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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended May 31, 2016
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 001-35992
Oracle Corporation
(Exact name of registrant as specified in its charter)
Delaware 54-2185193
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
500 Oracle Parkway
Redwood City, California 94065
(Address of principal executive offices) (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 $0.01 per share
2.25% senior notes due January 2021
3.125% senior notes due July 2025
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES x NO ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES ¨ NO x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the
past 90 days. YES x NO ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). YES x NO ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the
definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x Accelerated filer ¨
Non-accelerated filer ¨ Smaller reporting company ¨
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO x
The aggregate market value of the voting stock held by non-affiliates of the registrant was $118,269,080,000 based on the number of shares held by non-affiliates
of the registrant as of May 31, 2016, and based on the closing sale price of common stock as reported by the New York Stock Exchange on November 30, 2015,
which is the last business day of the registrant’s most recently completed second fiscal quarter. This calculation does not reflect a determination that persons are
affiliates for any other purposes.
Number of shares of common stock outstanding as of June 15, 2016: 4,122,730,000.
Documents Incorporated by Reference:
Portions of the registrant’s definitive proxy statement relating to its 2016 annual stockholders’ meeting are incorporated by reference into Part III of this Annual
Report on Form 10-K where indicated.

Table of contents

  • Page 1
    ... $118,269,080,000 based on the number of shares held by non-affiliates of the registrant as of May 31, 2016, and based on the closing sale price of common stock as reported by the New York Stock Exchange on November 30, 2015, which is the last business day of the registrant's most recently completed...

  • Page 2
    ... FISCAL YEAR 2016 FORM 10-K ANNUAL REPORT TABLE OF CONTENTS PART I. Item 1. Item 1A. Item 1B. Item 2. Item 3. Item 4. PART II. Item 5. Item 6. Item 7. Item 7A. Item 8. Item 9. Item 9A. Item 9B. PART III. Item 10. Item 11. Item 12. Item 13. Item 14. PART IV. Item 15. Exhibits and Financial Statement...

  • Page 3
    ... our belief that software license updates and product support revenues and margins will grow; • our belief that our PaaS offerings are a large opportunity for us to expand our cloud and on-premise software business; • our expectation that our hardware business will have lower operating margins...

  • Page 4
    ... of Contents • our expectation that to the extent customers renew support contracts or cloud SaaS and PaaS contracts from companies that we have acquired, we will recognize revenues for the full contracts' values over the respective renewal periods; • our ability to predict quarterly hardware...

  • Page 5
    ... Oracle database and middleware software, application software, hardware (Oracle Engineered Systems, servers, storage, networking and industry-specific products), and related support and services. We provide our cloud and on-premise offerings to over 400,000 worldwide customers via deployment models...

  • Page 6
    ... and PaaS offerings, (2) cloud infrastructure as a service and (3) software license updates and product support. Our cloud and on-premise software business represented 78%, 77% and 76% of our total revenues in fiscal 2016, 2015 and 2014, respectively; • our hardware business is comprised of two...

  • Page 7
    ... that span core business functions including human capital management (HCM), enterprise resource planning (ERP), customer experience (CX), and supply chain management (SCM), among others. We also offer a number of cloud-based industry solutions to address specific customer needs within certain...

  • Page 8
    ...designed to optimize the project management process by using a comprehensive set of modern application tools including role-based analytics, social collaboration, costing and controls. Oracle Customer Experience Cloud Oracle Customer Experience Cloud is designed to be complete and integrated to help...

  • Page 9
    ... offering that provides a centralized way to source, manage and furnish external data to business users through a cloud service for marketing and customer intelligence purposes. Oracle Applications We license Oracle Applications software for use in data centers and related on-premise IT environments...

  • Page 10
    ... Fusion Middleware, and our Oracle Database Cloud service, including tools for a variety of use cases across data management, application development, enterprise integration, content sharing and collaboration, visual analysis reporting and IT operations management. We believe our PaaS offerings...

  • Page 11
    ...; • Oracle Sites Cloud Service, which is designed to enable the assembly of content, applications and processes to rapidly build and publish marketing and community websites; and • Oracle Process Cloud Service, which is designed to enable organizations to collaboratively model business processes...

  • Page 12
    ..., XML files, office documents, images, video and spatial images; and other specialized forms of data, such as graph data. Oracle Database software is used for a variety of purposes, including with packaged applications and custom applications for transaction processing, data warehousing and business...

  • Page 13
    ... services to help enterprises capture, manage and analyze big data alongside an enterprise's existing enterprise and streaming data. Oracle big data solutions for capturing unstructured, streaming and structured data complement existing Oracle Database environments and include Oracle NoSQL Database...

  • Page 14
    ... processes, scale applications to meet customer demand, simplify security and compliance, 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...

  • Page 15
    ... site-to-site virtual private network secure extension and high bandwidth connection services. Oracle Managed Cloud Services provide comprehensive software and hardware management and maintenance services for customer IT infrastructure for a fee for a stated term that is hosted at our Oracle data...

