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ORACLE CORP
FORM 10-K
(Annual Report)
Filed 06/26/14 for the Period Ending 05/31/14
Address 500 ORACLE PARKWAY
MAIL STOP 5 OP 7
REDWOOD CITY, CA 94065
Telephone 6505067000
CIK 0001341439
Symbol ORCL
SIC Code 7372 - Prepackaged Software
Industry Software & Programming
Sector Technology
Fiscal Year 05/31
http://www.edgar-online.com
© Copyright 2014, EDGAR Online, Inc. All Rights Reserved.
Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use.

Table of contents

  • Page 1
    ...10-K (Annual Report) Filed 06/26/14 for the Period Ending 05/31/14 Address 500 ORACLE PARKWAY MAIL STOP 5 OP 7 REDWOOD CITY, CA 94065 6505067000 0001341439 ORCL 7372 - Prepackaged Software Software & Programming Technology 05/31 Telephone CIK Symbol SIC Code Industry Sector Fiscal Year http://www...

  • Page 2
    ... Redwood City, California (Address of principal executive offices) 94065 (Zip Code) (650) 506-7000 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common Stock, par value...

  • Page 3
    of this Annual Report on Form 10-K where indicated.

  • Page 4
    ... Issuer Purchases of Equity Securities Selected Financial Data Management's Discussion and Analysis of Financial Condition and Results of Operations Quantitative and Qualitative Disclosures About Market Risk Financial Statements and Supplementary Data Changes In and Disagreements with Accountants on...

  • Page 5
    ... and cloud business' total revenues generally will continue to increase; • our belief that software license updates and product support revenues and margins will grow; • our expectation that our hardware business will have lower operating margins as a percentage of revenues than our software and...

  • Page 6
    ... materially from those expressed or implied in the forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in "Risk Factors" included elsewhere in this Annual Report and as may be updated in filings we make from time...

  • Page 7
    ... a choice in deployment models that best meet their information technology (IT) needs. Our customers can subscribe to use many Oracle software and hardware products through our Oracle Cloud offerings, or purchase our software and hardware products and related services to build their own internal...

  • Page 8
    ... and partners can use our open, standards-based Java platform based on Oracle WebLogic Server and our Oracle Database as a cloud service, including tools for rapid application development; flexible cloud-based file sharing and collaboration; intuitive business tools for analysis and reporting; and...

  • Page 9
    ... software, servers, storage and networking hardware in a single box that is designed to deliver high-availability database services for a wide range of homegrown and packaged online transaction processing (OLTP) and data warehousing applications; • Oracle Big Data Appliance, a scalable...

  • Page 10
    Table of Contents Oracle and Big Data Big data generally refers to a massive amount of unstructured, streaming and structured data that is so large that it is difficult to process using traditional IT techniques. As businesses drive more of their critical operations and information management ...

  • Page 11
    ... as graph data. Oracle Database software is used for a variety of purposes, including packaged applications and custom application development for transaction processing, data warehousing and business intelligence and as a document repository or specialized data store. A number of optional add-on...

  • Page 12
    ..., manage lifecycles of documents and get actionable, targeted business intelligence; all while continuing to utilize their existing IT systems. In addition, Oracle Fusion Middleware software supports multiple development languages and tools, which enables developers to build and deploy web services...

  • Page 13
    ..., retail and utilities, among others. Oracle Applications are offered via license and subscription based arrangements and are designed to reduce the risk, cost and complexity of our customers' IT infrastructures, while supporting customer choice with flexible deployment models and upgrade paths. Our...

  • Page 14
    ...-Oracle transactional systems and supports strategic planning and goal setting, financial and operational planning, financial close and reporting and profitability management. We also deliver packaged business intelligence applications that support business functions and industry-specific processes...

  • Page 15
    ...; and • our comprehensive software and hardware management and maintenance services for customers hosted at our Oracle data center facilities, select partner data centers or physically on-premise at customer facilities. Software License Updates and Product Support We seek to protect and enhance...

  • Page 16
    ...ZFS Storage Appliance is designed to improve Network Attached Storage (NAS) performance and manageability and lower total cost of ownership by combining our advanced storage operating system with high-performance controllers, DRAM and flash-based caches and disks. The foundation of our Oracle Pillar...

  • Page 17
    ... to Oracle Solaris and Oracle Linux operating systems and Oracle's virtualization software, we also develop a range of other hardware-related software, including development tools, compilers, management tools for servers and storage, diagnostic tools and file systems. Hardware Systems Support Our...

  • Page 18
    ...software licenses and cloud software subscriptions segment) as certain expenses within our cost structure are relatively fixed in the short term. See "Selected Quarterly Financial Data" in Item 7 of this Annual Report for a more complete description of the seasonality and cyclicality of our revenues...

  • Page 19
    ...our Oracle Solaris and Linux operating systems, with alternatives including Microsoft's Windows Server, and other UNIX and Linux operating systems; • the adoption of open source alternatives to commercial software by enterprise software customers; • products, features and functionality developed...

