Item 15. Exhibits and Financial Statement Schedules

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Item 15. Exhibits and Financial Statement Schedules

(a) 1. Financial Statements

The following financial statements are filed as a part of this report:


	Page
Reports of Independent Registered Public Accounting Firm		72
Consolidated Financial Statements:
Balance Sheets as of May 31, 2018 and 2017		74
Statements of Operations for the years ended May 31, 2018, 2017 and 2016		75
Statements of Comprehensive Income for the years ended May 31, 2018, 2017 and 2016		76
Statements of Equity for the years ended May 31, 2018, 2017 and 2016		77
Statements of Cash Flows for the years ended May 31, 2018, 2017 and 2016		78
Notes to Consolidated Financial Statements		79

2. Financial Statement Schedules

The following financial statement schedule is filed as a part of this report:

	Page
Schedule II. Valuation and Qualifying Accounts		124

All other schedules are omitted because they are not required or the required information is shown in the financial statements or notes thereto.

(b) Exhibits

The information required by this Item is set forth in the Index of Exhibits that is after Item 16 of this Annual Report.

Index to Financial Statements

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Oracle Corporation

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Oracle Corporation (the Company) as of May 31, 2018 and 2017, the related consolidated statements of operations, comprehensive income, equity and cash flows for each of the three years in the period ended May 31, 2018, and the related notes and the financial statement schedule listed in the Index at Item 15(a)2 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of the Company at May 31, 2018 and 2017, and the consolidated results of its operations and its cash flows for each of the three years in the period ended May 31, 2018, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of May 31, 2018, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated June 22, 2018 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2002.

San Jose, California

June 22, 2018

Index to Financial Statements

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Oracle Corporation

Opinion on Internal Control over Financial Reporting

We have audited Oracle Corporation’s internal control over financial reporting as of May 31, 2018, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway (2013 framework)(the COSO criteria). In our opinion, Oracle Corporation (the Company) maintained, in all material respects, effective internal control over financial reporting as of May 31, 2018, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of May 31, 2018 and 2017, 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, 2018, and the related notes and the financial statement schedule listed in the Index at Item 15(a)2 and our report June 22, 2018 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance 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 maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Ernst & Young LLP

San Jose, California

June 22, 2018

Index to Financial Statements

ORACLE CORPORATION

CONSOLIDATED BALANCE SHEETS

As of May 31, 2018 and 2017


	May 31,
(in millions, except per share data)	2018			2017
ASSETS
Current assets:
Cash and cash equivalents	$	21,620		$	21,784
Marketable securities		45,641			44,294
Trade receivables, net of allowances for doubtful accounts of $370 and $319 as of May 31, 2018 and May 31, 2017, respectively		5,279			5,300
Prepaid expenses and other current assets		3,424			3,137

Total current assets		75,964			74,515

Non-current assets:
Property, plant and equipment, net		5,897			5,315
Intangible assets, net		6,670			7,679
Goodwill, net		43,755			43,045
Deferred tax assets		1,491			1,143
Other non-current assets		3,487			3,294

Total non-current assets		61,300			60,476

Total assets	$	137,264		$	134,991

LIABILITIES AND EQUITY
Current liabilities:
Notes payable and other borrowings, current	$	4,491		$	9,797
Accounts payable		529			599
Accrued compensation and related benefits		1,789			1,966
Deferred revenues		8,429			8,233
Other current liabilities		3,957			3,583

Total current liabilities		19,195			24,178

Non-current liabilities:
Notes payable and other borrowings, non-current		56,128			48,112
Income taxes payable		13,422			5,681
Other non-current liabilities		2,295			2,774

Total non-current liabilities		71,845			56,567

Commitments and contingencies
Oracle Corporation stockholders’ equity:
Preferred stock, $0.01 par value—authorized: 1.0 shares; outstanding: none		—			—
Common stock, $0.01 par value and additional paid in capital—authorized: 11,000 shares; outstanding: 3,997 shares and 4,137 shares as of May 31, 2018 and May 31, 2017, respectively		28,950			27,065
Retained earnings		18,412			27,598
Accumulated other comprehensive loss		(1,636	)		(803	)

Total Oracle Corporation stockholders’ equity		45,726			53,860
Noncontrolling interests		498			386

Total equity		46,224			54,246

Total liabilities and equity	$	137,264		$	134,991

See notes to consolidated financial statements.

Index to Financial Statements

ORACLE CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Years Ended May 31, 2018, 2017 and 2016


	Year Ended May 31,
(in millions, except per share data)	2018			2017			2016
Revenues:
Cloud services and license support	$	26,254		$	23,800		$	21,714
Cloud license and on-premise license		6,190			6,418			7,276
Hardware		3,993			4,152			4,668
Services		3,394			3,358			3,389

Total revenues		39,831			37,728			37,047

Operating expenses:
Cloud services and license support(1)		3,612			3,015			2,664
Hardware(1)		1,581			1,653			2,064
Services(1)		2,888			2,801			2,751
Sales and marketing(1)		8,431			8,197			7,884
Research and development		6,091			6,159			5,787
General and administrative		1,289			1,176			1,155
Amortization of intangible assets		1,620			1,451			1,638
Acquisition related and other		52			103			42
Restructuring		588			463			458

Total operating expenses		26,152			25,018			24,443

Operating income		13,679			12,710			12,604

Interest expense		(2,025	)		(1,798	)		(1,467	)
Non-operating income, net		1,237			605			305

Income before provision for income taxes		12,891			11,517			11,442

Provision for income taxes		9,066			2,182			2,541

Net income	$	3,825		$	9,335		$	8,901

Earnings per share:
Basic	$	0.93		$	2.27		$	2.11

Diluted	$	0.90		$	2.21		$	2.07

Weighted average common shares outstanding:
Basic		4,121			4,115			4,221

Diluted		4,238			4,217			4,305

Dividends declared per common share	$	0.76		$	0.64		$	0.60

(1)	Exclusive of amortization of intangible assets, which is shown separately.

See notes to consolidated financial statements.

Index to Financial Statements

ORACLE CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the Years Ended May 31, 2018, 2017 and 2016


	Year Ended May 31,
(in millions)	2018			2017			2016
Net income	$	3,825		$	9,335		$	8,901
Other comprehensive (loss) income, net of tax:
Net foreign currency translation (losses) gains		(295	)		99			73
Net unrealized gains (losses) on defined benefit plans		34			(102	)		50
Net unrealized (losses) gains on marketable securities		(609	)		(9	)		72
Net unrealized gains (losses) on cash flow hedges		37			25			(15	)

Total other comprehensive (loss) income, net		(833	)		13			180

Comprehensive income	$	2,992		$	9,348		$	9,081

See notes to consolidated financial statements.

