266.91 3,695.26 1,919.19 1,857.48 934.35 186.51 5,819.01 2.92 239.69 1,183.10 304.33 2,861.45 976.27 2,023.05 2,957.55 1,213.19 1,540.47 868.95 116.34 4,624.31 3.36 185.44 926.83 300.84 2,254.60 696.02 1,686.17 2,369.71

12. 5/31/995/31/985/31/97 Cash Receivables Prop, Plant, Equip Investments (FMV) Total Assets Notes Payable Accounts Payable Accrued Expenses Long-Term Debt Total Liabilities Common Stock Retained Earnings Total Owner’s Equity 35.3% 30.8% 13.6% 3.4% 100% 0.0% 3.9% 20.3% 4.2% 49.1% 20.3% 31.2% 50.9% 33.0% 31.9% 16.1% 3.2% 100% 0.0% 4.1% 20.3% 5.2% 49.2% 16.8% 34.8% 50.8% 26.2% 33.3% 18.8% 2.5% 100% 0.0% 4.0% 20.0% 6.5% 48.8% 15.1% 36.5% 51.2% ORCL: Common Size Balance Sheet

13. ORCL: Cash Flow Analysis 6/30/996/30/986/30/97 Operating Activities Depreciation Deferred Income Taxes Gain on Sale of Inv. Accounts Receivable Change Accrued Expenses Change Other Liabilities Change Financing Activities Purchase of PPE Proceeds from Maturity of Inv. Purchase of Investments Investing Activities Issuance of Common Stock Repurchase of Common Stock Net Increase (Decrease) In Cash 319.82 20.37 55.56 (486.43) 154.47 136.70 (346.59) 1,055.94 (1,250.50) 306.42 (1,086.95) 512.03 286.32 23.09 42.25 (464.99) 159.13 123.83 (328.36) 803.40 (1,196.07) 204.29 (489.82) 383.52 238.24 6.29 26.53 (628.03) 108.70 144.33 (390.74) 252.08 (524.31) 138.18 (528.21) 174.42

14. ORCL: Key Financial Ratios 5/31/995/31/985/31/97 P/E Ratio Gross Margin (%) Operating Margin (%) Net Margin (%) Return on Equity (%) Return on Assets (%) Return on Invest. (%) Current Ratio Debt to Equity (%) Book Value / Share 28.2 65.3% 22.4% 14.6% 34.9% 17.8% 50.0% 1.79 8.0% $1.29 29.2 68.2% 18.6% 11.4% 27.5% 14.0% -33.0% 1.74 10.0% $1.01 38.4 72.7% 22.5% 14.5% 34.7% 17.8% 55.0% 1.70 13.0% $0.81

15. ORCL: Other Key Financial Stats 52 Week Low - $10.50 52 Week High - $76.50 Beta – 1.6752 Week Change – 304.5% Daily Volume – 21.9 million shares (3 month average) Market Capitalization - $201.7 billion Shares Outstanding – 2.82 billion Price / Earnings Ratio – 157.98

16. ORCL: Recent Earnings Surprises November 1998 February 1999 May 1999August 1999November 1999 Estimate0.080.090.160.080.11 Actual0.090.100.180.080.13 Difference0.01 0.020.000.02 Surprise16.75%11.11%12.50%0.00%18.18%

17. ORCL: How It Fares vs. Competitors Net Profit Margin P/E Ratio ROAROENet Income EPS Oracle (ORCL) JD Edwards (JDEC) Peoplesoft (PSFT) Baan (BAANF) Vignette (VIGN) Computer Assoc. (CA) Microsoft 14.6% -4.6% -13.1% -45.6% -47.6% 12.1% 40.0% 157 N/A 49.3 56.6 17.8% -4.6% -13.1% -40.1% -45.7% 7.49% 23.6% 34.9% -7.28% -31.8% -268.2% -78.7% 28.6% 31.4% 1,289.7 -39.2 -177.8 N/A 626.0 7,785.0 0.89 -0.09 -0.67 N/A 1.84 1.42