  • Page 20
    ... in each of fiscal 2014, 2013 and 2012, respectively, or 13% of total revenues in each of fiscal 2014, 2013 and 12% in fiscal 2012. Rapid technological advances in hardware and software development, evolving standards in computer hardware and software technology, changing customer needs and frequent...

  • Page 21
    ... the Board of Directors President, Chief Financial Officer and Director President and Director Executive Vice President, Systems Executive Vice President, Product Development Senior Vice President, General Counsel and Secretary Senior Vice President, Corporate Controller and Chief Accounting Officer...

  • Page 22
    ... renewal rates for software license updates and product support and our subscription-based cloud offerings. We may fail to achieve our financial forecasts due to inaccurate sales forecasts or other factors. Our revenues, particularly our new software licenses revenues and hardware systems revenues...

  • Page 23
    ... offerings increases, we could experience volatility in our reported revenues and operating results due to the differences in timing of revenue recognition between our new software licenses arrangements and cloud offering arrangements. We have also acquired a number of cloud computing companies, and...

  • Page 24
    ... and store and process increasingly large amounts of our customers' confidential information and data and host or manage parts of our customers' businesses in cloud-based IT environments, especially in customer sectors involving particularly sensitive data such as health sciences, financial services...

  • Page 25
    ... portion of our revenues from, and have significant operations, outside of the United States. Our international operations include software and hardware systems development, manufacturing, assembly, sales, customer support, consulting and other services and shared administrative service centers...

  • Page 26
    ...exchange rates and related impacts to our operating results; • difficulties in transferring funds from or converting currencies in certain countries such as Venezuela that have led to a devaluation of our net assets, in particular our cash assets, in that country's currency; • regulatory changes...

  • Page 27
    ... predicted number of customers decline to renew software or hardware support contracts or cloud-based subscription contracts, if we are unable to sell the acquired products or service offerings to our customer base or if contract models of an acquired company do not allow us to recognize revenues on...

  • Page 28
    ...if we do not effectively manage the associated risks. We may not achieve our estimated revenue, profit or other financial projections with respect to our hardware systems business in a timely manner or at all due to a number of factors, including: • as we develop and introduce new versions or next...

  • Page 29
    ...develop, manufacture and deliver on a timely basis the necessary components for our hardware products, and there are some components that can only be purchased from a single vendor due to price, quality, technology, availability or other business constraints. As a result, our supply chain operations...

  • Page 30
    ... to manage our relationships with these third parties effectively, or if these third parties experience delays, disruptions, capacity constraints, regulatory issues or quality control problems in their operations, or fail to meet our future requirements for timely delivery, our ability to ship and...

  • Page 31
    ...not be successful in recruiting new personnel and in retaining and motivating existing personnel. With rare exceptions, we do not have long-term employment or non-competition agreements with our employees. Members of our senior management team have left Oracle over the years for a variety of reasons...

  • Page 32
    ... customer use of our products or changes in customer demand, our revenues could decrease. The increase in open source software distribution may also cause us to change our pricing models. We may not receive significant revenues from our current research and development efforts for several years, if...

  • Page 33
    ... tax returns. Changes in tax laws or tax rulings may have a significantly adverse impact on our effective tax rate. For example, the United States, many countries in the European Union, and other countries where we do business, are actively considering changes in relevant tax, accounting and other...

  • Page 34
    ...addition, changes by any rating agency to our outlook or credit rating could negatively affect the value of both our debt and equity securities and increase the interest amounts we pay on outstanding or future debt. These risks could adversely affect our financial condition and results of operations...

  • Page 35
    ... Electrical and Electronic Equipment Directive (WEEE Directive), as well as China's regulation on Management Methods for Controlling Pollution Caused by Electronic Information Products may increase our cost of doing business internationally and impact our hardware systems revenues from EU countries...

  • Page 36
    ... record and payment dates are subject to the final determination of our Board of Directors. For equity compensation plan information, please refer to Item 12 in Part III of this Annual Report. Stock Repurchase Programs Our Board of Directors has approved a program for us to repurchase shares of our...

  • Page 37
    ... return on our common stock with the cumulative total return of the S&P 500 Index and the S&P Information Technology Index for each of the last five fiscal years ended May 31, 2014, assuming an investment of $100 at the beginning of such period and the reinvestment of any dividends. The comparisons...

  • Page 38
    ... dates of acquisition and have contributed to our growth in revenues, income, earnings per share and total assets. (in millions, except per share amounts) 2014 As of and for the Year Ended May 31, 2013 2012 2011 2010 Consolidated Statements of Operations Data: Total revenues Operating income Net...

  • Page 39
    ... a choice in deployment models that best meet their information technology (IT) needs. Our customers can subscribe to use many Oracle software and hardware products through our Oracle Cloud offerings, or purchase our software and hardware products and related services to build their own internal...

  • Page 40
    ... server and clustered server configurations for cloud or on-premise IT environments, and to support a choice of operating systems including Oracle Solaris, Oracle Linux, Microsoft Windows and third party UNIX products, among others. Our customers include businesses of many sizes, government agencies...

