Oracle Corporation (ORCL) Annual Shareholder Analyst Call October 3, 2012 1:00 PM ET
Jeff Henley - Director and Chairman of Board of Directors
Dorian Daley - General Counsel and Secretary
Jing Zhao - Stockholder
Michael Price Jones - Office of the Controller - City of New York
Thomas McIntire - AFL CIO
Larry Ellison - Director and CEO
Roy Finkelstein - Shareholder
Okay, good morning, ladies and gentlemen. I am Jeff Henley, Chairman of the Board of Directors and it’s my pleasure to welcome all of you. In accordance with the notice of the meeting I call to order the 36th Annual Meeting of the stockholders of Oracle Corporation. Each stockholder was given agenda for today’s meeting. We will first conduct the formal part of the shareholders’ meeting in accordance with this agenda. Following adjournment of the formal portion of the meeting, I will have a presentation. After which, we’ll have an opportunity for questions and discussion.
Before proceeding to the business of the meeting I would like to make certain introductions; first I would like to introduce myself and the other directors who were standing for election. As I mentioned my name is Jeff Henley, I’ve been a Director since June 1995 and Chairman since January 2004. I previously served as Oracle’s Chief Financial Officer from March 1991 to July 2004. Larry Ellison has been our Chief Executive Officer and the Director since we founded Oracle in June 1977. Dr. Michael Boskin has been Director of Oracle since April 1994. He currently is Chair of the Nomination and Governance Committee and Vice Chair of the Finance and Audit Committee.
Michael is the Tully M. Friedman, Professor of Economics and Hoover Institution Senior Fellow at Stanford University. Jeff Berg has been a Director since February 1997 and he’s currently a member of the Nomination and Governance Committee and Independence Committee. He is the founder and Chairman of Resolution, a talent and literary agency as well as Former Chairman and Chief Executive Officer of International Creative Management, Inc., one of the largest talent agencies in the entertainment industry.
Safra Catz has been the Director since October 2001 and is a President and Chief Financial Officer of Oracle. Hector Garcia-Molina has been a Director since October 2001 and is currently a member of the Independence Committee. He has been the Leonard Bosack and Sandra Lerner Professor in the Departments of Computer Science and Electrical Engineering at Stanford University.
Ray Bingham has been the Director since November 2002 and serves as the Chair of both the Finance and Audit Committee and the Independence Committee and is an alternate member of the Nomination and Governance Committee. He is an Advisory Director of General Atlantic LLC, a leading global private equity firm.
Naomi Seligman has been the Director since November 2005 and is currently a Member of the Compensation Committee. She is the senior partner at Ostriker von Simson, a leading technology research firm which chairs the CIO strategy exchange. George H. Conrades has been the Director since January 2008 and is currently a member of the Nomination and Governance Committee and the Compensation Committee. He is the Chairman of Akamai Technologies, Inc. and previously served as Akamai’s Chief Executive Officer.
Bruce R. Chizen has been a Director since July 2008 and is currently the Chair of the Compensation Committee and a member of the Finance and Audit Committee. He is an independent consultant and serve as a Senior Advisor to Permira Advisers LLP, a leading private equity firm and as a Venture Partner at Voyager Capital. He previously served as Chief Executive Officer of Adobe Systems Incorporated.
Mark V. Hurd has been a Director since September 2010 and is President of Oracle. Prior to joining Oracle he was Chairman and CEO of Hewlett Packard Company. Seated next to me is Dorian Daley, Oracle’s General Counsel and Secretary. Also present today from Ernst & Young LLP are independent registered public accounting firm are Remco Bartman and David Kabra prior to this meeting we ask that he invite wish to make any statements at today’s meeting and they indicated that while they will not make a formal presentation they would be glad to respond to any questions during the question-and-answer period.
Finally, we are assisted today by Joshua McGinn, a representative of American Stock Transfer & Trust Company LLC our inspector of elections and tabulation of the proxies and balance. The minutes or last year’s annual meeting are available and any stockholder wishing to inspect the minutes should contact our corporate secretary.
So now let’s move to the formal portion of the meeting. So Dorian Daley will now report on the mailing of the notice of this meeting.
Mr. Chairman, this meeting is held pursuant to a notice dated September 20, 2013. On or about September 20, 2013, each stockholder of record as of the close of business on September 3, 2013 was sent either a notification of internet availability of proxy materials or the notice itself. All documents concerning notice of the meeting will be filed with the records of the meeting. A proof of mailing and the list of stockholders entitled to vote are both available for inspection by any stockholder wishing to do so.
Dorian will now advise whether quorum is present at the meeting and canvas the stockholders present. Those stockholders who have returned proxies have authorized the persons identified in the proxies to vote on the proposals coming before the meeting.