Index to Financial Statements

ORACLE CORPORATION

CONSOLIDATED STATEMENTS OF EQUITY

For the Years Ended May 31, 2018, 2017 and 2016


	Common Stock and Additional Paid in Capital						Retained Earnings			Accumulated Other Comprehensive Loss			Total Oracle Corporation Stockholders’ Equity			Noncontrolling Interests			Total Equity
(in millions)	Number of Shares			Amount
Balances as of May 31, 2015		4,343		$	23,156		$	26,503		$	(996	)	$	48,663		$	435		$	49,098
Common stock issued under stock-based compensation plans		60			1,304			—			—			1,304			—			1,304
Common stock issued under stock purchase plans		3			121			—			—			121			—			121
Assumption of stock-based compensation plan awards in connection with acquisitions		—			1			—			—			1			—			1
Stock-based compensation		—			1,037			—			—			1,037			—			1,037
Repurchase of common stock		(272	)		(1,464	)		(8,975	)		—			(10,439	)		—			(10,439	)
Shares repurchased for tax withholdings upon vesting of restricted stock-based awards		(3	)		(89	)		—			—			(89	)		—			(89	)
Cash dividends declared ($0.60 per share)		—			—			(2,541	)		—			(2,541	)		—			(2,541	)
Tax benefit from stock plans		—			141			—			—			141			—			141
Other, net		—			10			—			—			10			9			19
Distributions to noncontrolling interests		—			—			—			—			—			(85	)		(85	)
Other comprehensive income, net		—			—			—			180			180			26			206
Net income		—			—			8,901			—			8,901			116			9,017

Balances as of May 31, 2016		4,131			24,217			23,888			(816	)		47,289			501			47,790
Common stock issued under stock-based compensation plans		95			2,063			—			—			2,063			—			2,063
Common stock issued under stock purchase plans		3			118			—			—			118			—			118
Assumption of stock-based compensation plan awards in connection with acquisitions		—			90			—			—			90			—			90
Stock-based compensation		—			1,350			—			—			1,350			—			1,350
Repurchase of common stock		(86	)		(504	)		(2,988	)		—			(3,492	)		—			(3,492	)
Shares repurchased for tax withholdings upon vesting of restricted stock-based awards		(6	)		(283	)		—			—			(283	)		—			(283	)
Cash dividends declared ($0.64 per share)		—			—			(2,631	)		—			(2,631	)		—			(2,631	)
Other, net		—			14			(6	)		—			8			11			19
Distributions to noncontrolling interests		—			—			—			—			—			(258	)		(258	)
Other comprehensive income, net		—			—			—			13			13			14			27
Net income		—			—			9,335			—			9,335			118			9,453

Balances as of May 31, 2017		4,137			27,065			27,598			(803	)		53,860			386			54,246
Common stock issued under stock-based compensation plans		105			2,277			—			—			2,277			—			2,277
Common stock issued under stock purchase plans		3			125			—			—			125			—			125
Assumption of stock-based compensation plan awards in connection with acquisitions		—			3			—			—			3			—			3
Stock-based compensation		—			1,607			—			—			1,607			—			1,607
Repurchase of common stock		(238	)		(1,632	)		(9,871	)		—			(11,503	)		—			(11,503	)
Shares repurchased for tax withholdings upon vesting of restricted stock-based awards		(10	)		(506	)		—			—			(506	)		—			(506	)
Cash dividends declared ($0.76 per share)		—			—			(3,140	)		—			(3,140	)		—			(3,140	)
Other, net		—			11			—			—			11			11			22
Distributions to noncontrolling interests		—			—			—			—			—			(34	)		(34	)
Other comprehensive loss, net		—			—			—			(833	)		(833	)		—			(833	)
Net income		—			—			3,825			—			3,825			135			3,960

Balances as of May 31, 2018		3,997		$	28,950		$	18,412		$	(1,636	)	$	45,726		$	498		$	46,224

See notes to consolidated financial statements.

Index to Financial Statements

ORACLE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended May 31, 2018, 2017 and 2016


	Year Ended May 31,
(in millions)	2018			2017			2016
Cash flows from operating activities:
Net income	$	3,825		$	9,335		$	8,901
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		1,165			1,000			871
Amortization of intangible assets		1,620			1,451			1,638
Allowances for doubtful accounts receivable		146			129			130
Deferred income taxes		(611	)		(486	)		(105	)
Stock-based compensation		1,607			1,350			1,037
Other, net		(26	)		123			143
Changes in operating assets and liabilities, net of effects from acquisitions:
(Increase) decrease in trade receivables, net		(117	)		18			96
Increase in prepaid expenses and other assets		(276	)		(24	)		(2	)
Decrease in accounts payable and other liabilities		(264	)		(37	)		(13	)
Increase in income taxes payable		8,143			732			313
Increase in deferred revenues		174			535			676

Net cash provided by operating activities		15,386			14,126			13,685

Cash flows from investing activities:
Purchases of marketable securities and other investments		(25,282	)		(25,867	)		(24,562	)
Proceeds from maturities and sales of marketable securities and other investments		23,117			17,615			21,247
Acquisitions, net of cash acquired		(1,724	)		(11,221	)		(650	)
Capital expenditures		(1,736	)		(2,021	)		(1,189	)

Net cash used for investing activities		(5,625	)		(21,494	)		(5,154	)

Cash flows from financing activities:
Payments for repurchases of common stock		(11,347	)		(3,561	)		(10,440	)
Proceeds from issuances of common stock		2,402			2,181			1,425
Shares repurchased for tax withholdings upon vesting of restricted stock-based awards		(506	)		(283	)		(89	)
Payments of dividends to stockholders		(3,140	)		(2,631	)		(2,541	)
Proceeds from borrowings, net of issuance costs		12,443			17,732			3,750
Repayments of borrowings		(9,800	)		(4,094	)		(2,000	)
Distributions to noncontrolling interests		(34	)		(258	)		(85	)

Net cash (used for) provided by financing activities		(9,982	)		9,086			(9,980	)

Effect of exchange rate changes on cash and cash equivalents		57			(86	)		(115	)

Net (decrease) increase in cash and cash equivalents		(164	)		1,632			(1,564	)
Cash and cash equivalents at beginning of period		21,784			20,152			21,716

Cash and cash equivalents at end of period	$	21,620		$	21,784		$	20,152

Non-cash investing and financing transactions:
Fair values of restricted stock-based awards and stock options assumed in connection with acquisitions	$	3		$	90		$	1
Change in unsettled repurchases of common stock	$	154		$	(69	)	$	(1	)
Change in unsettled investment purchases	$	(303	)	$	73		$	(112	)
Supplemental schedule of cash flow data:
Cash paid for income taxes	$	1,562		$	1,983		$	2,331
Cash paid for interest	$	1,910		$	1,612		$	1,616

See notes to consolidated financial statements.

Index to Financial Statements

ORACLE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

May 31, 2018

1.	ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Oracle Corporation provides products and services that address all aspects of corporate information technology (IT) environments—applications, platform and infrastructure. Our applications, platform and infrastructure offerings are delivered to customers worldwide through a variety of flexible and interoperable IT deployment models, including cloud-based, on-premise, or hybrid, which enable customer choice and flexibility. Our Oracle Cloud offerings provide a comprehensive and fully integrated stack of applications, platform, compute, storage and networking services in all three primary layers of the cloud: Software as a Service (SaaS), Platform as a Service (PaaS) and Infrastructure as a Service (IaaS). Our Oracle Cloud SaaS, PaaS and IaaS offerings (collectively, “Oracle Cloud Services”) integrate the software, hardware and services on customers’ behalf in IT environments that we deploy, support and manage for the customer. We offer our customers the option to deploy our comprehensive set of cloud offerings including Oracle Cloud Services or to purchase our software and hardware products and related services to manage their own cloud-based or on-premise IT environments. Customers that purchase our software products may elect to purchase license support contracts, which provide our customers with rights to unspecified license upgrades and maintenance releases issued during the support period as well as technical support assistance. Customers that purchase our hardware products may elect to purchase hardware support contracts, which provide customers with software updates and can include product repairs, maintenance services, and technical support services. We also offer customers a broad set of services offerings that are designed to improve customer utilization of their investments in Oracle applications, platform and infrastructure technologies.