  • Page 16
    ..., servers, storage, networking, industry-specific hardware, virtualization software, operating systems, management software and related hardware services including support. These complement our Oracle Cloud IaaS offerings described above. Our infrastructure technologies help customers manage growing...

  • Page 17
    ... and the Oracle Big Data Appliance. Storage Our storage products are engineered for the cloud and designed to securely store, manage, protect, archive, backup and recover customers' mission critical data assets. Our storage products consist of disk, flash, tape, virtual tape, and hardware-related...

  • Page 18
    ...others. Our hardware products and services for communications networks include network signaling, policy control and subscriber data management solutions, and session border control technology, among others. Oracle Solaris and Oracle Linux Operating Systems, Virtualization and Other Hardware-Related...

  • Page 19
    ...support contracts sold in connection with the sales of our hardware products. Hardware support contracts are generally priced as a percentage of the net hardware products fees. Services We offer services solutions to help customers and partners maximize the performance of their investments in Oracle...

  • Page 20
    ... cloud software and on-premise software and hardware segments) are generally affected by seasonal factors in a similar manner as our revenues 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...

  • Page 21
    ... procurement, assembly, testing and quality control of our Oracle Engineered Systems and certain of our enterprise and data center servers, storage products and networking products. For all other manufacturing, we generally rely on third-party manufacturing partners to produce our hardware-related...

  • Page 22
    ... in sales and marketing, approximately 6,000 in our cloud SaaS, PaaS and IaaS operations, approximately 10,000 in software license updates and product support, approximately 1,000 in the manufacturing of our hardware products, approximately 5,000 in hardware support, approximately 23,000 in services...

  • Page 23
    ... we experience volatility in our reported revenues and operating results due to the differences in timing of revenue recognition between our new software licenses and hardware arrangements relative to our cloud offering arrangements. Customers generally purchase our cloud offerings on a subscription...

  • Page 24
    ... reduce our revenue and earnings, increase our expenses and expose us to legal claims and regulatory actions. We are in the IT business, and our products and services, including our Oracle Cloud offerings, store, retrieve, manipulate and manage our customers' information and data, external data, as...

  • Page 25
    ... 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 and the government. We also have an active acquisition program and have acquired a number...

  • Page 26
    ... errors or delays in releasing our software, hardware or cloud offerings or new versions thereof, our sales could be affected and revenues could decline. In addition, we run Oracle's business operations as well as cloud and other services that we offer to our customers on our products and networks...

  • Page 27
    ... our stock price. Our business is influenced by a range of factors that are beyond our control and that we have no comparative advantage in forecasting. These include: • general economic and business conditions; • overall demand for enterprise software, cloud offerings, hardware and services...

  • Page 28
    ... and our cloud offerings, as well as overall demand for our on-premise software product and service offerings, which could reduce our revenues and profitability. Our software license updates and product support fees and hardware support fees are generally priced as a percentage of our net new...

  • Page 29
    ... of our revenues from, and have significant operations, outside of the United States. Our international operations include software and hardware development, manufacturing, assembly, cloud operations, sales, customer support, consulting and other services and shared administrative service centers...

  • Page 30
    ... our existing lines of business and supply chain infrastructure and maintaining uniform standards, architecture, controls, procedures and policies; • we may have multiple product lines or services offerings as a result of our acquisitions that are offered, priced and supported differently, which...

  • Page 31
    ...; higher warranty expenses than what we experience in our cloud and on-premise software and services businesses; and amortization and potential impairment of intangible assets associated with our hardware business; • we may not be able to increase sales of hardware support contracts or such...

  • Page 32
    ... and logistics delays, which could result in the loss of sales and customers. We outsource the design, manufacturing, assembly and delivery of certain of our hardware products to a variety of companies, many of which are located outside the United States. Our reliance on these third parties reduces...

  • Page 33
    ...timely delivery, our ability to ship and deliver certain of our hardware products to our customers could be impaired and our hardware business could be harmed. We have simplified our supply chain processes by reducing the number of third-party manufacturing partners and the number of locations where...

  • Page 34
    ... to release source code to third parties, possibly under open source license terms; • require us to satisfy indemnification obligations to our customers; or • otherwise adversely affect our business, results of operations, financial condition or cash flows. Our periodic workforce restructurings...

  • Page 35
    ... effective tax rate. Further, in the ordinary course of a global business, there are many intercompany transactions and calculations where the ultimate tax determination is uncertain. Our intercompany transfer pricing has been and is currently being reviewed by the U.S. Internal Revenue Service (IRS...

  • Page 36
    ...our net income and earnings per share for the periods in which those costs are incurred. For example, we recognized a goodwill impairment loss in the fourth quarter of fiscal 2015 relating to our hardware reporting unit. Charges to our operating results in any given period could differ substantially...