  • Page 41
    ... hardware management and maintenance services arrangements for customer IT infrastructure for a stated term that is hosted at our data center facilities, select partner data centers or physically on-premise at customer facilities. Software License Updates and Product Support: Customers that purchase...

  • Page 42
    ... Oracle Linux, Microsoft Windows and other operating systems. Our x86 servers are also a core component of many of our Oracle Engineered Systems including Oracle Exadata Database Machine, Oracle Exalogic Elastic Cloud, Oracle Exalytics In-Memory Machine and the Oracle Big Data Appliance. Our storage...

  • Page 43
    ... revenues, expenses and operating margins that we report. Hardware Systems Support: Our hardware systems support offerings provide customers with software updates for software components that are essential to the functionality of our server, storage and networking products, such as Oracle Solaris...

  • Page 44
    ... in fully understanding and evaluating our reported financial results include the following: • Revenue Recognition • Business Combinations • Goodwill and Intangible Assets-Impairment Assessments • Accounting for Income Taxes • Legal and Other Contingencies • Stock-Based Compensation 40

  • Page 45
    ... on a subscription basis; and software license updates and product support revenues; (2) hardware systems revenues, which include the sale of hardware systems products including computer servers, storage products, networking and data center fabric products, and hardware systems support revenues; and...

  • Page 46
    ... updates for the software components that are essential to the functionality of our server and storage products and can also include product repairs, maintenance services and technical support services. Hardware systems support contracts are generally priced as a percentage of the net hardware...

  • Page 47
    ...establish VSOE of selling price for deliverables in software and nonsoftware multiple-element arrangements using the price charged for a deliverable when sold separately and for software license updates and product support and hardware systems support, based on the renewal rates offered to customers...

  • Page 48
    ... receipt of payment for the consulting services, revenues are deferred until the uncertainty is sufficiently resolved. We estimate the proportional performance on contracts with fixed or "not to exceed" fees on a monthly basis utilizing hours incurred to date as a percentage of total estimated hours...

  • Page 49
    ... with payment terms that generally extend up to five years from the contract date. Provided all other revenue recognition criteria have been met, we recognize new software licenses revenues and hardware systems products revenues for these arrangements upon delivery, net of any payment discounts from...

  • Page 50
    ..., cloud SaaS and PaaS contracts, hardware systems product sales, support agreements, consulting contracts, other customer contracts, acquired developed technologies and patents; • expected costs to develop the in-process research and development into commercially viable products and estimated cash...

  • Page 51
    ...we would record an impairment loss equal to the difference. Determining the fair value of a reporting unit involves the use of significant estimates and assumptions. These estimates and assumptions include revenue growth rates and operating margins used to calculate projected future cash flows, risk...

  • Page 52
    ... could differ from the actual results reflected in income tax returns filed during the subsequent year. Adjustments based on filed returns are generally recorded in the period when the tax returns are filed and the global tax implications are known, which can materially impact our effective tax rate...

  • Page 53
    ... of operations and financial position. Stock-Based Compensation We account for share-based payments to employees, including grants of employee stock options, restricted stock-based awards and purchases under employee stock purchase plans, in accordance with ASC 718, Compensation-Stock Compensation...

  • Page 54
    ... rates of employee groups by seniority of job classification. Our expected dividend rate is based upon an annualized dividend yield based on the per share dividend declared by our Board of Directors. The aforementioned inputs entered into the option valuation model we use to fair value our stock...

  • Page 55
    ... last day of our prior fiscal year) rather than the actual exchange rates in effect during the respective periods. For example, if an entity reporting in Euros had revenues of 1.0 million Euros from products sold on May 31, 2014 and 2013, our financial statements would reflect reported revenues of...

  • Page 56
    Table of Contents Total Revenues and Operating Expenses Year Ended May 31, (Dollars in millions) 2014 Percent Change Actual Constant 2013 Percent Change Actual Constant 2012 Total Revenues by Geography: Americas EMEA (1) Asia Pacific (2) Total revenues Total Operating Expenses Total Operating ...

  • Page 57
    ...service deferred revenues (1) Software license updates and product support deferred revenues (1) Hardware systems support deferred revenues (1) Amortization of intangible assets (2) Acquisition related and other (3)(5) Restructuring (4) Stock-based compensation (5) Income tax effects (6) (1) $ 17...

  • Page 58
    ...Consolidated Financial Statements included elsewhere in this Annual Report. Stock-based compensation was included in the following operating expense line items of our consolidated statements of operations (in millions): 2014 $ 165 8 4 22 5 6 29 385 171 795 10 $ 805 Year Ended May 31, 2013 2012 $ 137...

  • Page 59
    ...-based compensation Included as a component of 'Amortization of Intangible Assets' in our consolidated statements of operations Fiscal 2014 Compared to Fiscal 2013: Excluding the effect of unfavorable currency rate fluctuations, total new software licenses and cloud software subscriptions revenues...