18. ORCL: Application License Growth

19. ORCL: Revenue Growth

20. ORCL: Broker Recommendations 35 brokers are covering the stock Average recommendation = 1.53 15 brokers – Strong Buy 18 brokers – Moderate Buy 2 brokers – Hold Notables: A.G. EdwardsStrong Buy Credit Suisse First BostonBuy Deutsche Bank SecuritiesBuy Goldman SachsStrong Buy J.P. MorganStrong Buy Merrill LynchStrong Buy Salomon Smith BarneyBuy Warburg Dillon ReadStrong Buy

21. ORCL: Fiscal Year 2000 Quarter 2 Fiscal Year 2000 Quarter 2 results released December 14 Actual earnings of $0.13 v. estimates of $0.11 Compared to earnings of $0.095 the same period one year ago Total revenue grew to $2.3 billion Compared to $2.1 billion the same period one year ago Net income increased 40% to $384 million Compared to $274 million the same period one year ago Software license revenue grew 18% compared to last year Database software sales increased 17% to $651 million Application software sales increased 31% to $168 million Service revenue grew 10% to $1.4 billion Next earnings announcement is March 14, 2000

22. ORCL: Initiatives for 2000 Application outsourcing – Oracle runs its software on its computers and lets customers use the applications for a monthly fee Moving operations to the Internet to enhance efficiency Customers can add users and buy software over the Web Expected to reduce the cost structure by $1 billion Continuing to offer complete e-business solutions for customers Providing software, consulting and hosting for all operations Everything from front-door customer relationships to back room operations and platform designs

23. ORCL: What the Future Holds Revenues are expected to grow at record rates Internet is the second industrial revolution More and more businesses will have to go online to survive Revenues from application outsourcing are expected to grow Many small businesses cannot afford the complete system Allows customers the same services without high fixed costs Moving more operations to the Web will increase overall efficiency Savings are expected to be $1 billion Serving those markets which are expected to explode by 2003 Customer Relationship Management $16.8B (49% CAGR) Supply Chain Applications$19.7B (48% CAGR) Internet Procurement Applications$5.3B (82% CAGR)

24. ORCL: Stock Price Projections Assume sales grow at 20% annually Most expenses remain the same as a percentage of revenues Cost of goods sold is adjusted for $1B cost reduction Current P/E ratio is approximately 140 Assume it reduces to a more reasonable level of 90 by 2010 EPS in 2000 = $0.57Stock Price in 2000 = $79.80 EPS in 2001 = $0.69Stock Price in 2001 = $93.15 EPS in 2002 = $0.83Stock Price in 2002 = $107.90 EPS in 2009 = $2.96Stock Price in 2009 = $281.20 EPS in 2010 = $3.55Stock Price in 2010 = $319.50 Ten Year Average Annual Rate of Return = 17.3% Assumes purchase price of $65 per share

25. ORCL: Stock Price Projections Contd. Assume sales grow at 30% annually Most expenses remain the same as a percentage of revenues Cost of goods sold is adjusted for $1B cost reduction Current P/E ratio is approximately 140 Assume it reduces to a more reasonable level of 90 by 2010 EPS in 2000 = $0.57Stock Price in 2000 = $79.80 EPS in 2001 = $0.86Stock Price in 2001 = $116.10 EPS in 2002 = $1.03Stock Price in 2002 = $133.90 EPS in 2009 = $3.70Stock Price in 2009 = $351.50 EPS in 2010 = $4.44Stock Price in 2010 = $399.60 Ten Year Average Annual Rate of Return = 19.9% Assumes purchase price of $65 per share

26. ORCL: How Does It Look within CAPM? 9%  = 1.0 11.7%  = 1..67 17.3% Assumes risk free rate of 5% and market return of 9% Expected return = 5% + 1.67 * (9% - 5%) = 11.7% Oracle’s expected return = 17.3% Alpha =  = 17.3% - 11.7% = 5.6%  = 0 5%

27. ORCL: Conclusion / Recommendation Oracle’s revenues will soar as e-business continues to expand Dominant leader in markets with enormous growth potentials Only software company to offer complete e-business solutions Alliances have diversified Oracle’s operations into other high- growth, technology markets (ex. wireless Internet) Very strong revenue and earnings growth over the past several years Moving operations to the Web to help reduce costs – save $1 billion Projected annual returns of between 17% and 20% RECOMMENDATION: BUY 400 SHARES @ $62.50