  • Page 37
    ..., development, procurement, manufacturing, delivery, cloud operations and administration costs, limit our ability to manage excess and obsolete non-compliant inventory, change our sales activities, or otherwise impact future financial results of our cloud and hardware businesses. Any violation of...

  • Page 38
    ... consist of owned and leased office facilities for sales, support, research and development, services, manufacturing, cloud operations and administrative and other functions. Our headquarters facility consists of approximately 2.0 million square feet in Redwood City, California, substantially all of...

  • Page 39
    ... common share over the course of fiscal 2016 and fiscal 2015, respectively. In June 2016, our Board of Directors declared a quarterly cash dividend of $0.15 per share of our outstanding common stock payable on July 27, 2016 to stockholders of record as of the close of business on July 6, 2016. We...

  • Page 40
    ... 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, 2016, assuming an investment of $100 at the beginning of such period and the reinvestment of any dividends. The comparisons...

  • Page 41
    ... of Contents Item 6. Selected Financial Data The following table sets forth selected financial data as of and for our last five fiscal years. This selected financial data should be read in conjunction with the consolidated financial statements and related notes included in Item 15 of this Annual...

  • Page 42
    ... Oracle database and middleware software, application software, hardware (Oracle Engineered Systems, servers, storage, networking and industry-specific products), and related support and services. We provide our cloud and on-premise offerings to over 400,000 worldwide customers via deployment models...

  • Page 43
    ...on-premise software business, which represented 78%, 77% and 76% of our total revenues in fiscal 2016, 2015 and 2014, respectively, is comprised of three operating segments: (1) cloud software and on-premise software, (2) cloud IaaS and (3) software license updates and product support. On a constant...

  • Page 44
    ... term that are hosted at our Oracle data center facilities, select partner data centers or physically on-premise at customer facilities. Software License Updates and Product Support: Software license updates and product support revenues are generated through the sale of software support contracts...

  • Page 45
    ... and the Oracle Big Data Appliance. Our storage products are engineered for the cloud and designed to securely store, manage, protect, archive, backup and recover customers' mission critical data assets. Our storage products consist of disk, flash, tape, virtual tape and hardware-related software...

  • Page 46
    Table of Contents Our networking and data center fabric products, including Oracle Virtual Networking, and Oracle InfiniBand and Ethernet technologies, are used with our server and storage products and are integrated into our management tools to help enterprise customers improve infrastructure ...

  • Page 47
    ... customers' IT departments, tighter controls over discretionary spending, our strategic emphasis on growing our cloud revenues and the growth in our software and hardware offerings. Our services business' offerings include: • consulting services that are designed to help our customers and global...

  • Page 48
    ... grant customers access to infrastructure cloud services to perform elastic compute, storage and networking services, and also provide management services for software and hardware and related IT infrastructure, both generally on a subscription basis; and software license updates and product support...

  • Page 49
    ...are generally priced as a percentage of the net new software licenses fees and are generally invoiced in full at the beginning of the support term. Substantially all of our customers renew their software license updates and product support contracts annually. Revenue Recognition for Multiple-Element...

  • Page 50
    ... contract term commencing with the date the service is made available to customers and all other revenue recognition criteria have been satisfied. Revenues from the sale of hardware products represent amounts earned primarily from the sale of our Oracle Engineered Systems, computer servers, storage...

  • Page 51
    ..., software license updates and product support, cloud SaaS, PaaS and IaaS offerings, hardware products, hardware support, consulting, advanced customer support services and education. In such arrangements, we first allocate the total arrangement consideration based on the relative selling prices of...

  • Page 52
    ... the term of the service period, which is generally one year or less. Education revenues are also a part of our services business and include instructor-led, media-based and internet-based training in the use of our software and hardware products. Education revenues are recognized as the classes or...

  • Page 53
    ... of our fair value estimates for these obligations, we did not recognize certain cloud SaaS and PaaS, software license updates and product support and hardware support revenue amounts that would have been otherwise recorded by the acquired businesses as independent entities upon delivery of the...

  • Page 54
    ...statement of operations in the period in which the liability is incurred. When estimating the fair value of facility restructuring activities, assumptions are applied regarding estimated sub-lease payments to be received, which can differ materially from actual results. This may require us to revise...

  • Page 55
    ... impact our reported financial results. We did not recognize any intangible asset impairment charges in fiscal 2016, 2015 or 2014. Accounting for Income Taxes Significant judgment is required in determining our worldwide income tax provision. In the ordinary course of a global business, there are...

  • Page 56
    .... In addition, as a part of our accounting for business combinations, intangible assets are recognized at fair values and goodwill is measured as the excess of consideration transferred over the net estimated fair values of assets acquired. Impairment charges associated with goodwill are generally...

  • Page 57
    ... the respective periods. For example, if an entity reporting in Euros had revenues of 1.0 million Euros from products sold on May 31, 2016 and 2015, our financial statements would reflect reported revenues of $1.12 million in fiscal 2016 (using 1.12 as the month-end average exchange rate for the...