On the record day there were approximately 4 billion 569 million 220,000 and 69 shares of Oracle’s common stock issued outstanding and entitled at this meeting. A majority of these shares is present in person or by proxy and therefore a quorum necessary to transact business is present. If you have a proxy to be voted at this meeting that has not been delivered to the inspector of elections you should register your name with the monitors and show them the proxy.
If you have submitted the proxy but now wish to withdraw the proxy and submit a new proxy or vote in person, you should register with monitors if you have not already done so. If you have not submitted a proxy and you wish to vote in person, you should now register with the monitors if you have not already done so. Please raise your hand if you need to register your name with the monitors or if you require any assistance with your ballot or your proxy.
The polls will close at the conclusion of the formal portion of the meeting, so please be sure to register with the monitors and hand in your ballot at proxy prior to the conclusion of the formal portion of the meeting.
Okay, thanks, Dorian. I hereby declare a quorum is present at this meeting. On behalf of the Board of Directors of Oracle I would like to express our appreciation to all stockholders who returned their proxies or submitted ballots. There are 9 items of business on the agenda for this year's meeting, four management proposals and five stockholder proposals. Final vote totals for each of the proposals voted upon today will be made publicly available within the next few days.
So we'll start with the management proposals. The first matter to be acted upon by the stockholders is the election of 11 directors to serve until the next Annual Meeting of Stockholders. I've just introduced the nominees recommended by the Board of Directors and additional information about them is in the proxy statement. Nominations are now in order.
I nominate Jeff Henley, Lawrence Ellison, Michael Boskin, Jeffrey Berg, Safra Catz, Hector Garcia-Molina, Ray Bingham, Naomi Seligman, George Conrades, Bruce Chizen and Mark Hurd.
And is there a second to these nominations?
I second the nominations.
Okay, it's been moved and seconded that the nominations be elected -- the nominees be elected Directors of Oracle. Will the secretary now announce the results of the vote?
Each nominee for election to the Board of Directors has received an affirmative vote of a majority of Oracle's outstanding shares of common stock present and entitled to vote at this meeting
I hereby declare that all the nominees for director have been duly elected. [Audio Gap] is commonly referred to as Say-on-Pay vote. So will the secretary please indicate the results of the voting?
Based on preliminary numbers available at the start of this meeting, 1,560,628,544 shares voted for the Say on Pay resolution.2,040,018,954 shares voted against the Say on Pay resolution. And 23,353,597 shares abstained.
Thank you. The nonbinding advisory vote on Oracle's compensation program for executive officers is hereby noted. The next item of business is the approval of the amendment of the 2000 long-term equity incentive plan. This amendment in the 2000 long-term equity incentive plan generally are described in our proxy statement. Is there a motion that the amendment to the 2000 long-term equity incentive plan be approved?
I move that the amendment to the 2000 long-term equity incentive plan be approved.
Okay and is there a second to the motion?
I second the motion.
It’s moved and seconded that the amendment to the 2000 long-term equity incentive plan be approved. Will the secretary now announce the results of the vote?
This proposal received the affirmative vote of a majority of Oracle [Audio Gap] outstanding shares of common stock present and entitled to vote at this meeting.
So I hereby declare that the amendment to the 2000 long-term equity incentive plan be approved -- is approved. The next matter is the ratification of directors. Is there a motion? [Audio Gap] of Ernst & Young as our independent registered public accounting firm. Will the Secretary now announce the results of the vote?
This proposal received the affirmative vote of a majority of Oracle's outstanding shares of common stock present and entitled to vote at this meeting.
The appointment of Ernst & Young to audit the financial statements of Oracle and its subsidiaries for fiscal year 2014 has been duly ratified.
The next matter being submitted to the stockholders for action is the adoption of the proposal submitted by Jing Zhao, a stockholder of Oracle. The proposal requests that Oracle establish a Human Rights Committee, including independent relevant human rights experts, to review, assess, disclose, and make recommendations to enhance Oracle’s policy and practice on human rights.
We understand that Jing Zhao will present the proposal. Is he present? Yes, okay. So presuming to the rules of conduct for the meeting you will have up to five minutes to present the proposal and move for its adoption.
Jing Zhao - Stockholder
Resolution for Oracle 2013 Shareholders Meeting on Human Rights Committee. Be it resolved, that the following proposal be adopted by Oracle shareholders. Oracle will establish a Human Rights Committee, including independent relevant human rights experts, to review, assess, disclose and make recommendations to enhance the company’s policy [Audio Gap] consistent that was applicable principles and the law.
Support statement from the Chinese Tiananmen tragedy in 1989 to the recent Arab Spring movement human rights issue have become the most important international concerns for every company doing business globally, especially the human rights concern after international companies doing business in repressive countries is form the core issue of legitimacy. Legitimacy is not like a license from a government but from the repressive people's view of point you are doing business here, so there is a principle the value. And what's the purpose of doing business here.