  • Page 60
    ... licenses revenues in fiscal 2013 in comparison to 29% in fiscal 2012. Excluding the effect of currency rate fluctuations, total new software licenses and cloud software subscriptions expenses increased in fiscal 2013 primarily due to higher employee related expenses and stock-based compensation...

  • Page 61
    ... Year Ended May 31, Percent Change Percent Change Actual Constant 2013 Actual Constant (Dollars in millions) 2014 2012 Cloud Infastructure-as-a-Service: Americas EMEA Asia Pacific Total revenues Expenses: Cloud infastructure-as-a-service (1) Sales and marketing (1) Stock-based compensation Total...

  • Page 62
    ... Excluding stock-based compensation Included as a component of 'Amortization of Intangible Assets' in our consolidated statements of operations Fiscal 2014 Compared to Fiscal 2013: Excluding the effect of unfavorable currency rate fluctuations, software license updates and product support revenues...

  • Page 63
    ... assets. Year Ended May 31, Percent Change Percent Change Actual Constant 2013 Actual Constant (Dollars in millions) 2014 2012 Hardware Systems Products Revenues: Americas EMEA Asia Pacific Total revenues Expenses: Hardware systems products (1) Sales and marketing (1) Stock-based compensation...

  • Page 64
    .... Year Ended May 31, (Dollars in millions) 2014 Percent Change Actual Constant 2013 Percent Change Actual Constant 2012 Hardware Systems Support Revenues: Americas EMEA Asia Pacific Total revenues Expenses: Hardware systems support (1) Stock-based compensation Amortization of intangible assets...

  • Page 65
    ... delivery costs due to operational initiatives, partially offset by an increase in amortization of intangible assets. Excluding the effect of currency rate fluctuations, total hardware systems support margin and margin as a percentage of total revenues increased in fiscal 2014 as our total revenues...

  • Page 66
    Table of Contents Year Ended May 31, Percent Change Percent Change Actual Constant 2013 Actual Constant (Dollars in millions) 2014 2012 Services Revenues: Americas EMEA Asia Pacific Total revenues Expenses: Services (1) Stock-based compensation Amortization of intangible assets (2) Total ...

  • Page 67
    ... technology, finance, legal and human resources support functions. Year Ended May 31, (Dollars in millions) 2014 Percent Change Actual Constant 2013 Percent Change Actual Constant 2012 General and administrative (1) Stock-based compensation Total expenses % of Total Revenues (1) $ $ 867 171 1,038...

  • Page 68
    ... to the original terms of those stock options and restricted stock-based awards. Percent Change Actual Constant Year Ended May 31, Percent Change 2013 Actual Constant (Dollars in millions) 2014 2012 Transitional and other employee related costs Stock-based compensation Professional fees and...

  • Page 69
    ... we classify as trading. Year Ended May 31, Percent Change Percent Change Actual Constant 2013 Actual Constant (Dollars in millions) 2014 2012 Interest income Foreign currency losses, net Noncontrolling interests in income Other income, net Total non-operating (expense) income, net $ $ 263 10...

  • Page 70
    ..., 2014 in comparison to May 31, 2013 was primarily due to our issuance of â,¬2.0 billion and $3.0 billion of long-term senior notes in July 2013, the favorable impact to our net current assets resulting from our net income during fiscal 2014, and, to a lesser extent, cash proceeds from stock option...

  • Page 71
    ..., software license updates and product support obligations and hardware systems support obligations to fair value. (Dollars in millions) 2014 Change Year Ended May 31, 2013 Change 2012 Net cash provided by operating activities Net cash used for investing activities Net cash used for financing...

  • Page 72
    ... from our customers following the purchase and renewal of their software license updates and product support agreements. Payments from customers for these support agreements are generally received near the beginning of the contracts' terms, which are generally one year in length. We also generate...

  • Page 73
    .... We are accounting for the 2025 Notes as a net investment hedge of our investments in certain of our international subsidiaries that use the Euro as their functional currency in order to reduce the volatility in stockholders' equity caused by the changes in foreign currency exchange rates of the...

  • Page 74
    ... Statements, included elsewhere in this Annual Report. Cash Dividends : In fiscal 2014, we declared and paid cash dividends of $0.48 per share that totaled $2.2 billion. In June 2014, our Board of Directors declared a quarterly cash dividend of $0.12 per share of outstanding common stock payable...

  • Page 75
    ... associated with agreements that are enforceable, legally binding and specify terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the payment. We utilize several external manufacturers to manufacture sub-assemblies...

  • Page 76
    ... to investors. Selected Quarterly Financial Data Quarterly revenues, expenses and operating income have historically been affected by a variety of seasonal factors, including sales force incentive compensation plans. In addition, our European operations generally provide lower revenues in our first...

  • Page 77
    ... to control the number of stock options and restricted stock-based awards granted while providing competitive compensation packages. Consistent with these dual goals, our cumulative potential dilution since June 1, 2011 has been a weighted average annualized rate of 2.3% per year. The potential...