  • Page 58
    ... growth in our cloud and onpremise software business revenues and services business revenues. The constant currency growth in our cloud and on-premise software business revenues during fiscal 2016 was attributable to growth in our software license updates and product support revenues, growth in our...

  • Page 59
    ... and income items: (in millions) 2016 Year Ended May 31, 2015 2014 Cloud software as a service and platform as a service deferred revenues (1) Software license updates and product support deferred revenues (1) Hardware support deferred revenues (1) Amortization of intangible assets (2) Acquisition...

  • Page 60
    ...): 2016 Year Ended May 31, 2015 $ 180 10 5 21 6 6 30 522 148 928 5 $ 933 2014 165 8 4 22 5 6 29 385 171 795 10 $ 805 $ (4) (5) Sales and marketing Cloud software as a service and platform as a service Cloud infrastructure as a service Software license updates and product support Hardware products...

  • Page 61
    Table of Contents management, the use of software updates, and support. New software licenses revenues represent fees earned from granting customers licenses to use our database and middleware and our application software products within on-premise IT environments. We continue to place significant ...

  • Page 62
    ...grade, hosted and supported within the Oracle Cloud to perform elastic compute, storage and networking services on a subscription basis. Our cloud IaaS segment also offers Oracle Managed Cloud Services, which are comprehensive software and hardware management and maintenance services for customer IT...

  • Page 63
    ... Assets' in our consolidated statements of operations Not meaningful Fiscal 2016 Compared to Fiscal 2015: Excluding the effects of unfavorable currency rate fluctuations of 5 percentage points, total cloud IaaS revenues increased during fiscal 2016 due to growth in our Oracle Managed Cloud Services...

  • Page 64
    ...compensation Included as a component of 'Amortization of Intangible Assets' in our consolidated statements of operations Fiscal 2016 Compared to Fiscal 2015: Excluding the effects of unfavorable currency rate fluctuations of 5 percentage points, software license updates and product support revenues...

  • Page 65
    ...intangible assets. Year Ended May 31, Percent Change Percent Change Actual Constant 2015 Actual Constant Hardware Products Revenues: Americas EMEA Asia Pacific Total revenues Expenses: Hardware products (1) Sales and marketing (1) Stock-based compensation Amortization of intangible assets (2) Total...

  • Page 66
    Table of Contents Fiscal 2016 Compared to Fiscal 2015: Excluding the effects of unfavorable currency rate fluctuations of 6 percentage points, total hardware products revenues decreased during fiscal 2016 due to reductions in sales volumes of certain of our product lines, including lower margin ...

  • Page 67
    Table of Contents Percent Change Actual Constant Year Ended May 31, 2015 Percent Change Actual Constant Hardware Support Revenues: Americas EMEA Asia Pacific Total revenues Expenses: Hardware support (1) Stock-based compensation Amortization of intangible assets (2) Total expenses Total Margin ...

  • Page 68
    ... of their Oracle products and services and also include certain other services. Education revenues are earned by providing instructor-led, live virtual training, self-paced online training, private events and custom training in the use of our cloud, on-premise software and hardware offerings. The...

  • Page 69
    ...: resources support functions. General and administrative expenses primarily consist of personnel related expenditures for IT, finance, legal and human Year Ended May 31, General and administrative (1) Stock-based compensation Total expenses % of Total Revenues (1) (Dollars in millions) $ $ 2016...

  • Page 70
    ... terms of those stock options and restricted stock-based awards. Year Ended May 31, Percent Change Percent Change Actual Constant 2015 Actual Constant Transitional and other employee related costs Stock-based compensation Professional fees and other, net Business combination adjustments, net Total...

  • Page 71
    ... the related fixed to variable interest rate swap agreements in July 2014. See Recent Financing Activities below and Note 8 of Notes to Consolidated Financial Statements included elsewhere in this Annual Report for additional information regarding our borrowings. Fiscal 2015 Compared to Fiscal 2014...

  • Page 72
    ... January 2016 from long-term to current, and $2.3 billion of cash used to pay dividends to our stockholders, all of which occurred during fiscal 2015. Our working capital may be impacted by some or all of the aforementioned factors in future periods, the amounts and timing of which are variable. 70

  • Page 73
    ... any revenue adjustments resulting from business combinations that reduced our acquired cloud SaaS and PaaS obligations, software license updates and product support obligations and hardware support obligations to fair value. (Dollars in millions) 2016 Change Year Ended May 31, 2015 Change 2014 Net...

  • Page 74
    ... payments and net proceeds related to employee stock programs. Fiscal 2016 Compared to Fiscal 2015: We used net cash for financing activities of $9.9 billion during fiscal 2016 in comparison to net cash provided by financing activities of $9.9 billion during fiscal 2015. Cash used in financing...

  • Page 75
    Table of Contents Long-Term Customer Financing: We offer certain of our customers the option to acquire our software products, hardware products and services offerings through separate long-term payment contracts. We generally sell these contracts that we have financed for our customers on a non-...