As the world's largest provider of enterprise software under leading provider of computer product and services including cloud computing which involves many human rights issue such as privacy, freedom of expression, our company also has extensive business in representative countries including China where people are [indiscernible] human right were severely violated, I myself was deprived of my Chinese citizenship without any original document, because I authorized human rights activity in Japan during the 1980 Tiananmen massacre.
On the other hand our company has neither a human right policy nor an organization or mechanics to deal with human rights issues. For example our 2010 Corporate Citizenship Report -- that means nowhere to report of human rights concerns in our company. So no wonder the independent single [indiscernible] U.S., Japan, China are comparatively policy [indiscernible] ranked our company C-, in social responsibility index, I want to say another word about the board statement.
The Board statement that does list some policy and award, but I want to see that's no way to verify how the company implement this policy and in fact we cannot say any meaningful dialog or communications with independent human rights, I insist this because I myself has been in the area for almost 20 years I now have extensive communications with many companies including for example Intel, Microsoft, Cisco, HP, Boeing, Chevron even Goldman Sachs, but I did not see any indication that our company has the intend or the purpose to have dialog with relevant parties of human rights concerns.
So I urge our shareholders to vote for this proposal. Thank you very much.
Unidentified Company Representative
The Board opposes adoption of this stockholder proposal. Well we share the proponents concern for human rights; we believe that adoption of this stockholder proposal is unnecessary as well as potentially adverse to the interest of Oracle and their stockholders. We are a socially responsible company that regards human rights issues very seriously and we strive to promote within our own workforce among others things, the improvement of working conditions, personal freedom and diversity.
Our standard business practices require inherent local, state, federal, international laws and regulations on labor and environmental matters and enforcement of our long standing code of ethics and business conduct which requires our employees to comply with such laws and the numerous countries in which we operate. Furthermore we often go above and beyond these laws, with our efforts to enrich the quality and life of communities where we operate.
We were included on the human rights campaign list of best places to work 2012 and 2011 and on the Ethisphere Institutes list of world's most ethical companies in 2009 and 2008. In 2012 we were named to the 100 best corporate citizens list published by Corporate Responsibility magazine. We feel that our existing and continuing evolving policies, practices and procedures relating to human rights effectively addresses the concerns contained in this proposal and do not demonstrate the need for additional time and expense to be spent on the establishment and operation of an additional and unnecessary Board committee.
Consequently the Board does not believe the proposal is in the best interest of Oracle or its shareholders and is recommended against this stockholder proposal. It's been moved that the stockholders proposal calling for an establishment of a Board committee on human rights be approved. Will the secretary now announce the results of the vote?
Unidentified Company Representative
The stockholder proposal was defeated by a majority of Oracle's outstanding shares of common stock present and entitled to vote at this meeting.
Unidentified Company Representative
So I hereby declare that the stockholders proposal calling for establishment of a Board community on human rights has been defeated. The next matter been submitted to stock holders for action is the adoption of the proposals submitted for the second year in a row by Kenneth Steiner a stockholder of Oracle. The proposal requests that our Board of Directors adopt a policy that whenever possible the Chairman of our Board of Directors shall be an independent director. And we understand that Xin Zhao will represent Kenneth Steiner at this meeting. So again pursuant to the rules of conduct for the meeting you have up to five minutes to present the proposal and move for its adoption.
Resolve the shareholders’ request as our Company of directors adopt the policy that would never possible the Chairman of our Board of Directors [indiscernible] Independent Director. Our Independent Director is a Director who has now served as our Executive Officer of our Company. This policy should be implemented so as now to vary any contract or obligations or any effect when this approaching is [affirmative]. The policy should also specify how to select their new Independent Chairman if our current Chairman says to be Independent between Annual Shareholder Meetings to closer flexibility this proposal gives the option of being faced in and implemented when our next CEO is choosing. Supporting segment, when our CEO is our Board of Chairmen, this arrangement can hinder our Board’s ability to monitor our CEO’s performance and Independent Chairman is prevailing practice in the United Kingdom and many international markets.
This proposal topic won more than 50% votes from our shareholders -- independent shares in 2012 in spite of deceptive management response to the 2012 proposal. This proposal topic also won 50% plus support at three major U.S. companies in 2012 including 55% support to Sempra Energy. This proposal should also be evaluated in the context of our company’s overall corporate governance as reported in 2013. TMI ratings are independent investment and research firm has rated our company D continuously since 2006 with high governance risk also [Audio Gap] high concern for our Directors qualifications and very high concern we like to pay 69 million for our CEO Lawrence Ellison plus our successfully high exact your [indiscernible] pay received only 32% support from our shares outstanding.
Bruce Chizen, George Conrades and Naomi Seligman received our highest negative votes 33% to 38% and made up 100% of exactly paid committee, seven Directors had 11 to 36 years, long ten year. TMI region’s Director of independence [indiscernible] after 10 year. Four Directors that were Oracle Executives our Board in [old] [Taiwan] independent chairman or independent lead directors and two directors serve together on the board of Akamai Technologies, these factors according to Christian, our Board’s ability to act as an effective counter-barrier to management.