Oracle Corporation conducts business globally and was incorporated in 2005 as a Delaware corporation and is the successor to operations originally begun in June 1977.

Basis of Financial Statements

The consolidated financial statements included our accounts and the accounts of our wholly- and majority-owned subsidiaries. Noncontrolling interest positions of certain of our consolidated entities are reported as a separate component of consolidated equity from the equity attributable to Oracle’s stockholders for all periods presented. The noncontrolling interests in our net income were not significant to our consolidated results for the periods presented and therefore have been included as a component of non-operating income, net in our consolidated statements of operations. Intercompany transactions and balances have been eliminated. Certain other prior year balances have been reclassified to conform to the current year presentation. Such reclassifications did not affect total revenues, operating income or net income.

In fiscal 2018, we adopted Accounting Standards Update (ASU) No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (ASU 2017-04). The ASU simplifies the accounting for goodwill impairment by removing Step 2 of the goodwill impairment test. Under the legacy guidance, Step 2 of the goodwill impairment test required entities to calculate the implied fair value of goodwill in the same manner as the amount of goodwill recognized in a business combination by assigning the fair value of a reporting unit to all of the assets and liabilities of the reporting unit. The carrying value in excess of the implied fair value was recognized as goodwill impairment. Under the new standard, goodwill impairment is recognized as the carrying value in excess of the reporting unit’s fair value, limited to the total amount of goodwill allocated to the reporting unit. ASU 2017-04 did not have a material impact on our consolidated financial statements.

Impacts of the U.S. Tax Cuts and Jobs Act of 2017

The comparability of our operating results in fiscal 2018 compared to the corresponding prior year periods, and of our consolidated balance sheets as of May 31, 2018 relative to May 31, 2017, was impacted by the U.S. Tax Cuts and Jobs Act of 2017 (the Tax Act), which was signed into law on December 22, 2017. Effective January 1, 2018, the Tax Act reduces the U.S. federal corporate tax rate from 35% to 21%; creates a quasi-territorial tax

Index to Financial Statements

ORACLE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

May 31, 2018

system that a) generally allows, among other provisions, companies to repatriate certain foreign source earnings without incurring additional U.S. income tax for such earnings generated after December 31, 2017 and b) generally requires companies to pay a one-time transition tax on certain foreign subsidiary earnings generated prior to December 31, 2017 that, in substantial part, were previously tax deferred; creates new taxes on certain foreign sourced earnings; limits deductibility of certain future compensation arrangements to certain highly compensated employees; and provides tax incentives for the exportation of U.S. products to foreign jurisdictions and for the purchase of qualifying capital equipment, among other provisions.

Because we have a May 31 fiscal year end, our fiscal 2018 blended U.S. federal statutory tax rate was approximately 29%.

During fiscal 2018, our provision for income taxes increased and our net income decreased, primarily as a result of the following items related to the enactment of the Tax Act:

	•		$7.8 billion of income tax expense, which we refined by a $166 million increase as of May 31, 2018 from our initial estimate made in our third quarter of fiscal 2018 in accordance with U.S. Securities and Exchange Commission (SEC) Staff Accounting Bulletin No. 118 (SAB 118), related to the application of the one-time transition tax to certain foreign subsidiary earnings that were generated prior to December 31, 2017 and for which such expense was substantially recorded to non-current income taxes payable in our consolidated balance sheet and corresponds to the amount we currently expect to periodically settle over an eight year period as provided by the Tax Act;

partially offset by:

	•		$820 million of income tax benefit, which we refined by a $76 million increase as of May 31, 2018 from our initial estimate made in our third quarter of fiscal 2018 in accordance with SAB 118, related to the remeasurement of our net deferred tax liabilities based on the rates at which they are expected to reverse in the future; and

	•		the net favorable impacts of the Tax Act on our tax profile and effective tax rate beginning on January 1, 2018, which we generally expect will continue into future periods.

The net expense related to the enactment of the Tax Act has been accounted for during fiscal 2018 based on provisional estimates pursuant to SAB 118. Subsequent adjustments, if any, will be accounted for in the period such adjustments are identified. The provisional estimates incorporate, among other factors, assumptions made based on interpretations of the Tax Act and existing tax laws and a range of historical financial and tax-specific facts and information, including among other items, the amount of cash and other specified assets and liabilities of the company and its foreign subsidiaries on relevant dates and estimates of deferred tax balances pending finalization of those balances.

Use of Estimates

Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (GAAP) as set forth in the Financial Accounting Standards Board’s (FASB) Accounting Standards Codification (ASC), and we consider the various staff accounting bulletins and other applicable guidance issued by the SEC. These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. To the extent that there are differences between these estimates, judgments or assumptions and actual results, our consolidated financial statements will be affected. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its

Index to Financial Statements

ORACLE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

May 31, 2018

application. There are also areas in which management’s judgment in selecting among available alternatives would not produce a materially different result.

Revenue Recognition

Our sources of revenues include:

	•		cloud and license revenues, which include the sale of: cloud services and license support; and cloud license and on-premise licenses, which represent licenses purchased by customers for use in both cloud and on-premise deployments;

	•		hardware revenues, which include the sale of hardware products including Oracle Engineered Systems, servers, and storage products, and industry-specific hardware; and hardware support revenues; and

	•		services revenues, which are earned from providing cloud-, license- and hardware-related services including consulting, advanced customer support and education services.

Revenue Recognition for Cloud Services Offerings, Hardware Products, Hardware Support and Related Services (Non-software Elements)

Our revenue recognition policy for non-software deliverables including our cloud services offerings, hardware products, hardware support and related services is based upon the accounting guidance contained in ASC 605-25, Revenue Recognition, Multiple-Element Arrangements, and we exercise judgment and use estimates in connection with the determination of the amount of cloud services revenues, hardware products revenues, hardware support and related services revenues to be recognized in each accounting period.

Revenues from the sales of our non-software elements are recognized when: (1) persuasive evidence of an arrangement exists; (2) we deliver the products or services; (3) the sale price is fixed or determinable; and (4) collection is reasonably assured. Revenues that are not recognized at the time of sale because the foregoing conditions are not met are recognized when those conditions are subsequently met.

Revenues for our cloud services offerings sold on a subscription basis are generally recognized ratably over the contract term commencing with the date the service is made available to customers. Revenues for cloud services offerings sold on a usage basis are generally recognized as the customer consumes the service, provided all other revenue recognition criteria have been satisfied.

Revenues from the sale of hardware products are generally recognized upon delivery of the hardware product to the customer provided all other revenue recognition criteria are satisfied. Hardware support contracts are entered into at the customer’s option and are recognized ratably over the contractual term of the arrangements, which is typically one year, provided all other revenue recognition criteria have been satisfied.