  • Page 76
    ... table above were estimated using foreign currency exchange rates as of May 31, 2016 and are subject to change in future periods. • • Refer to Note 8 of Notes to Consolidated Financial Statements included elsewhere in this Annual Report for additional information related to our notes payable...

  • Page 77
    ...such periods when read in conjunction with the consolidated financial statements and related notes included elsewhere in this Annual Report. The sum of the quarterly financial information may vary from annual data due to rounding. (in millions, except per share amounts) August 31 Fiscal 2016 Quarter...

  • Page 78
    ... and stock options dilute existing stockholders and have sought to control the number of stock-based awards granted while providing competitive compensation packages. Consistent with these dual goals, our cumulative potential dilution since June 1, 2013 has been a weighted-average annualized rate of...

  • Page 79
    ...2016 and 2015. 2016 May 31, WeightedAverage Interest Rate 2015 Cash and cash equivalents Marketable securities Total cash, cash equivalents and marketable securities Interest Expense Risk Interest Expense Risk - Fixed to Variable Interest Rate Swap Agreements (Dollars in millions) $ $ Fair Value...

  • Page 80
    ...change would have decreased the fair values of the fixed to variable swap agreements by $185 million. Additional details regarding our senior notes and related interest rate swap agreements are included in Notes 8 and 11 of Notes to Consolidated Financial Statements included elsewhere in this Annual...

  • Page 81
    ... and $1.2 billion, respectively. The fair values of our outstanding foreign currency forward contracts were nominal at May 31, 2016 and 2015. Net foreign exchange transaction losses included in non-operating income (expense), net in the accompanying consolidated statements of operations were $110...

  • Page 82
    ... million. Item 8. Item 9. None. Item 9A. Controls and Procedures Financial Statements and Supplementary Data Changes In and Disagreements with Accountants on Accounting and Financial Disclosure The response to this item is submitted as a separate section of this Annual Report. See Part IV, Item 15...

  • Page 83
    ... Finance and Audit Committee. The effectiveness of our internal control over financial reporting as of May 31, 2016 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which is included in Part IV, Item 15 of this Annual Report. Changes...

  • Page 84
    ... Part I of this Annual Report. The other information required by this Item 10 is incorporated by reference from the information contained in our Proxy Statement to be filed with the U.S. Securities and Exchange Commission in connection with the solicitation of proxies for our 2016 Annual Meeting of...

  • Page 85
    ... of Contents PART IV Item 15. Exhibits and Financial Statement Schedules (a) 1. Financial Statements The following financial statements are filed as a part of this report: Reports of Independent Registered Public Accounting Firm Consolidated Financial Statements: Balance Sheets as of May 31, 2016...

  • Page 86
    Table of Contents Report of Independent Registered Public Accounting Firm The Board of Directors and Stockholders of Oracle Corporation We have audited the accompanying consolidated balance sheets of Oracle Corporation as of May 31, 2016 and 2015, and the related consolidated statements of ...

  • Page 87
    ...), the consolidated balance sheets of Oracle Corporation as of May 31, 2016 and 2015, and the related consolidated statements of operations, comprehensive income, equity, and cash flows for each of the three years in the period ended May 31, 2016 of Oracle Corporation and our report dated June 22...

  • Page 88
    Table of Contents ORACLE CORPORATION CONSOLIDATED BALANCE SHEETS As of May 31, 2016 and 2015 (in millions, except per share data) 2016 May 31, 2015 Current assets: Cash and cash equivalents Marketable securities Trade receivables, net of allowances for doubtful accounts of $327 and $285 as of May ...

  • Page 89
    Table of Contents ORACLE CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS For the Years Ended May 31, 2016, 2015 and 2014 (in millions, except per share data) 2016 Year Ended May 31, 2015 2014 Revenues: Cloud software as a service and platform as a service Cloud infrastructure as a service Total ...

  • Page 90
    Table of Contents ORACLE CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For the Years Ended May 31, 2016, 2015 and 2014 (in millions) 2016 Year Ended May 31, 2015 2014 Net income Other comprehensive gain (loss), net of tax: Net foreign currency translation gains (losses) Net ...

  • Page 91
    Table of Contents ORACLE CORPORATION CONSOLIDATED STATEMENTS OF EQUITY For the Years Ended May 31, 2016, 2015 and 2014 Common Stock and Additional Paid in Capital Number of Shares Amount 4,646 $ 18,893 95 2,046 3 109 - 148 - 805 (280) (1,160) - (20) - - - 254 - 2 4,464 21,077 70 1,702 3 114 - 12 -...

  • Page 92
    Table of Contents ORACLE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended May 31, 2016, 2015 and 2014 (in millions) Cash flows from operating activities: Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation Amortization of ...

  • Page 93
    ... CONSOLIDATED FINANCIAL STATEMENTS May 31, 2016 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Oracle Corporation develops, manufactures, markets, sells, hosts and supports application, platform and infrastructure technologies for information technology (IT) environments including database and...