Our Company awarded some options so with the [indiscernible] debt value of over 237 million for our full highest paid [audio gap] .These options where market price and somebody load our time equity pay should have job performance requirement in order to assure align with shareholder interest market price stock options may provide reward to our executive due to rising market plan regardless of our individual job performance. Mr. Ellison also realized over 31 million from the exercise of 2.2 million options in 2012 additionally are exactly paid program continue to lack performance based equity pay for long term incentive and the annual bonus was tied to a single financial performance in major. Please vote to protect shareholder value, independent Board chairman proposal six. Thank you very much.
Okay, thank you. The Board continues to oppose adoption of this proposal. We do not have a formal policy mandating that the officers of Chairman and CEO continue to be separate. We believe it’s important that the Board retain flexibility to determine whether the role should be separate or combined based upon the Board’s assessment of the Company’s needs and Oracle’s leadership.
The Board believes that adopting a policy that requires an Independent Chairman would unduly limit the Board in determining the leadership structure that is in the best interest of Oracle and its stockholders at any particular point in time. The Board has deep knowledge of the strategic goals of the Company, the unique opportunities and challenges it faces and the various capabilities of our Directors and senior management. Thus, rather than taking a one size fits all approach to Board leadership, the Board is best positioned to determine the most effective leadership structure for Oracle.
And while do not have a policy mandating an independent lead Director, we believe that a number of non-employee Directors fill the lead Director role at various times including during executive sessions depending upon the particular issues that are involved. So currently the Board does not believe the proposal is in the best interest of Oracle or its stockholders and is recommended against this stockholder proposal. It’s been moved that the stockholders’ proposal regarding independent Board Chairman be approved, will the secretary now announce the results of the vote.
This stockholder proposal was defeated by a majority of Oracle's outstanding shares of common stock present and entitled to vote at this meeting.
So, I hereby declare that the stockholders’ proposal regarding the Independent Board Chairman has been defeated. The next matter been submitted to stockholders for action is the adoption of the proposal submitted by Bruce T. Herbert, the Chief Executive of Investor Voices of behalf of the Equality Network Foundation, a stockholder of Oracle. The proposal request at the Board amend Oracle’s governing documents to provide that all matter presented to stockholder for vote, shall be deciding by a simple majority of the votes, vote it for and against in a particular item or withheld the case of Board Elections.
This requested policy would apply to all matter unless stockholders have approved higher thresholds or applicable laws of stock exchange regulation dictates otherwise. We understand that Samantha Rayner and Duffy Telemen will represent a quality network foundation at this meeting, are -- is Ms. Rayner and Mr. Telemen present? Okay, so pursing to the rules of the conduct of the meeting, you have up to five minutes to present the proposal and move for its adoption.
Good morning, my name is Sammy Rayner, from San Francisco. I stand today on behalf of investor voice of Seattle to present proposal number seven, which calls for Oracle to embrace fair and accurate Low Country. It is deplorable yet surprisingly unknown fact that in corporate America not all shareholder votes are counted in the same way. At Oracle, when shareholders open their ballots, they’re presented with a choice to vote for, against, or to abstain on most items; however, it’s false choice because those three options are not treated consistently throughout the proxy.
It may come as surprise to learn that Oracle uses two different vote counting formulas in its proxy, each of which favor management to the detriment of company shareholders. To be clear, Oracle is not required to have two different vote counting formulas. They choose to do so. Word incorporated in New York state Oracle would be mandated to use a single fare and consistent vote counting formula across the Board, the very formula that this proposal requests. So here is how it works. On proposal #1, the Director Election, a vote cannot choose to abstain, the options just not there. Because abstain votes are removed from the formula, it boost the percentile on this Company sponsor proposal and maximize the appearance of support for management side of directors.
In contrast, on proposal 7 and other shareholders sponsored resolution, the situation is different and abstain vote is possible and does get counted. But what then happens is Oracle essentially changes every abstained vote to count as against, doing this lowers the percentile and depresses support for shareholders supported item. So most people would call this, stacking the deck, which in a game of cards is considered cheating, but it’s no different when a company votes in ways that improve management chances while harming shareholders. This matters because these practices manipulate vote tallies and can be enough to take a majority of vote, one that rightly earned over 50% of shareholder support and allow management to claim that it had failed.
Oracle’s policy do not respect vote choice, why does the company offer shareholder a misleading choice; one that ignores votes intend on shareholders sponsored items and effectively changes each abstained vote to count in favor of management. These manipulations are just becoming of a company that excels to greatness and so many other aspects of its operations. Therefore to put Oracle on the right track of good corporate governance in regard to fair and accurate vote counting, please cast your vote for proposal number 7.
And remember until our voices are heard and these policies are changed, any vote to abstain on this proposal will arbitrarily count against shareholders. Thank you.