Revenue Recognition for Multiple-Element Arrangements—Cloud Services Offerings, Hardware Products, Hardware Support and Related Services (Non-software Arrangements)

We enter into arrangements with customers that purchase non-software related products and services from us at the same time, or within close proximity of one another (referred to as non-software multiple-element arrangements). Each element within a non-software multiple-element arrangement is accounted for as a separate unit of accounting provided the following criteria are met: the delivered products or services have value to the customer on a standalone basis; and for an arrangement that includes a general right of return relative to the delivered products or services, delivery or performance of the undelivered product or service is considered probable and is substantially controlled by us. We consider a deliverable to have standalone value if the product or service is sold separately by us or another vendor or could be resold by the customer. Further, our revenue arrangements generally do not include a general right of return relative to the delivered products.

Index to Financial Statements

ORACLE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

May 31, 2018

Where the aforementioned criteria for a separate unit of accounting are not met, the deliverable is combined with the undelivered element(s) and treated as a single unit of accounting for the purposes of allocation of the arrangement consideration and revenue recognition. For those units of accounting that include more than one deliverable but are treated as a single unit of accounting, we generally recognize revenues over the contractual period of the arrangement, or in the case of our cloud services offerings, we generally recognize revenues over the contractual term of the cloud services subscription. For the purposes of revenue classification of the elements that are accounted for as a single unit of accounting, we allocate revenue to the respective revenue line items within our consolidated statements of operations based on a rational and consistent methodology utilizing our best estimate of relative selling prices of such elements.

For our non-software multiple-element arrangements, we allocate revenue to each element based on a selling price hierarchy at the arrangement’s inception. The selling price for each element is based upon the following selling price hierarchy: vendor-specific objective evidence (VSOE) if available, third-party evidence (TPE) if VSOE is not available, or estimated selling price (ESP) if neither VSOE nor TPE are available (a description as to how we determine VSOE, TPE and ESP is provided below). If a tangible hardware product includes software, we determine whether the tangible hardware product and the software work together to deliver the product’s essential functionality and, if so, the entire product is treated as a non-software deliverable. The total arrangement consideration is allocated to each separate unit of accounting for each of the non-software deliverables using the relative selling prices of each unit based on the selling price hierarchy. We limit the amount of revenue recognized for delivered elements to an amount that is not contingent upon future delivery of additional products or services or meeting of any specified performance conditions.

When possible, we establish VSOE of selling price for deliverables in software and non-software multiple-element arrangements using the price charged for a deliverable when sold separately. TPE is established by evaluating similar and interchangeable competitor products or services in standalone arrangements with similarly situated customers. If we are unable to determine the selling price because VSOE or TPE does not exist, we determine ESP for the purposes of allocating the arrangement by reviewing historical transactions, including transactions whereby the deliverable was sold on a standalone basis and considering several other external and internal factors.

Revenue Recognition for Cloud License and On-Premise License and License Related Services (Software Elements)

The basis for our cloud license and on-premise license revenues and related services revenue recognition is substantially governed by the accounting guidance contained in ASC 985-605, Software-Revenue Recognition. We exercise judgment and use estimates in connection with the determination of the amount of cloud license and on-premise license revenues and related services revenues to be recognized in each accounting period.

For license arrangements that do not require significant modification or customization of the underlying license, we recognize cloud license and on-premise license revenues when: (1) we enter into a legally binding arrangement with a customer for the license of software; (2) we deliver the products; (3) the sale price is fixed or determinable and free of contingencies or significant uncertainties; and (4) collection is probable. Revenues that are not recognized at the time of license sale because the foregoing conditions are not met, are generally recognized when those conditions are subsequently met.

The vast majority of our cloud license and on-premise license arrangements include license support contracts, which are entered into at the customer’s option. We recognize the related fees ratably over the term of the arrangement, typically one year. License support contracts provide customers with rights to unspecified software product upgrades, maintenance releases and patches released during the term of the support period and include internet access to technical content, as well as internet and telephone access to technical support personnel. License support contracts are generally priced as a percentage of the net cloud license and

Index to Financial Statements

ORACLE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

May 31, 2018

on-premise license fees and are generally invoiced in full at the beginning of the support term. Substantially all of our customers renew their license support contracts annually.

Revenue Recognition for Multiple-Element Arrangements—Cloud License and On-Premise License, Support and Related Services (Software Arrangements)

We often enter into arrangements with customers that purchase cloud licenses and on-premise licenses, license support and related services from us at the same time, or within close proximity of one another (referred to as software related multiple-element arrangements). For those software related multiple-element arrangements, we have applied the residual method to determine the amount of cloud license and on-premise license revenues to be recognized pursuant to ASC 985-605. Under the residual method, if VSOE exists for undelivered elements in a multiple-element arrangement, VSOE of the undelivered elements is deferred with the remaining portion of the arrangement consideration generally recognized upon delivery of the license. Where VSOE does not exist for the undelivered element in such arrangement, no revenue is recognized until the earlier of the point in time at which 1) VSOE has been established for such element; or 2) the element that does not have VSOE has been delivered.

Revenue Recognition for Multiple-Element Arrangements—Arrangements with Software and Non-software Elements

We also enter into multiple-element arrangements that may include a combination of our various software related and non-software related products and services offerings including cloud licenses and on-premise licenses, license support, cloud services 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 the software group of elements as a whole and the non-software group of elements. We then further allocate consideration within the software group to the respective elements within that group following the guidance in ASC 985-605 and our policies as described above. In addition, we allocate the consideration within the non-software group to each respective element within that group based on a selling price hierarchy at the arrangement’s inception as described above. After the arrangement consideration has been allocated to the software group of elements and non-software group of elements, we account for each respective element in the arrangement as described above and below.

Other Revenue Recognition Policies Applicable to Software and Non-software Elements

Many of our cloud license and on-premise license arrangements include consulting implementation services sold separately under consulting engagement contracts and are included as a part of our services business. Consulting revenues from these arrangements are generally accounted for separately from cloud license and on-premise license revenues because the arrangements qualify as services transactions as defined in ASC 985-605. The more significant factors considered in determining whether the revenues should be accounted for separately include the nature of services (i.e., consideration of whether the services are essential to the functionality of the licensed product), degree of risk, availability of services from other vendors, timing of payments and impact of milestones or acceptance criteria on the realizability of the license fee. Revenues for consulting services are generally recognized as the services are performed.

If an arrangement contains multiple elements and does not qualify for separate accounting for the product and service transactions, then cloud license and on-premise license revenues and/or hardware products revenues, including the costs of hardware products, are generally recognized together with the services based on contract accounting using either the percentage-of-completion or completed-contract method.

We also evaluate arrangements with governmental entities containing “fiscal funding” or “termination for convenience” provisions, when such provisions are required by law, to determine the probability of possible

Index to Financial Statements

ORACLE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

May 31, 2018

cancellation. We consider multiple factors, including the history with the customer in similar transactions, the “essential use” of the license or hardware products and the planning, budgeting and approval processes undertaken by the governmental entity. If we determine upon execution of these arrangements that the likelihood of cancellation is remote, we then recognize revenues for such arrangements once all of the criteria described above have been met. If such a determination cannot be made, revenues are recognized upon the earlier of cash receipt or approval of the applicable funding provision by the governmental entity for such arrangements.

We assess whether fees are fixed or determinable at the time of sale and recognize revenues if all other revenue recognition requirements are met. Our standard payment terms are net 30 days. However, payment terms may vary based on the country in which the agreement is executed. We evaluate non-standard payment terms based on whether we have successful collection history on comparable arrangements (based upon similarity of customers, products, and arrangement economics) and, if so, generally conclude such payment terms are fixed and determinable and thereby satisfy the required criteria for revenue recognition.