  • Page 94
    ... grant customers access to infrastructure cloud services to perform elastic compute, storage and networking services, and also provide management services for software and hardware and related IT infrastructure, both generally on a subscription basis; and software license updates and product support...

  • Page 95
    Table of Contents ORACLE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) May 31, 2016 Revenue Recognition for Software Products and Software Related Services (Software Elements) New software licenses revenues primarily represent fees earned from granting customers licenses to use...

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    Table of Contents ORACLE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) May 31, 2016 Revenue Recognition for Cloud SaaS, PaaS and IaaS Offerings, Hardware Products, Hardware Support and Related Services (Non-software Elements) Our revenue recognition policy for non-software ...

  • Page 97
    ..., software license updates and product support, cloud SaaS, PaaS and IaaS offerings, hardware products, hardware support, consulting, advanced customer support services and education. In such arrangements, we first allocate the total arrangement consideration based on the relative selling prices of...

  • Page 98
    ... the term of the service period, which is generally one year or less. Education revenues are also a part of our services business and include instructor-led, media-based and internet-based training in the use of our software and hardware products. Education revenues are recognized as the classes or...

  • Page 99
    ... license agreements, sales of hardware or sales of services that occur within a three-month time period from the date we have purchased goods or services from that same customer are reviewed for appropriate accounting treatment and disclosure. When we acquire goods or services from a customer...

  • Page 100
    ...-for-sale are reported at fair value, with all unrealized gains (losses) reflected net of tax in stockholders' equity on our consolidated balance sheets, and as a line item in our consolidated statements of comprehensive income. If we determine that an investment has an other than temporary decline...

  • Page 101
    ... of our customer base. No single customer accounted for 10% or more of our total revenues in fiscal 2016, 2015 or 2014. We outsource the design, manufacturing, assembly and delivery of certain of our hardware products to a variety of companies, many of which are located outside the United...

  • Page 102
    ... of the purchase price in a business combination over the fair value of net tangible and intangible assets acquired. Intangible assets that are not considered to have an indefinite useful life are amortized over their useful lives, which generally range from one to 10 years. Each period we evaluate...

  • Page 103
    ... (expense), net in the accompanying consolidated statements of operations were $110 million, $157 million and $375 million in fiscal 2016, 2015 and 2014, respectively. Stock-Based Compensation We account for share-based payments to employees, including grants of service-based restricted stock awards...

  • Page 104
    Table of Contents ORACLE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) May 31, 2016 each annual reporting period is based on the actual attainment of performance targets. During our interim reporting periods, stock-based compensation expense is recorded based on expected ...

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    Table of Contents ORACLE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) May 31, 2016 Non-Operating Income (Expense), net Non-operating income (expense), net consists primarily of interest income, net foreign currency exchange gains (losses), the noncontrolling interests in the ...

  • Page 106
    ... as tax benefits from our stock plans. Leases: In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (ASU 2016-02). ASU 2016-02 requires companies to generally recognize on the balance sheet operating and financing lease liabilities and corresponding right-of-use assets. ASU 2016-02 is...

  • Page 107
    ... results of MICROS in our consolidated financial statements from the date of acquisition. Pursuant to our business combinations accounting policy, we estimated the fair values of net tangible and intangible assets acquired, and the excess of the consideration transferred over the aggregate of such...

  • Page 108
    ... financial statements. In the aggregate, the total purchase price for these acquisitions was approximately $1.7 billion, which consisted of approximately $1.7 billion in cash and $7 million for the fair values of restricted stock-based awards and stock options assumed. We recorded $6 million of net...

  • Page 109
    ... previous reporting periods 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: (in millions, except per share data) Year Ended May 31, 2016 2015 Total revenues Net income...

  • Page 110
    ... of Contents ORACLE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) May 31, 2016 4. FAIR VALUE MEASUREMENTS We perform fair value measurements in accordance with ASC 820. ASC 820 defines fair value as the price that would be received from selling an asset or paid to transfer...

  • Page 111
    ...) 3,686 The changes in intangible assets for fiscal 2016 and the net book value of intangible assets as of May 31, 2016 and 2015 were as follows: Intangible Assets, Gross May 31, (Dollars in millions) 2015 Software support agreements and related relationships $ 4,190 Hardware support agreements and...

  • Page 112
    ...to net assets acquired during the period that such a change is identified, provided that any such change is within the measurement period (up to one year from the date of the acquisition). During fiscal 2015, we recorded a $186 million goodwill impairment loss to our hardware products reporting unit...

  • Page 113
    Table of Contents ORACLE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) May 31, 2016 8. NOTES PAYABLE AND OTHER BORROWINGS Notes payable and other borrowings consisted of the following: May 31, 2016 Effective Interest Amount Rate $ 3,750 1,000 500 750 - 2,500 2,500 1,500 1,750 ...