  • Page 78
    ...of Contents The Compensation Committee of the Board of Directors reviews and approves the organization-wide stock option grants to selected employees, all stock option grants to executive officers and any individual stock option grants in excess of 100,000 shares. A separate Plan Committee, which is...

  • Page 79
    ...the interest payable on the 2014 Notes effectively became variable based on LIBOR. The critical terms of the interest rate swap agreements and the 2019 Notes and 2014 Notes that the interest rate swap agreements pertain to match, including the notional amounts and maturity dates. We do not use these...

  • Page 80
    ...will generally depend on the size and type of cross-currency transactions that we enter into, the currency exchange rates associated with these exposures and changes in those rates, the net realized gain or loss on our foreign currency forward contracts and other factors. As of May 31, 2014 and 2013...

  • Page 81
    ...8. Financial Statements and Supplementary Data The response to this item is submitted as a separate section of this Annual Report. See Part IV, Item 15. Item 9. None. Item 9A. Controls and Procedures Changes In and Disagreements with Accountants on Accounting and Financial Disclosure Evaluation of...

  • Page 82
    ... and the effect of the controls on the information generated for use in this Annual Report on Form 10-K. In the course of the controls evaluation, we reviewed data errors or control problems identified and sought to confirm that appropriate corrective actions, including process improvements, were...

  • Page 83
    ... potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost effective control system, misstatements due to error or fraud may occur and...

  • Page 84
    ... and Meetings-Committee Memberships During Fiscal 2014," "Board of Directors-Committees, Membership and Meetings- The Finance and Audit Committee," "Corporate Governance-Employee Matters-Code of Conduct," and "Section 16(a) Beneficial Ownership Reporting Compliance". Item 11. Executive Compensation...

  • Page 85
    ...Independent Registered Public Accounting Firm Consolidated Financial Statements: Balance Sheets as of May 31, 2014 and 2013 Statements of Operations for the years ended May 31, 2014, 2013 and 2012 Statements of Comprehensive Income for the years ended May 31, 2014, 2013 and 2012 Statements of Equity...

  • Page 86
    ... of its operations and its cash flows for each of the three years in the period ended May 31, 2014, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as...

  • Page 87
    ... regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the...

  • Page 88
    ..., plant and equipment, net Intangible assets, net Goodwill Deferred tax assets Other assets Total non-current assets Total assets LIABILITIES AND EQUITY Current liabilities: Notes payable, current and other current borrowings Accounts payable Accrued compensation and related benefits Income taxes...

  • Page 89
    ... share data) 2014 Year Ended May 31, 2013 2012 Revenues: New software licenses Cloud software-as-a-service and platform-as-a-service Cloud infrastructure-as-a-service Software license updates and product support Software and cloud revenues Hardware systems products Hardware systems support Hardware...

  • Page 90
    Table of Contents ORACLE CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For the Years Ended May 31, 2014, 2013 and 2012 (in millions) 2014 Year Ended May 31, 2013 2012 Net income Other comprehensive loss, net of tax: Net foreign currency translation losses Net unrealized gains (losses)...

  • Page 91
    ...ORACLE CORPORATION CONSOLIDATED STATEMENTS OF EQUITY For the Years Ended May 31, 2014, 2013 and 2012 Common Stock and Additional Paid in Capital Number of (in millions) Balances as of May 31, 2011 Common stock issued under stock-based compensation plans Common stock issued under stock purchase plans...

  • Page 92
    ... taxes Stock-based compensation Tax benefits on the exercise of stock options and vesting of restricted stock-based awards Excess tax benefits on the exercise of stock options and vesting of restricted stock-based awards Other, net Changes in operating assets and liabilities, net of effects from...

  • Page 93
    ...CONSOLIDATED FINANCIAL STATEMENTS May 31, 2014 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Oracle Corporation develops, manufactures, markets, hosts and supports database and middleware software, application software, cloud infrastructure, hardware systems-including computer server, storage...

  • Page 94
    ... on a subscription basis; and software license updates and product support revenues; (2) hardware systems revenues, which include the sale of hardware systems products including computer servers, storage products, networking and data center fabric products, and hardware systems support revenues; and...

  • Page 95
    ...software within a cloud-based IT environment that we manage, host and support and offer to customers on a subscription basis. Revenues for our cloud SaaS and PaaS offerings are generally recognized ratably over the contract term commencing with the date the service is made available to customers and...

  • Page 96
    ... updates for the software components that are essential to the functionality of our server and storage products and can also include product repairs, maintenance services and technical support services. Hardware systems support contracts are generally priced as a percentage of the net hardware...

  • Page 97
    ... receipt of payment for the consulting services, revenues are deferred until the uncertainty is sufficiently resolved. We estimate the proportional performance on contracts with fixed or "not to exceed" fees on a monthly basis utilizing hours incurred to date as a percentage of total estimated hours...