While most of our arrangements for sales within our businesses include short-term payment terms, we have a standard practice of providing long-term financing to creditworthy customers primarily through our financing division. Since fiscal 1989, when our financing division was formed, we have established a history of collection, without concessions, on these receivables 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 cloud license and on-premise license revenues and hardware products revenues for these arrangements upon delivery, net of any payment discounts from financing transactions. We have generally sold receivables financed through our financing division on a non-recourse basis to third-party financing institutions within 90 days of the contracts’ dates of execution and we classify the proceeds from these sales as cash flows from operating activities in our consolidated statements of cash flows. We account for the sales of these receivables as “true sales” as defined in ASC 860, Transfers and Servicing, as we are considered to have surrendered control of these financing receivables.

Our customers include several of our suppliers and, occasionally, we have purchased goods or services for our operations from these vendors at or about the same time that we have sold our products to these same companies (Concurrent Transactions). License agreements, sales of hardware or sales of services that occur within a common 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, we negotiate the purchase separately from any sales transaction, at terms we consider to be at arm’s length and settle the purchase in cash. We recognize revenues from Concurrent Transactions if all of our revenue recognition criteria are met and the goods and services acquired are necessary for our current operations.

Business Combinations

We apply the provisions of ASC 805, Business Combinations, in accounting for our acquisitions. ASC 805 requires us to recognize separately from goodwill the assets acquired and the liabilities assumed at the acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. While we use our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date as well as any contingent consideration, where applicable, our estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, we record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our consolidated statements of operations.

Index to Financial Statements

ORACLE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

May 31, 2018

Costs to exit or restructure certain activities of an acquired company or our internal operations are accounted for as termination and exit costs pursuant to ASC 420, Exit or Disposal Cost Obligations, and are accounted for separately from the business combination. A liability for costs associated with an exit or disposal activity is recognized and measured at its fair value in our consolidated 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 our initial estimates which may materially affect our results of operations and financial position in the period the revision is made.

For a given acquisition, we may identify certain pre-acquisition contingencies as of the acquisition date and may extend our review and evaluation of these pre-acquisition contingencies throughout the measurement period in order to obtain sufficient information to assess whether we include these contingencies as a part of the fair value 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-income tax related) by the end of the measurement period, which is generally the case given the nature of such matters, we will recognize an asset or a liability for such pre-acquisition contingency if: (1) it is probable that an asset existed or a liability had been incurred at the acquisition date and (2) the amount of the asset or liability can be reasonably estimated. Subsequent to the measurement period, changes in our estimates of such contingencies will affect earnings and could have a material effect on our results of operations and financial position.

In addition, uncertain tax positions and tax related valuation allowances assumed in connection with a business combination are initially estimated as of the acquisition date. We reevaluate these items quarterly based upon facts and circumstances that existed as of the acquisition date with any adjustments to our preliminary estimates being recorded to goodwill if identified within the measurement period. Subsequent to the measurement period or our final determination of the tax allowance’s or contingency’s estimated value, whichever comes first, changes to these uncertain tax positions and tax related valuation allowances will affect our provision for income taxes in our consolidated statement of operations and could have a material impact on our results of operations and financial position.

Marketable and Non-Marketable Securities

In accordance with ASC 320, Investments—Debt and Equity Securities, and based on our intentions regarding these instruments, we classify substantially all of our marketable debt and equity securities as available-for-sale. Marketable debt and equity securities classified as available-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 in fair value, we recognize the investment loss in non-operating income, net in the accompanying consolidated statements of operations. We periodically evaluate our investments to determine if impairment charges are required. Substantially all of our marketable debt and equity investments are classified as current based on the nature of the investments and their availability for use in current operations.

We hold investments in certain non-marketable equity securities in which we do not have a controlling interest or significant influence. These equity securities are recorded at cost and included in other non-current assets in the accompanying consolidated balance sheets. If based on the terms of our ownership of these non-marketable securities, we determine that we exercise significant influence on the entity to which these non-marketable securities relate, we apply the requirements of ASC 323, Investments—Equity Method and Joint Ventures, to account for such investments_._ Our non-marketable securities are subject to periodic impairment reviews.

Index to Financial Statements

ORACLE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

May 31, 2018

Fair Values of Financial Instruments

We apply the provisions of ASC 820, Fair Value Measurement (ASC 820), to our assets and liabilities that we are required to measure at fair value pursuant to other accounting standards, including our investments in marketable debt and equity securities and our derivative financial instruments.

The additional disclosures regarding our fair value measurements are included in Note 4.

Allowances for Doubtful Accounts

We record allowances for doubtful accounts based upon a specific review of all significant outstanding invoices. For those invoices not specifically reviewed, provisions are provided at differing rates, based upon the age of the receivable, the collection history associated with the geographic region that the receivable was recorded in and current economic trends. We write-off a receivable and charge it against its recorded allowance when we have exhausted our collection efforts without success.

Concentrations of Risk

Financial instruments that are potentially subject to concentrations of credit risk consist primarily of cash and cash equivalents, marketable securities, derivatives and trade receivables. Our cash and cash equivalents are generally held with large, diverse financial institutions worldwide to reduce the amount of exposure to any single financial institution. Investment policies have been implemented that limit purchases of marketable debt securities to investment-grade securities. Our derivative contracts are transacted with various financial institutions with high credit standings and any exposure to counterparty credit-related losses in these contracts is largely mitigated with collateral security agreements that provide for collateral to be received or posted when the net fair values of these contracts fluctuate from contractually established thresholds. We generally do not require collateral to secure accounts receivable. The risk with respect to trade receivables is mitigated by credit evaluations we perform on our customers, the short duration of our payment terms for the significant majority of our customer contracts and by the diversification of our customer base. No single customer accounted for 10% or more of our total revenues in fiscal 2018, 2017 or 2016.

We outsource the manufacturing, assembly and delivery of certain of our hardware products to a variety of companies, many of which are located outside the United States. Further, we have simplified our supply chain processes by reducing the number of third-party manufacturing partners and the number of locations where these third-party manufacturers build our hardware products. Any inability of these third-party manufacturing partners to deliver the contracted services for our hardware products could adversely impact future operating results of our hardware business.

Inventories

Inventories are stated at the lower of cost or net realizable value. Cost is computed using standard cost, which approximates actual cost, on a first-in, first-out basis. We evaluate our ending inventories for estimated excess quantities and obsolescence. This evaluation includes analysis of sales levels by product and projections of future demand within specific time horizons (generally six to nine months). Inventories in excess of future demand are written down and charged to hardware expenses. In addition, we assess the impact of changing technology to our inventories and we write down inventories that are considered obsolete. At the point of loss recognition, a new, lower-cost basis for that inventory is established, and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis. Inventories are included in prepaid expenses and other current assets in our consolidated balance sheets and totaled $398 million and $300 million at May 31, 2018 and 2017, respectively.

Index to Financial Statements

ORACLE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

May 31, 2018

Other Receivables

Other receivables represent value-added tax and sales tax receivables associated with the sale of our products and services to third parties. Other receivables are included in prepaid expenses and other current assets in our consolidated balance sheets and totaled $802 million and $794 million at May 31, 2018 and 2017, respectively.