Okay, thank you. The Board opposes the adoption of this proposal. We believe our current voting tabulation methodology of including abstentions on matters other than the Election of Directors best reflects and honors the intent of our stockholders who choose to abstain on a proposal. This standard applies identically to both management sponsored and stockholder sponsored proposals and ensures that that a matter has the requisite affirmative support for approval by our stockholders.
As a Delaware Corporation, Delaware Corporate Law governs the voting standards for actions by our stockholders and our existing voting standards are fully compliant with Delaware Law standards. We believe that the approval of this stockholder proposal would not further compliance with our high standards, would be inconsistent with the default Delaware Law standards followed by a majority of Delaware Corporation and would not enhance the stockholder value or serve the best interest of our stockholders.
Our Board is committed to strong corporate governance and we have already established highly effective corporate governance structures and processes. We do not believe this proposal will enhance our corporate governance in any meaningful way. Consequently, the board does not believe the proposal is in the best interest of Oracle or its stockholders and is recommended against this stockholder proposal, so it's been moved that the stockholders proposal regarding vote tabulation be approved, will the secretary now announce the results of the vote.
This stockholder proposal was defeated by a majority of Oracle’s outstanding shares of common stock present and entitled to vote at this meeting.
So, I hereby declare that the stockholders proposal regarding vote tabulation has been defeated. The next matter to be submitted for the second year in a row to the stockholder for action is the adoption of the proposal submitted by the Controller of the City of New York, John C. Liu, as custodian and a trustee of the New York City Employees’ Retirement System, the New York City Fire Department Pension Fund, the New York City Teachers’ Retirement System, and the New York City Police Pension Fund, and as custodian of the New York City Board of Education Retirement System.
The proposal requests that the Compensation Committee of the Board of Directors, in setting performance measures for top executives, include multiple weighted metrics that correctly reflect both individual and business accomplishments over an established multiyear period; and, excluding proprietary information disclosed to the shareholders any changes made in the basket of metrics during the multiyear period, we understand that Michael Price Jones will represent the City of New York, Office of the Controller at this meeting, is Michael Price Jones present? Okay. So pursuant to the rules of conduct for the meeting you have up to five minutes to present the proposal and move for its adoption.
Michael Price Jones
Thank you, Ms. Daley, I hope this isn’t out of order but could you just repeat the sound pay vote, I got so lost with all the zeros.
I can but why don’t we get through your proposal, you've got five minutes to get through.
Michael Price Jones
Okay, thank you. I hereby move proposal number five on behalf of the New York Controller, John Liu and the trustees of the New York City Pension Funds. The proposal asks that the board set performance measures for its top executives using multiple targets that correctly reflect both individual and business accomplishments over an established multiyear period.
The proposal does not direct the Compensation Committee to utilize specific metrics and therefore does not infringe on the Committee's ability to set remuneration packages. Compensation consultant firms recommend the use of multiple performance measures in setting executive pay, the consulting firm Mercer for example believes that performance measures often have to be complex to be effective and the performance measures should cover a range of relevant dimensions of performance, relying on a single metric as does Oracle may incentivize excessive risk taking and encourage executives to focus on a single aspect of the company's performance rather than on a relevant set of dimensions as Mercer recommends, the use of multiyear performance measures, performance period may better align executive pay with the interest of long term shareholders such as the New York City funds, over 90% of Oracle's CEO compensation is not performance based, it's stock options which is time wasting, and the small portion that is realized on a very single metric non-GAAP pretax earnings because of the resulting disconnect between pay and performance the New York City funds are among the shareholders who cast 59% of the votes against the company's say on pay proposal last year.
The company as many shareholders have been stating has not followed up with any fundamental changes to its compensation program and thus proxy advisory firms are once again recommending against the proposal. Las Lewis for example states that the best remuneration policies are those that are based on a variety of performance metrics which better gauges a company's overall financial health and performance and more effectively aligns the interest of executives with those of shareholders. ISS contends that support for the proposal will send a strong message to the board to adopt compensation programs that utilize multiple performance metrics and better link executive pay to performance. We believe the company is not fully addressing the risk of the long term performance from its compensations design and consequently we urge other shareholders to support the proposal. At the same time given the depth of our concerns of Oracle's pay and the board's failure to address to respond to last year's rejection of the say on pay, the New York City funds are also voting against members of the Compensation Committee, and once again against the ratification of the company's say on pay, thank you.
Unidentified company representative
Thank you. The Board opposes the adoption of this proposal, despite the proponent's statements to the contrary we believe that our current executive compensation program is significantly performance driven, we continue to effectively link pay to performance by our executive officers total compensation to performance based vehicles, either in the form of annual performance cash bonuses which require improved financial performance in the form of year over year growth in non-GAAP pretax profits or stock options which require an increase in the stock price to have any value. We believe that our existing executive compensation program achieves an appropriate balance between encouraging our senior executives to take actions that are consistent with our business strategy of constantly improving our performance and building long term shareholder value and discouraging executives from taking inappropriate or unnecessary risks. Consequent with the Board does not believe the proposal is in the best interest of Oracle or its shareholders and has recommended against this stockholder proposal. It's been moved that the stockholder's proposal regarding multiple performance metrics be approved. Will the Secretary now announce the results of the vote?