  • Page 98
    Table of Contents ORACLE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) May 31, 2014 acceptance from the customer that the services have been completed. When total cost estimates exceed revenues, we accrue for the estimated losses immediately using cost estimates that are based ...

  • Page 99
    ... with payment terms that generally extend up to five years from the contract date. Provided all other revenue recognition criteria have been met, we recognize new software licenses revenues and hardware systems products revenues for these arrangements upon delivery, net of any payment discounts from...

  • Page 100
    Table of Contents ORACLE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) May 31, 2014 estimates of assets acquired and liabilities assumed and, if so, to determine their estimated amounts. If we cannot reasonably determine the fair value of a pre-acquisition contingency (non-...

  • Page 101
    ... consolidated statements of operations. Property, Plant and Equipment Property, plant and equipment are stated at the lower of cost or realizable value, net of accumulated depreciation. Depreciation is computed using the straight-line method based on estimated useful lives of the assets, which range...

  • Page 102
    Table of Contents ORACLE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) May 31, 2014 The carrying amounts of these assets are periodically reviewed for impairment (at least annually for goodwill and indefinite lived intangible assets) and whenever events or changes in ...

  • Page 103
    ... of operations were $375 million, $162 million and $105 million in fiscal 2014, 2013 and 2012, respectively. Stock-Based Compensation We account for share-based payments, including grants of employee stock options, restricted stock-based awards and purchases under employee stock purchase plans, in...

  • Page 104
    ... FINANCIAL STATEMENTS-(Continued) May 31, 2014 upon termination of the employees pursuant to the original terms of those options and restricted stock-based awards. (in millions) 2014 Year Ended May 31, 2013 2012 Transitional and other employee related costs Stock-based compensation Professional...

  • Page 105
    ...earliest annual period presented in the financial statements. We are currently evaluating the impact of our pending adoption on ASU 2014-12 on our consolidated financial statements. Revenue Recognition: In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with...

  • Page 106
    ... per ASU 2014-09. We are currently evaluating the impact of our pending adoption of ASU 2014-09 on our consolidated financial statements. Reporting Discontinued Operations: In April 2014, the FASB issued Accounting Standards Update No. 2014-08, Reporting Discontinued Operations and Disclosures...

  • Page 107
    ...consolidated financial statements from the date of acquisition. The total purchase price for Eloqua was approximately $935 million, which consisted of approximately $933 million in cash and $2 million for the fair value of stock options assumed. We have recorded $1 million of net tangible assets and...

  • Page 108
    ...-owned and controlled by Lawrence J. Ellison, our Chief Executive Officer, director and largest stockholder. Pursuant to the agreement and plan of merger dated as of June 29, 2011 (Pillar Data Merger Agreement), we acquired all of the issued and outstanding equity interests of Pillar Data from the...

  • Page 109
    ... and the dates these companies were acquired by us, and the effects of the pro forma adjustments listed above. The unaudited pro forma financial information was as follows for fiscal 2014 and 2013: (in millions, except per share data) Year Ended May 31, 2014 2013 Total revenues Net income Basic...

  • Page 110
    ... of Contents ORACLE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) May 31, 2014 losses from the sale of our marketable securities classified as available-for-sale. Such realized gains and losses were insignificant for fiscal 2014, 2013 and 2012. The following table summarizes the...

  • Page 111
    ... Useful Life May 31, 2014 2013 Computer, network, machinery and equipment Buildings and improvements Furniture, fixtures and other Land Construction in progress Total property, plant and equipment Accumulated depreciation Total property, plant and equipment, net 107 1-5 years 1-50 years 3-10 years...

  • Page 112
    ... FINANCIAL STATEMENTS-(Continued) May 31, 2014 7. INTANGIBLE ASSETS AND GOODWILL The changes in intangible assets for fiscal 2014 and the net book value of intangible assets at May 31, 2014 and 2013 were as follows: Intangible Assets, Gross (Dollars in millions) Software support agreements...

  • Page 113
    ... accounting policy, we recorded goodwill adjustments for the effect on goodwill of changes to net assets acquired during the measurement period (up to one year from the date of an acquisition). Goodwill adjustments were not significant to our previously reported operating results or financial...

  • Page 114
    ...floating rate equal to three-month LIBOR plus 0.58% (0.81% as of May 31, 2014) with interest payable quarterly. We issued these senior notes for general corporate purposes, which may include stock repurchases, payment of cash dividends on our common stock and future acquisitions. In October 2012, we...

  • Page 115
    Table of Contents ORACLE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) May 31, 2014 In the third quarter of fiscal 2012, shortly after the closing of our acquisition of RightNow, we repaid, in full, $255 million of RightNow's legacy convertible notes. Future principal payments ...

  • Page 116
    ...16 1 24 18 12 71 179 250 Total Costs Accrued to Date $ 126 18 139 99 117 499 (in millions) Fiscal 2013 Oracle Restructuring Plan (1) New software licenses and cloud software subscriptions Software license updates and product support Hardware systems business Services General and administrative and...