Deferred Sales Commissions

We defer sales commission expenses associated with our cloud SaaS, PaaS and IaaS offerings, and recognize the related expenses over the non-cancelable terms of the related contracts, which are typically one to three years. The current portion of the deferred sales commissions balances are included in prepaid expenses and other current assets and the non-current portion of the deferred sales commissions balances are included in other assets as of May 31, 2018 and 2017. Amortization of deferred sales commissions is included as a component of sales and marketing expenses in our 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 from one to 40 years. Leasehold improvements are amortized over the lesser of the estimated useful lives of the improvements or the lease terms, as appropriate. Property, plant and equipment are periodically reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. We did not recognize any significant property impairment charges in fiscal 2018, 2017 or 2016.

Goodwill, Intangible Assets and Impairment Assessments

Goodwill represents the excess 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 the estimated remaining useful lives of purchased intangible assets and whether events or changes in circumstances warrant a revision to the remaining periods of amortization.

The carrying amounts of our goodwill and intangible assets are periodically reviewed for impairment (at least annually for goodwill and indefinite lived intangible assets) and whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable. When goodwill is assessed for impairment, we have the option to perform an assessment of qualitative factors of impairment (optional assessment) prior to necessitating a quantitative impairment test. Should the optional assessment be used for any given fiscal year, qualitative factors to consider include cost factors; financial performance; legal, regulatory, contractual, political, business, or other factors; entity specific factors; industry and market considerations, macroeconomic conditions, and other relevant events and factors affecting the reporting unit. If we determine that it is more likely than not that the fair value of the reporting unit is less than its carrying value, a quantitative test is then performed. Otherwise, no further testing is required. For those reporting units tested using a quantitative approach, we compare the fair value of each reporting unit with the carrying amount of the reporting unit, including goodwill. To determine the fair value of each reporting unit we utilize estimates, judgments and assumptions including estimated future cash flows the reporting unit is expected to generate on a discounted basis, future economic and market conditions, and market comparable of peer companies, among others. If the estimated fair value of the reporting unit is less than the carrying amount of the reporting unit, impairment is recognized for the difference, limited to the amount of goodwill recognized for the reporting unit. We did not recognize any goodwill impairment charges in fiscal 2018, 2017 or 2016.

Recoverability of finite lived intangible assets is measured by comparison of the carrying amount of the asset to the future undiscounted cash flows the asset is expected to generate. Recoverability of indefinite lived

Index to Financial Statements

ORACLE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

May 31, 2018

intangible assets is measured by comparison of the carrying amount of the asset to its fair value. If the asset is considered to be impaired, the amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset. We did not recognize any intangible asset impairment charges in fiscal 2018, 2017 or 2016.

Derivative Financial Instruments

During fiscal 2018, 2017 and 2016, we used derivative and non-derivative financial instruments to manage foreign currency and interest rate risks (see Note 10 below for additional information). We account for these instruments in accordance with ASC 815, Derivatives and Hedging (ASC 815), which requires that every derivative instrument be recorded on the balance sheet as either an asset or liability measured at its fair value as of the reporting date. ASC 815 also requires that changes in our derivatives’ fair values be recognized in earnings, unless specific hedge accounting and documentation criteria are met (i.e., the instruments are accounted for as hedges).

The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. For a derivative instrument designated as a fair value hedge, loss or gain attributable to the risk being hedged is recognized in earnings in the period of change with a corresponding offset recorded to the item for which the risk is being hedged. For a derivative instrument designated as a cash flow hedge, each reporting period we record the change in fair value on the effective portion of the derivative to accumulated other comprehensive loss in our consolidated balance sheets, and an amount is reclassified out of accumulated other comprehensive loss into earnings to offset the earnings impact that is attributable to the risk being hedged. For the non-derivative financial instrument that was designated as a net investment hedge for our investments in certain of our international subsidiaries, the change on account of remeasurement of the effective portion for each reporting period was recorded to accumulated other comprehensive loss in our consolidated balance sheets until the net investment is sold, at which time the amounts are reclassified from accumulated other comprehensive loss to non-operating income, net.

We perform the effectiveness testing of our aforementioned designated hedges on a quarterly basis and material changes in ineffective portions of the derivatives, if any, are recognized immediately in earnings.

Legal and Other Contingencies

We are currently involved in various claims and legal proceedings. Quarterly, we review the status of each significant matter and assess our potential financial exposure. Descriptions of our accounting policies associated with contingencies assumed as a part of a business combination are provided under “Business Combinations” above. For legal and other contingencies that are not a part of a business combination or related to income taxes, we accrue a liability for an estimated loss if the potential loss from any claim or legal proceeding is considered probable, and the amount can be reasonably estimated. Note 17 below provides additional information regarding certain of our legal contingencies.

Shipping and Handling Costs

Our shipping and handling costs for hardware products sales are included in hardware expenses for all periods presented.

Foreign Currency

We transact business in various foreign currencies. In general, the functional currency of a foreign operation is the local country’s currency. Consequently, revenues and expenses of operations outside the United States are translated into U.S. Dollars using weighted-average exchange rates while assets and liabilities of operations outside the United States are translated into U.S. Dollars using exchange rates at the balance sheet dates. The

Index to Financial Statements

ORACLE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

May 31, 2018

effects of foreign currency translation adjustments are included in stockholders’ equity as a component of accumulated other comprehensive loss in the accompanying consolidated balance sheets and related periodic movements are summarized as a line item in our consolidated statements of comprehensive income. Net foreign exchange transaction losses included in non-operating income, net in the accompanying consolidated statements of operations were $74 million, $152 million and $110 million in fiscal 2018, 2017 and 2016, respectively.

Stock-Based Compensation

We account for share-based payments to employees, including grants of service-based restricted stock awards, performance-based restricted stock awards (PSUs), service-based employee stock options, performance-based stock options (PSOs), and purchases under employee stock purchase plans in accordance with ASC 718, Compensation—Stock Compensation, which requires that share-based payments (to the extent they are compensatory) be recognized in our consolidated statements of operations based on their fair values. We account for forfeitures of stock-based awards as they occur.

For our service-based stock awards, we recognize stock-based compensation expense on a straight-line basis over the service period of the award, which is generally four years.

For our PSUs and PSOs, we recognize stock-based compensation expense on a straight-line basis over the longer of the derived, explicit or implicit service period (which is the period of time expected for the performance condition to be satisfied). During our interim and annual reporting periods, stock-based compensation expense is recorded based on expected attainment of performance targets. Changes in our estimates of the expected attainment of performance targets that result in a change in the number of shares that are expected to vest, or changes in our estimates of implicit service periods may cause the amount of stock-based compensation expense that we record for each interim reporting period to vary. Any changes in estimates that impact our expectation of the number of shares that are expected to vest are reflected in the amount of stock-based compensation expense that we recognize for each PSU or PSO tranche on a cumulative catch up basis during each interim reporting period in which such estimates are altered. Changes in estimate of the implicit service period are recognized prospectively.

We record deferred tax assets for stock-based compensation awards that result in deductions on certain of our income tax returns based on the amount of stock-based compensation recognized and the fair values attributable to the vested portion of stock awards assumed in connection with a business combination at the statutory tax rates in the jurisdictions that we are able to recognize such tax deductions. The impacts of the actual tax deductions for stock-based awards that are realized in these jurisdictions are generally recognized in the reporting period that a restricted stock-based award vests or a stock option is exercised with any shortfall/windfall relative to the deferred tax asset established recorded as a discrete detriment/benefit to our provision for income taxes in such period.