This stockholder proposal was defeated by a majority of Oracle's outstanding shares of common stock present and entitled to vote at this meeting.
Unidentified Company Representative
Okay, I hereby declare that the stockholder's proposal regarding multiple performance metrics has been defeated. So the next matter being submitted to the stockholders for action is the adoption of proposal submitted by the AFL CIO equity fund, a stockholder of Oracle and co-sponsored by [indiscernible] Trade S&P 500 Index Fund, in the City of Philadelphia each also stockholders of Oracle.
The proposal requests the Compensation Committee adopt a policy that all equity compensation plans submitted for stockholder approval after the 2013 annual meeting of the stockholders under section 162 M of the internal revenue code will specify the awards that will result from performance. This will require stockholder approval of quantifiable performance metrics, numerical formulas and payout schedules for at least a majority of awards to the named executive officers. We understand that Thomas McIntire will represent the AFL CIO equity fund at this meeting, is Thomas McIntire present? Okay. So pursuant to the rules of conduct for the meeting you have up to five minutes to present the proposal and move for its adoption.
Thank you, Mr. Chairman and good morning to everyone. I'm Tom McIntire here to present proposal number nine on behalf of the [indiscernible] Trade's S&P 500 Index Fund, the City of Philadelphia Board of Pensions and Retirement and the AFL CIO equity index fund. This proposal sounds complicated but it's pretty simple. The company has a long term equity plan that provides executives with stocks and stock in options when they meet certain performance targets. The company gets a tax break on these equity awards because the plan is based on performance and approved by shareholders.
What this proposal asks is for the company to give us enough information to evaluate these types of plans when the Board submits them to us and other shareholders for our approval. That is no more than what’s required by the IRS that is the equity awards must be based on performance that’s approved by shareholders. The trick is getting that performance in plain language from the company.
What we have now on to the equity plan is a laundry list of 23 different metrics the company says it considers. There is no information about which metrics are actually used and how they’re calculated and what amount of Board is given to the executives. Without clarity from the Board shareholders are given the compensation committee and blank check to pick whichever metrics and calculations it chooses.
This is even more concerning because of the past several years the Board has sat by desk despite persistent pay for performance misalignment. Our executives received outside compensation by average performance. The Board’s role is to protect shareholders’ interest and responding to our concerns would be a step in the right direction. We urge shareholders to support this resolution and the Board to consider implementing it.
And just one quick question, the pay for…
Sam we’ll be happy to take that but let`s do it in the Q&A session, okay. The Board opposes the adoption of this proposal. We believe that our current procedures to determine equity compensation awarded to our named executive officers are fair and transparent serve the best interest of our stockholders and advance the objectives of our executive compensation program by driving performance to create long term shareholder value and providing compensation opportunities that are competitive with those offered by companies with whom we compete for executive talent.
Implementing the rigid requirements contained in this proposal would restrict our flexibility to adapt to performance metrics and performance targets to changing market conditions and in turn hinder our ability to retain, attract and motivate talented executives. Furthermore we believe that certain aspects of the proposal are unclear. For instance it’s unclear whether a majority of the awards refers to greater than 50% of the actual number of awards granted, granted to the named executive officers or greater than 50% of the aggregate compensation resulting from the awards.
The proposal fails to specify whether reply only to new equity compensation plans submitted for stockholder approval or also to amendments to our long term equity incentive plan. Additionally, the proposal provides no guidance on how awards should be valued. So consequently the Board does not believe the proposal is in the best interest of Oracle or its stockholders and has recommended against this stockholder proposal. It’s been moved that the stockholders proposal regarding quantifiable performance metrics be approved. Will the Secretary now announce the results of the vote?
The stockholder proposal was defeated by a majority of Oracle’s outstanding shares of common stock present and entitled to vote at this meeting.
Okay, so I hereby declare the stockholders’ proposal regarding quantifiable performance metrics has been defeated. So this concludes the formal part of the annual meeting. Is there a motion that the meeting adjourned?
I move that the meeting be adjourned.
Was there a second? Okay, it’s been moved to the second that the meeting be adjourned, is there any opposition to the motion? Okay. The formal part of the meeting is adjourned and the polls are now closed. So I’d now like to make a brief business overview of Oracle but before moving to that I’d like the Secretary to read our Safe-Harbor Statement.
Today’s discussion may include expectations, predictions, estimates or other information that might be considered forward-looking. While these forward looking statements represent our current judgment on what the future holds, they are subject to risks and uncertainties that could cause actual results to differ materially. You are cautioned not to place undue reliance on these forward-looking statements, which reflect our opinions only as of the date of this presentation.