  • Page 117
    ... Plan (1) New software licenses and cloud software subscriptions Software license updates and product support Hardware systems business Services General and administrative and other Total Fiscal 2013 Oracle Restructuring Plan Total other restructuring plans (6) Total restructuring plans Fiscal 2012...

  • Page 118
    Table of Contents ORACLE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) May 31, 2014 10. DEFERRED REVENUES Deferred revenues consisted of the following: May 31, (in millions) 2014 2013 Software license updates and product support Hardware systems support and other Services ...

  • Page 119
    ... volatility in stockholders' equity caused by the changes in foreign currency exchange rates of the Euro with respect to the U.S. Dollar. We used the spot method to measure the effectiveness of our net investment hedge. Under this method, for each reporting period, the change in the carrying value...

  • Page 120
    ..., $(64) million and $43 million of net (losses) gains related to these forward contracts for the years ended May 31, 2014, 2013 and 2012, respectively. The effects of derivative and non-derivative instruments designated as hedges on our consolidated financial statements were as follows as of or for...

  • Page 121
    ... Foreign currency borrowings designated as net investment hedge (in millions) Interest rate swap agreements designated as fair value hedges Location and Amount of Loss Recognized in Income on Derivative Year Ended May 31, 2014 2013 Interest expense $ (18) $ (28) Location and Amount of Gain on...

  • Page 122
    Table of Contents ORACLE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) May 31, 2014 payment. We utilize several external manufacturers to manufacture sub-assemblies for our hardware products and to perform final assembly and testing of finished hardware products. We also obtain ...

  • Page 123
    ... gains on cash flow hedges, net Total accumulated other comprehensive loss 14. EMPLOYEE BENEFIT PLANS $ $ (81) (153) 65 5 (164) $ (3) (176) 80 - $ (99) Stock-based Compensation Plans Stock Option Plans In fiscal 2001, we adopted the 2000 Long-Term Equity Incentive Plan, which provides for the...

  • Page 124
    ...In fiscal 2014, our stockholders, upon the recommendation of our Board of Directors, approved a further increase in the number of authorized shares of stock that may be issued under the 2000 Plan by 305,000,000 shares. Under the terms of the 2000 Plan, options to purchase common stock are granted at...

  • Page 125
    ...on the gross difference between our closing stock price on the last trading day of fiscal 2014 of $42.02 and the exercise prices for all "in-the-money" options outstanding, excluding tax effects. The unrecognized compensation expense calculated under the fair value method for shares expected to vest...

  • Page 126
    ... average input assumptions used and resulting fair values of our stock options were as follows for fiscal 2014, 2013 and 2012: 2014 Year Ended May 31, 2013 2012 Expected life (in years) Risk-free interest rate Volatility Dividend yield Weighted-average fair value per share 4.9 1.3% 27% 1.5% $ 7.47...

  • Page 127
    ... fiscal 2014, 2013 and 2012, respectively. Employee Stock Purchase Plan We have an Employee Stock Purchase Plan (Purchase Plan) that allows employees to purchase shares of common stock at a price per share that is 95% of the fair market value of Oracle stock as of the end of the semi-annual option...

  • Page 128
    Table of Contents ORACLE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) May 31, 2014 The provision for income taxes consisted of the following: (Dollars in millions) 2014 Year Ended May 31, 2013 2012 Current provision: Federal State Foreign Total current provision Deferred (...

  • Page 129
    ... gain on stock Acquired intangible assets Unremitted earnings Total deferred tax liabilities Deferred tax assets: Accruals and allowances Employee compensation and benefits Differences in timing of revenue recognition Depreciation and amortization Tax credit and net operating loss carryforwards...

  • Page 130
    ... examining income tax returns of Oracle and various acquired entities for years through fiscal 2013. Many issues are at an advanced stage in the examination process, the most significant of which include the deductibility of certain royalty payments, transfer pricing, extraterritorial income...

  • Page 131
    ... transfer pricing and do not bind tax authorities outside the United States. We have finalized bilateral Advance Pricing Agreements, which are effective for the years ending May 31, 2004 through May 31, 2006 and May 31, 2007 through May 31, 2013. 16. SEGMENT INFORMATION ASC 280, Segment Reporting...

  • Page 132
    ... software and hardware management and maintenance services for customer IT infrastructure for a fee for a stated term that is hosted at our data center facilities, select partner data centers or physically onpremise at customer facilities. The software license updates and product support line of...

  • Page 133
    ... STATEMENTS-(Continued) May 31, 2014 The following table presents summary results for each of our three businesses and for the operating segments of our software and hardware systems businesses: (in millions) 2014 Year Ended May 31, 2013 2012 New software licenses and cloud software subscriptions...

  • Page 134
    ...(in millions) 2014 Year Ended May 31, 2013 2012 Total revenues for operating segments Cloud software-as-a-service and platform-as-a-service revenues (1) Software license updates and product support revenues (1) Hardware systems support revenues (1) Total revenues Total margin for operating segments...