Advertising

All advertising costs are expensed as incurred. Advertising expenses, which were included within sales and marketing expenses, were $138 million, $95 million and $68 million in fiscal 2018, 2017 and 2016, respectively.

Research and Development and Software Development Costs

All research and development costs are expensed as incurred.

Software development costs required to be capitalized under ASC 985-20, Costs of Software to be Sold, Leased or Marketed, and under ASC 350-40, Internal-Use Software, were not material to our consolidated financial statements in fiscal 2018, 2017 and 2016.

Index to Financial Statements

ORACLE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

May 31, 2018

Acquisition Related and Other Expenses

Acquisition related and other expenses consist of personnel related costs and stock-based compensation for transitional and certain other employees, integration related professional services, and certain business combination adjustments including certain adjustments after the measurement period has ended and certain other operating items, net.


	Year Ended May 31,
(in millions)	2018		2017			2016
Transitional and other employee related costs	$	48	$	41		$	45
Stock-based compensation		1		35			3
Professional fees and other, net		3		33			10
Business combination adjustments, net		—		(6	)		(16	)

Total acquisition related and other expenses	$	52	$	103		$	42

Non-Operating Income, net

Non-operating income, net consists primarily of interest income, net foreign currency exchange gains (losses), the noncontrolling interests in the net profits of our majority-owned subsidiaries (primarily Oracle Financial Services Software Limited and Oracle Corporation Japan) and net other income (losses), including net realized gains and losses related to all of our investments and net unrealized gains and losses related to the small portion of our investment portfolio that we classify as trading.


	Year Ended May 31,
(in millions)	2018			2017			2016
Interest income	$	1,201		$	802		$	538
Foreign currency losses, net		(74	)		(152	)		(110	)
Noncontrolling interests in income		(135	)		(118	)		(116	)
Other income (loss), net		245			73			(7	)

Total non-operating income, net	$	1,237		$	605		$	305

Income Taxes

We account for income taxes in accordance with ASC 740, Income Taxes (ASC 740). Deferred income taxes are recorded for the expected tax consequences of temporary differences between the tax bases of assets and liabilities for financial reporting purposes and amounts recognized for income tax purposes. We record a valuation allowance to reduce our deferred tax assets to the amount of future tax benefit that is more likely than not to be realized.

A two-step approach is applied pursuant to ASC 740 in the recognition and measurement of uncertain tax positions taken or expected to be taken in a tax return. The first step is to determine if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained in an audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. We recognize interest and penalties related to uncertain tax positions in our provision for income taxes line of our consolidated statements of operations.

A description of our accounting policies associated with tax related contingencies and valuation allowances assumed as a part of a business combination is provided under “Business Combinations” above.

Index to Financial Statements

ORACLE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

May 31, 2018

Recent Accounting Pronouncements

Comprehensive Income: In February 2018, the FASB issued ASU 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (ASU 2018-02), which allows companies to reclassify stranded tax effects resulting from the Tax Act, from accumulated other comprehensive income to retained earnings. The guidance also requires certain new disclosures regardless of the election. ASU 2018-02 is effective for us in the first quarter of fiscal 2020, and earlier adoption is permitted. We are currently evaluating the impact of our pending adoption of ASU 2018-02 on our consolidated financial statements.

Derivatives and Hedging: In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (ASU 2017-12), which amends and simplifies existing guidance in order to allow companies to more accurately present the economic effects of risk management activities in the financial statements. ASU 2017-12 is effective for us in the first quarter of fiscal 2020, and earlier adoption is permitted. We are currently evaluating the impact of our pending adoption of ASU 2017-12 on our consolidated financial statements.

Retirement Benefits: In March 2017, the FASB issued ASU 2017-07, Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (ASU 2017-07), which provides guidance on the capitalization, presentation and disclosure of net benefit costs. ASU 2017-07 is effective for us in the first quarter of fiscal 2019. We currently do not expect that our pending adoption of ASU 2017-07 will have a material effect on our consolidated financial statements.

Income Taxes: In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory (ASU 2016-16), which changes the timing of when certain intercompany transactions are recognized within the provision for income taxes. ASU 2016-16 is effective for us in our first quarter of fiscal 2019 on a modified retrospective basis, and earlier adoption is permitted. We currently do not expect that our pending adoption of ASU 2016-16 will have a material effect on our consolidated financial statements.

Financial Instruments: In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13), which requires measurement and recognition of expected credit losses for financial assets held. ASU 2016-13 is effective for us in our first quarter of fiscal 2021, and earlier adoption is permitted beginning in the first quarter of fiscal 2020. We are currently evaluating the impact of our pending adoption of ASU 2016-13 on our consolidated financial statements.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (ASU 2016-01), which addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. ASU 2016-01 is effective for us in our first quarter of fiscal 2019, and earlier adoption is not permitted except for certain provisions. We currently do not expect that our pending adoption of ASU 2016-01 will have a material effect on our consolidated financial statements.

Leases: In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) and issued subsequent amendments to the initial guidance in September 2017 within ASU 2017-13 (collectively, Topic 842). Topic 842 requires companies to generally recognize on the balance sheet operating and financing lease liabilities and corresponding right-of-use assets. Topic 842 is effective for us in our first quarter of fiscal 2020 on a modified retrospective basis, and earlier adoption is permitted. We are currently evaluating the impact of our pending adoption of Topic 842 on our consolidated financial statements. We currently expect that most of our operating lease commitments will be subject to the new standard and recognized as operating lease liabilities and right-of-use assets upon our adoption of Topic 842, which will increase our total assets and total liabilities that we report relative to such amounts prior to adoption.

Index to Financial Statements

ORACLE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

May 31, 2018

Revenue Recognition: In May 2014, the FASB issued ASU No. 2014-09, _Revenue from Contracts with Customers, T_opic 606 and subsequent amendments to the initial guidance: ASU 2015-14, ASU 2016-08, ASU 2016-10, ASU 2016-12, ASU 2016-20, ASU 2017-10, ASU 2017-13 and ASU 2017-14, (collectively, Topic 606), which is effective for us in our first quarter of fiscal 2019. Topic 606 supersedes nearly all existing revenue recognition guidance under GAAP. The core principle of Topic 606 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. Topic 606 defines a five-step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than are required under existing GAAP, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation, among others. Topic 606 also provides guidance on the recognition of costs related to obtaining customer contracts, which will result in additional costs that will be capitalized. We will adopt the requirements of the new standard as of June 1, 2018, utilizing the full retrospective method of transition and will adjust our consolidated financial statements from amounts previously reported for the fiscal 2018 and 2017 periods. We do not believe there will be a material impact to our revenues or operating expenses upon adoption of Topic 606. We are continuing to evaluate the impact related to our pending adoption of Topic 606 and our preliminary assessments are subject to change.