Please keep in mind that we are not obligating ourselves to revise or public release the results of any revisions of these forward-looking statements in light of new information or future events. Throughout today’s discussion we’ll attempt to present some important factors relating to our business that may affect our predictions. And you should also review our most recent Form 10-K and Form 10-Q for complete discussion of these factors and other risks that may affect our future results or the market price of our stock.
PDF copy of our related earnings press releases and financial tables which include a GAAP to non-GAAP reconciliation can be viewed and downloaded on the Oracle Investor Relations website at www.Oracle.com/investor.
Okay, so let me stand up here and microphone on. So we'll run to the slides and then we’ll go to Q&A. So we’ve covered the Safe-Harbor and the non-GAAP. So again this is a chart that we’ve shown for a number of years now and it is really I think a great way of explaining what’s been built and acquired over the years at Oracle. We have put together a very complete stack of technology. We have storage hardware, server hardware networking, and virtual machine, operating systems, databases, and middleware applications, so it’s changed dramatically over the years as the company has built a much-much broader complete stock of technology that we can sell to hundreds of thousands of customers around the world.
Some of the biggest parts of the messaging is around the fact that every layer in that stack has to be very competitive. We have to have really terrific best of bread capability at every layer. We have to use open standards. We have to be able to and to interoperate obviously with other technology platforms but we also believe that having strong vertical integration between those layers is a really necessary and extra value add for our customers. So we worked very hard to integrate all the logical points between various products in that stack.
And one of the things that we’ve done with the advent of beginning into the hardware business a few years ago is we also believed that by being able to vertically integrate and have our engineering departments work closer together in these various stacks like database and hardware, we can create very-very extreme performance and that’s what we call our engineered systems.
And so the company has continued to announce newer [Audio Gap] a broad list of offerings if you will have engineered systems and we think it’s a tremendous value to the customers to be able to get this [Audio Gap] the stack integrated at the database level with hardware and software. The other thing that we do business around private clouds, public clouds and then that many customers are using all three together and we call that the hybrid sort of approach people are using today. So the business has certainly evolved over the years.
We’ve got much bigger and broader and the way we offer our products has changed quite a bit over the years. We are obviously known still as the leading database company in the world and we’re very proud of that, that we have a lot of number one status if you will across that large stack of things I talked about. So this is the list of some of the areas where we have the number one position today. Oracle is a big and growing company. Last year, in the fiscal year that ended in May, we did approximately $37 billion in revenue.
We have hundreds of thousands of customers, about a 120,000 employees; we are all over the world. Lots of developers, millions of developers using our technologies, the heart of the company like Oracle is it’s developers, 35,000 of those 120,000 employees are engineers and developers. And so the statistics are I think impressive. The company has come a long way, and we are still going. We are still adding to those numbers each year.
So this is the result for the last fiscal year which ended May, and then our most recently announced first quarter which ended in August and I will kind of -- will show a couple of charts after this, I will put a little more color on this, but our software business which is made up of our new license sales on our support business has been pretty consistent. Last year it grew 7% and this year it grew 8%. These again are -- and these are non-GAAP numbers which we think are the best portrayal of how these numbers work. And they’re also in constant currencies, so they take out the effect of changes in the exchange rate.
So this is where we tend to look at the company internally and how we run the company. We also provide GAAP numbers and explain the differences in currency and all that. Our hardware business has been declining, however, we think that and we’ve said publicly that we believe that the mix of our hardware business is quite good. And all the new engineered systems and the newer products are actually growing quite nicely and so we feel very good about the hardware business but its being recast in a different kind of hardware business that we think adds a lot more value for the customers.
So that part of our business is doing well. We think it will eventually be the bigger part of our business and so we should begin to see hardware growth at some point. Services business is relatively small and that’s been shrinking a bit. So as you will see in a minute the big part of our business is our software business. That’s doing extremely well. Our operating income continues to grow, our margins – in the first quarter always a bit smaller than the rest of the year. So our margins didn’t dip as much as just it’s the first quarter seasonal kind of thing more than anything.
Earnings per share continued to grow nicely and we continued to generate a lot of cash and we will talk about how we use that cash in a little more detail. But geographically here is the mix of our business of all that revenue 53% of it and the Americas, 30% in EMEA and 17% of it Asia Pacific. And then this is the breakdown of the software and hardware. So the software is, again as I said, it’s the license update and support as well as the new software licenses. So that’s you can see roughly three quarters of our business. So it is the heart and soul of the company. And the other breakouts of our hardware business, our hardware support business and our services are the remaining parts of that pie.
If you look at our software revenue over the last 10 years, this is the trend of that and it’s showing a 14% compounded average growth rate. And this is the business where we sell new licenses and the same goes for the cloud by the way. We sell a cloud offering and it tends to be recurring kind of revenue thing. So, whether it’s on premise or in the cloud you have an initial sale and then there is a recurring revenue stream that’s created out of that.