  • Page 135
    ...stock purchase plan using the treasury stock method. The following table sets forth the computation of basic and diluted earnings per share: (in millions, except per share data) 2014 Year Ended May 31, 2013 2012 Net income Weighted average common shares outstanding Dilutive effect of employee stock...

  • Page 136
    ... this payment upon receipt as a benefit to our results of operations during the second quarter of fiscal 2011. On August 3, 2012, the court entered the judgment and vacated the date set for the new trial. Oracle filed a Notice of Appeal on August 31, 2012, and the SAP Defendants filed a notice...

  • Page 137
    ...an alleged controlling stockholder. Plaintiffs allege that Oracle's directors breached their fiduciary duties in agreeing to purchase Pillar Data Systems, Inc. at an excessive price. Oracle's acquisition of Pillar is structured as an earn out, under which Oracle is scheduled to make a single payment...

  • Page 138
    Table of Contents SCHEDULE II ORACLE CORPORATION VALUATION AND QUALIFYING ACCOUNTS Additions Charged to Operations or Other Accounts Translation Adjustments Write-offs and Other Ending Balance Beginning (in millions) Balance Allowances for Doubtful Trade Receivables Year Ended: May 31, 2012 May 31...

  • Page 139
    ... Director (Principal Financial Officer) Senior Vice President, Corporate Controller and Chief Accounting Officer (Principal Accounting Officer) Chairman of the Board of Directors June 26, 2014 June 26, 2014 June 26, 2014 June 26, 2014 Director June 26, 2014 Director June 26, 2014 Director...

  • Page 140
    Table of Contents ORACLE CORPORATION INDEX OF EXHIBITS The following exhibits are filed herewith or are incorporated by reference to exhibits previously filed with the U.S. Securities and Exchange Commission. Exhibit No. Exhibit Description Form File No. Incorporated by Reference Exhibit Filing Date...

  • Page 141
    ... of the Notes Oracle Corporation 1993 Deferred Compensation Plan, as amended and restated as of January 1, 2008 Oracle Corporation Employee Stock Purchase Plan (1992), as amended and restated as of October 1, 2009 Oracle Corporation Amended and Restated 1993 Directors' Stock Plan, as amended and...

  • Page 142
    ... by Reference Exhibit Filing Date Filed Herewith Exhibit Description Form File No. Filed By 10.06* Form of Stock Option Agreement under the Oracle Corporation Amended and Restated 1993 Directors' Stock Plan Form of Indemnity Agreement for Directors and Executive Officers Form of Commercial...

  • Page 143
    ... Statements of Equity for the years ended May 31, 2014, 2013 and 2012, (v) Consolidated Statements of Cash Flows for the years ended May 31, 2014, 2013 and 2012, (vi) Notes to Consolidated Financial Statements and (vii) Financial Statement Schedule II X X 101 X * Indicates management contract...

  • Page 144
    ... charges. The term "fixed charges" means the amounts resulting from the following: (a) our interest expensed, plus (b) our estimate of the interest component of rent expense. We do not report any shares of preferred stock outstanding in our consolidated financial statements because our outstanding...

  • Page 145
    ...the Registrant Name of Subsidiary Place of Incorporation Oracle International Corporation Oracle Global Holdings, Inc. Oracle America, Inc. Oracle Technology Company OCAPAC Holding Company OCAPAC Research Partner OCAPAC Research Company OCAPAC Distributor Partner OCAPAC Hardware Partner California...

  • Page 146
    ..., Inc. 1990 Long-Term Equity Incentive Plan, Sun Microsystems, Inc. Equity Compensation Acquisition Plan, Sun Microsystems, Inc. 1988 Directors' Stock Option Plan, Sun Blue Kai, Inc. 2007 Stock Plan, TrackSimple, Inc. 2008 Equity Incentive Plan Responsys, Inc. 1999 Stock Plan, as amended, Responsys...

  • Page 147
    ... Equity Incentive Plan, Isopia Inc. Stock Option Plan, Kealia, Inc. Amended and Restated 2001 Stock Plan, Large Storage Configurations, Incorporated 1992 Stock Option Plan, MySQL AB Global Share Option Plan 2005, Neogent, Inc. 2001 Stock Incentive Plan, Pirus Networks, Inc. 2000 Stock Option Plan...

  • Page 148
    ... Compensation Plan, Oracle Corporation 401(k) Savings and Investment Plan Form S-8 333-131988 Form S-8 333-131427 of our reports dated June 26, 2014, with respect to the consolidated financial statements and schedule of Oracle Corporation and the effectiveness of internal control over financial...

  • Page 149
    ... the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about...

  • Page 150
    ... the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about...

  • Page 151
    ... of Oracle Corporation. By: / S / L AWRENCE J. E LLISON Lawrence J. Ellison Chief Executive Officer and Director (Principal Executive Officer) / S / S AFRA A. C ATZ Safra A. Catz President, Chief Financial Officer and Director (Principal Financial Officer) Date: June 26, 2014 Date: June 26, 2014...