  • Page 114
    Table of Contents ORACLE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) May 31, 2016 (3) (4) In connection with the issuance of the January 2021 Notes, we entered into certain cross-currency swap agreements that have the economic effect of converting our fixed-rate, Euro-...

  • Page 115
    Table of Contents ORACLE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) May 31, 2016 2013 Credit Agreement. Any amounts drawn pursuant to the 2013 Credit Agreement are due on April 20, 2018. No amounts were outstanding pursuant to the 2013 Credit Agreement as of May 31, 2016 and...

  • Page 116
    ... Cost (4) Payments Accrued May 31, 2016 (2) Fiscal 2015 Oracle Restructuring Plan (1) Cloud software and on-premise software Software license updates and product support Hardware business Services business General and administrative and other Total Fiscal 2015 Oracle Restructuring Plan Total other...

  • Page 117
    ...required to pay a third party to assume these acquired obligations. These aforementioned fair value adjustments recorded for obligations assumed from our acquisitions reduced the cloud SaaS and PaaS, software license updates and product support and hardware support deferred revenues balances that we...

  • Page 118
    .... The changes in fair values of these interest rate swap agreements are recognized as interest expense in our consolidated statements of operations with the corresponding amounts included in other assets or other non-current liabilities in our consolidated balance sheets. The amount of net gain...

  • Page 119
    Table of Contents ORACLE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) May 31, 2016 pertain to the periodic interest settlements are classified as operating activities and the cash flows that pertain to the principal balance are classified as financing activities. We do not use...

  • Page 120
    ... Balance Sheets (in millions) Balance Sheet Location Fair Value as of May 31, 2016 2015 Interest rate swap agreements designated as fair value hedges Other assets $ $ $ 122 $ 74 Cross-currency swap agreements designated as cash flow hedges Foreign currency borrowings designated as net...

  • Page 121
    Table of Contents ORACLE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) May 31, 2016 Lease commitments included future minimum rent payments for facilities that we have vacated pursuant to our restructuring and merger integration activities, as discussed in Note 9. We have ...

  • Page 122
    ... the close of business on July 6, 2016. Future declarations of dividends and the establishment of future record and payment dates are subject to the final determination of our Board of Directors. Accumulated Other Comprehensive Loss The following table summarizes, as of each balance sheet date, the...

  • Page 123
    Table of Contents ORACLE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) May 31, 2016 14. EMPLOYEE BENEFIT PLANS Stock-based Compensation Plans Stock Plans In fiscal 2001, we adopted the 2000 Long-Term Equity Incentive Plan, which provides for the issuance of long-term ...

  • Page 124
    ... service-based awards and performance-based awards and including awards granted pursuant to Oraclebased stock plans and stock plans assumed from our acquisitions for fiscal 2016 and 2015: Restricted Stock-Based Awards Outstanding Number of Weighted-Average Shares Grant Date Fair Value Balance...

  • Page 125
    ... acquisition dates for options assumed in a business combination. The weighted-average input assumptions used and resulting fair values of our stock options were as follows for fiscal 2016, 2015 and 2014: 2016 Year Ended May 31, 2015 2014 Expected life (in years) Risk-free interest rate Volatility...

  • Page 126
    ... items in our consolidated statements of operations: (in millions) 2016 Year Ended May 31, 2015 2014 Sales and marketing Cloud software as a service and platform as a service Cloud infrastructure as a service Software license updates and product support Hardware products Hardware support Services...

  • Page 127
    Table of Contents ORACLE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) May 31, 2016 We also offer non-qualified deferred compensation plans to certain employees whereby they may defer a portion of their annual base and/or variable compensation until retirement or a date ...

  • Page 128
    ... stock Acquired intangible assets Unremitted earnings Other 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 Total...

  • Page 129
    Table of Contents ORACLE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) May 31, 2016 Our net deferred tax assets were $1.1 billion and $993 million as of May 31, 2016 and 2015, respectively. We believe it is more likely than not that the net deferred tax assets will be realized ...

  • Page 130
    ... Chief Executive Officers evaluate results in a number of different ways, the line of business management structure is the primary basis for which the allocation of resources and financial results are assessed. We have three businesses-cloud and on-premise software, hardware and services-which are...

  • Page 131
    ...services for customer IT infrastructure for a fee for a stated term that are hosted at our Oracle data center facilities, select partner data centers or physically on-premise at customer facilities. The software license updates and product support line of business generates revenues through the sale...

  • Page 132
    Table of Contents ORACLE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) May 31, 2016 (in millions) 2016 Year Ended May 31, 2015 2014 Cloud software and on-premise software: Revenues (1) Cloud software as a service and platform as a service expenses Sales and distribution ...

  • Page 133
    ... of Contents ORACLE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) May 31, 2016 segment revenues to our total revenues as reported in our consolidated statements of operations. Our cloud software and on-premise software and services revenues for management reporting also differ...

  • Page 134
    ... stock-based awards, stock options, and shares issuable under the employee 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) 2016 Year Ended May 31, 2015 2014 Net...