So today over the years this has gotten bigger and bigger. The recurring revenue coming from support for all the licenses we’ve sold over the years is actually larger than the new software licenses that we’re doing each year. But that’s still there. Obviously the new numbers are still very significant and very important to continued growth in the business. This is a long trend of the margins and we’ve seen some good improvement over the last 10 years in margins.
The great area is the one sort of area period where we dipped a little bit and that was the acquisition of Sun which is a very large acquisition. It was a big company and it was not performing particularly well and some were very proud of the fact that we added it to our portfolio products. I think it’s very strategic investment. We’ve also cleaned it up a lot and really made it a much more high performing part of our business. So our margins are now back to where they were and absorbing the Sun business and we really cleaned it up and making it into a more profitable business.
Earnings of the last 10 years have grown earnings per share at 20% per annum compounded; a free cash flow similar 17% per annum. In terms of investments we’re making, there are two areas we’re really focused on. One is sales. This is the cumulative additions over the last 10 years to people out selling to our customers, so we have been obviously adding a lot of new sales people and particularly the last couple of years, and the same in R&D. we've a lot of growth in R&D.
And I think the best way to portray that is to reflect it since reflected since June 2010, more than three years ago, 90% 96% of all the headcount added to Oracle was in these two categories. So we call that investing in growth and innovation. That’s what you have to do in this business. You have to keep innovating, need developers and keep making investments and building new things. But we also need to have more sales people. We have an enormous opportunity we think with all the products we have today to get out and sell to more and more customers, so we're making those two investments and that's the bulk of how we're spending the shareholders money in the last couple of years.
This is a list of all the logos, we have acquired approximately 100 companies since 2004 and we have kind of portrayed them in these different categories or stacks. So servers and storage, operating systems, virtual machines, even data base we have made some acquisitions, nowhere applications horizontal, vertical. So the company has been acquiring as well as building things and we have been acquiring things in all parts of the stack which is strategic partner with our customers.
If you look at the cash flow over the years, we have generated a lot of cash, we’re pretty big company and our cash balance has actually growth too from 7 billion in 2003 to 32 billion today. But if you look at the sources and uses of cash there is the 82 billion we have generated but we have actually used some degree of debt, we had no debt virtually 10 years ago, so we have done little bit of leverage not much relatively and then we have made a lot of acquisitions I showed the previous chart about $44 billion, but we've also paid back a lot of money to the shareholders in the form of buybacks which we've had going for many years into more recent years began to add a dividend as well that's been growing.
So we think that it's a healthy balance, we're obviously returning money where we can to the shareholders but our first priority is to grow and invest in the business and developers and buy businesses that can be additive to the business.
In terms of the buybacks, this is a chart that just shows when we started making those dividends and then that's becoming more significant as time goes on, but obviously the buyback program consumes a bigger part of the cash outlay and contributes to that 20% a year compound of growth where you see earnings per share. So we have a very strong balance sheet, very strong return on investment and we think modest amount of leverage for company our size and the predictability of our company.
And the other point I guess would be kind of comparing ourselves to others in the industry. So we have taken a list of companies that are in our business, many of whom we compete with in some way and we have compared the performers on average of these companies versus Oracle's. So we have also looked at the Dow, these are companies that are not always -- most are not in our industry but they are large cap companies.
We have excluded the financial services; we think that's a bit of a different business than companies like Chevron and [indiscernible] ourselves and so forth. So we'll show you the comparisons, for Oracle since 2006 versus the tech peers, the first card I showed and then the Dow, peers excluding financial services. And again I think on a relative basis we can always do better but we’re pretty proud of the performance that we delivered over time.
And then the same goes for operating income, and the same goes for net income, and for free cash flow. So I mean I think absolute performance is important but obviously it’s relative to what? Relative to how you are performing against your peers in the industry and so forth. So we think we have got a good strategy of having a good curve performance but I showed the investments we’re making were also very interested and continuing to have a good performance in the future.
And the last one is earnings per share. Compared to the broader indexes of NASDAQ and the S&P again we have had good performance since that 2006 period. So again that's the quick presentation of the numbers and I think we'll turn it over to questions and I will let Larry Ellison to take over questions and he can direct it to other people on the Board if the question needs to be. Thank you.
Thank you Jeff and let's start with questions from the audience.
Mr. Ellison I am pretty sure you voted for the Board, they pay you $80 million a year. What shareholders are interested in what percentage of votes of outside shareholders supported the members of the Board? And also could you repeat the same say on pay this is very important. And also if the say on pay get defeated for second running which my math I think it did, that's a real check mark against Chairman Bruce Chizen. I think at some point he should step aside from Chairmanship….
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Earnings Call Part 2:
- Information Technology
- Oracle Corporation
- Jeff Henley