  • Page 135
    Table of Contents ORACLE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) May 31, 2016 18. LEGAL PROCEEDINGS Hewlett-Packard Company Litigation On June 15, 2011, Hewlett-Packard Company (HP) filed a complaint in the California Superior Court, County of Santa Clara against Oracle ...

  • Page 136
    ...Complaint on August 20, 2015. Oracle denied all claims and allegations and filed counterclaims against the DCBS for breach of contract, quantum meruit (a claim requesting payment for the value of services provided), and breach of the implied covenant of good faith and fair dealing. The court granted...

  • Page 137
    Table of Contents ORACLE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) May 31, 2016 On January 21, 2016, Oracle filed a lawsuit in the Circuit Court of the State of Oregon for the County of Marion against the State of Oregon, by and through Governor Kate Brown, Attorney General...

  • Page 138
    Table of Contents SCHEDULE II ORACLE CORPORATION VALUATION AND QUALIFYING ACCOUNTS Additions Charged to Operations or Other Accounts Translation Adjustments and Other Allowances for Doubtful Trade Receivables Year Ended: May 31, 2014 May 31, 2015 May 31, 2016 (in millions) Beginning Balance ...

  • Page 139
    ... Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ORACLE CORPORATION Date: June 22, 2016 By: / S / S AFRA A. C ATZ Safra A. Catz Chief Executive Officer and Director (Principal Executive and Financial Officer...

  • Page 140
    ...5.25% Note due 2016 First Supplemental Indenture dated May 9, 2007 among Oracle Corporation, Citibank, N.A. and The Bank of New York Trust Company, N.A. Forms of 5.75% Note due 2018 and 6.50% Note due 2038, together with Officers' Certificate issued April 9, 2008 setting forth the terms of the Notes...

  • Page 141
    Table of Contents Exhibit No. Exhibit Description Form File No. Incorporated by Reference Exhibit Filing Date Filed By 4.12 Forms of Floating-Rate Note due 2019, 2.375% Note due 2019 and 3.625% Note due 2023, together with Officers' Certificate issued July 16, 2013 setting forth the terms of the ...

  • Page 142
    ... Executive Officers and Principal Financial Officer Interactive Data Files Pursuant to Rule 405 of Regulation S-T: (1) Consolidated Balance Sheets as of May 31, 2016 and 2015, (2) Consolidated Statements of Operations for the years ended May 31, 2016, 2015 and 2014, (3) Consolidated Statements of...

  • Page 143
    ... Securities Exchange Act of 1934, as amended. "Fair Market Value " shall mean, as of any date, the value of Common Stock determined as follows, unless otherwise determined by the Committee: (i) the last reported sale price of the Common Stock of the Company on NYSE or, if no such reported sale takes...

  • Page 144
    ... nor listed or admitted to trading on another national securities exchange, then the average of the closing bid and asked prices, as reported by The Wall Street Journal for the over-the-counter market, or if none of the foregoing is applicable, then the Fair Market Value of a share of Common Stock...

  • Page 145
    ... a non-employee director, which limit was previously approved by the Company's stockholders. Stockholder Approved Limitations on Annual Grants In no event will Awards granted as annual grants to any Outside Director exceed the following limits (denominated in number of shares of Optioned Stock or...

  • Page 146
    ... schedules, treatment on termination of status as director, and transfer restrictions. Subject to the foregoing limitations and provisions of the Plan, the terms and conditions of any such stock awards shall be set forth in the applicable award agreement as determined by the Board. Additional...

  • Page 147
    ... stock certificate is issued. Termination of Status as Director. Except as set forth in Section 10(d) or (e), if an Outside Director ceases to serve as a Director, he or she may, but only within three (3) months (or such other period of time not exceeding six (6) months as is determined by the Board...

  • Page 148
    ..., stock split, reverse stock split, combination, reclassification or similar change in the capital structure of the Company without consideration, the number of Shares available under this Plan, the number of Shares deliverable in connection with any Award and, if applicable, the exercise price per...

  • Page 149
    .... The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. 16. Rule 16b-3. The grant of Awards hereunder to persons subject to Section 16 of the Exchange Act shall comply with the...

  • Page 150
    ... 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 151
    ... of 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 Distributor Partner OCAPAC Hardware Partner California Delaware Delaware...

  • Page 152
    ... plans; of our reports dated June 22, 2016, with respect to the consolidated financial statements and schedule of Oracle Corporation and the effectiveness of internal control over financial reporting of Oracle Corporation included in this Annual Report (Form 10-K) of Oracle Corporation for the year...

  • Page 153
    ... the period covered by this report based on such evaluation; and disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report...

  • Page 154
    ... the period covered by this report based on such evaluation; and disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report...

  • Page 155
    ... Exchange Act of 1934; and the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Oracle Corporation. By: /s/ S AFRA A. C ATZ Safra A. Catz Chief Executive Officer and Director (Principal Executive and Financial Officer...