2.	ACQUISITIONS

Fiscal 2018 Acquisitions

Acquisition of Aconex Limited

On March 28, 2018, we completed our acquisition of Aconex Limited (Aconex), a provider of cloud-based collaboration software for construction projects. We have included the financial results of Aconex in our consolidated financial statements from the date of acquisition. These results were not individually material to our consolidated financial statements. The total preliminary purchase price for Aconex was approximately $1.2 billion, which consisted of approximately $1.2 billion in cash and $1 million for the fair values of stock options and restricted stock-based awards assumed. In connection with the Aconex acquisition, we have preliminarily recorded $32 million of net tangible assets and $368 million of identifiable intangible assets based on their estimated fair values, and $832 million of residual goodwill. Goodwill generated from our acquisition of Aconex was primarily attributable to synergies expected to arise after the acquisition and is not expected to be tax deductible.

Other Fiscal 2018 Acquisitions

During fiscal 2018, we acquired certain other companies and purchased certain technology and development assets primarily to expand our products and services offerings. These acquisitions were not significant individually or in the aggregate.

Fiscal 2017 Acquisitions

Acquisition of NetSuite Inc., a Related Party

On November 7, 2016, we completed our acquisition of NetSuite Inc. (NetSuite), a provider of cloud-based enterprise resource planning (ERP) software and related applications and a related party to Oracle. We acquired NetSuite to, among other things, expand our cloud software as a service offerings with a complementary set of cloud ERP and related cloud software applications for customers.

Lawrence J. Ellison, Oracle’s Chairman of the Board and Chief Technology Officer and Oracle’s largest stockholder, was an affiliate of NetSuite’s largest stockholder, NetSuite Restricted Holdings LLC (a single

Index to Financial Statements

ORACLE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

May 31, 2018

member LLC investment entity whose interests are beneficially owned by a trust controlled by Mr. Ellison), which owned approximately 40% of the issued and outstanding NetSuite Shares immediately prior to the conclusion of the merger.

The total purchase price for NetSuite was approximately $9.1 billion, which consisted of approximately $9.0 billion in cash and $78 million for the fair values of restricted stock-based awards and stock options assumed. In allocating the purchase price based on estimated fair values, we recorded approximately $6.7 billion of goodwill, $3.2 billion of identifiable intangible assets and $763 million of net tangible liabilities. Goodwill generated from our acquisition of NetSuite was primarily attributable to synergies expected to arise after the acquisition and was not tax deductible.

Other Fiscal 2017 Acquisitions

During fiscal 2017, we acquired certain companies and purchased certain technology and development assets primarily to expand our products and services offerings. These acquisitions were not individually or in the aggregate significant. We have included the financial results of the acquired companies in our consolidated financial statements from their respective acquisition dates, and the results from each of these companies were not individually material to our consolidated financial statements. In the aggregate, the total purchase price for these acquisitions was approximately $3.0 billion, which consisted of $3.0 billion in cash and $13 million for the fair values of restricted stock-based awards and stock options assumed. Based on their estimated fair values, we recorded $243 million of net tangible assets and $948 million of identifiable intangible assets and $1.8 billion of residual goodwill related to our fiscal 2017 acquisitions.

Fiscal 2016 Acquisitions

During fiscal 2016, we acquired certain companies and purchased certain technology and development assets primarily to expand our products and services offerings. These acquisitions were not significant individually or in the aggregate.

Unaudited Pro Forma Financial Information

The unaudited pro forma financial information in the table below summarizes the combined results of operations for Oracle, NetSuite, Aconex and certain other companies that we acquired since the beginning of fiscal 2017 that were considered relevant for the purposes of unaudited pro forma financial information disclosure as if the companies were combined as of the beginning of fiscal 2017. The unaudited pro forma financial information for all periods presented included the business combination accounting effects resulting from these acquisitions, including amortization charges from acquired intangible assets (certain of which are preliminary), stock-based compensation charges for unvested restricted stock-based awards and stock options assumed, if any, and the related tax effects as though the aforementioned companies were combined as of the beginning of fiscal 2017. The unaudited pro forma financial information as presented below is for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved if the acquisitions had taken place at the beginning of fiscal 2017.

The unaudited pro forma financial information for fiscal 2018 combined the historical results of Oracle for fiscal 2018 and the historical results of Aconex for the twelve month period ended December 31, 2017 (adjusted due to differences in reporting periods and considering the date we acquired Aconex) and certain other companies that we acquired since the beginning of fiscal 2018 based upon their respective 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 for fiscal 2017 combined the historical results of Oracle for fiscal 2017, the historical results of NetSuite for the six month period ended September 30, 2016 (adjusted due to differences in reporting periods and considering the date we acquired NetSuite) and the historical results of

Index to Financial Statements

ORACLE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

May 31, 2018

Aconex and certain other companies that we acquired since the beginning of fiscal 2017 based upon their respective 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:


	Year Ended May 31,
(in millions, except per share data)	2018		2017
Total revenues	$	39,977	$	38,416
Net income	$	3,738	$	8,825
Basic earnings per share	$	0.91	$	2.14
Diluted earnings per share	$	0.88	$	2.09

3.	CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES

Cash and cash equivalents primarily consist of deposits held at major banks, Tier-1 commercial paper and other securities with original maturities of 90 days or less. Marketable securities consist of Tier-1 commercial paper debt securities, corporate debt securities and certain other securities.

The amortized principal amounts of our cash, cash equivalents and marketable securities approximated their fair values at May 31, 2018 and 2017. We use the specific identification method to determine any realized gains or losses from the sale of our marketable securities classified as available-for-sale. Such realized gains and losses were insignificant for fiscal 2018, 2017 and 2016. The following table summarizes the components of our cash equivalents and marketable securities held, substantially all of which were classified as available-for-sale:


	May 31,
(in millions)	2018		2017
Corporate debt securities and other	$	44,302	$	41,618
Commercial paper debt securities		1,647		5,053
Money market funds		6,500		3,302

Total investments	$	52,449	$	49,973

Investments classified as cash equivalents	$	6,808	$	5,679

Investments classified as marketable securities	$	45,641	$	44,294

As of May 31, 2018 and 2017, approximately 26% and 32%, respectively, of our marketable securities investments mature within one year and 74% and 68%, respectively, mature within one to five years. Our investment portfolio is subject to market risk due to changes in interest rates. As described above, we limit purchases of marketable debt securities to investment-grade securities, which have high credit ratings and also limit the amount of credit exposure to any one issuer. As stated in our investment policy, we are averse to principal loss and seek to preserve our invested funds by limiting default risk and market risk.

Restricted cash that was included within cash and cash equivalents as presented within our consolidated balance sheets as of May 31, 2018 and 2017 and our consolidated statements of cash flows for the years ended May 31, 2018, 2017 and 2016 was nominal.

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 a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at their fair values, we consider the principal or most advantageous market in which we would transact and consider assumptions that market participants would use when pricing the assets or liabilities, such as inherent risk, transfer restrictions and risk of nonperformance.

Index to Financial Statements

ORACLE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

May 31, 2018

ASC 820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. An asset’s or a liability’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 establishes three levels of inputs that may be used to measure fair value:

	•		Level 1: quoted prices in active markets for identical assets or liabilities;

	•		Level 2: inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; or

	•		Level 3: unobservable inputs that are supported by little or no market activity and that are significant to the fair values of the assets or liabilities.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Our assets and liabilities measured at fair value on a recurring basis, excluding accrued interest components, consisted of the following (Level 1 and Level 2 inputs are defined above):


	May 31, 2018						May 31, 2017
	Fair Value Measurements Using Input Types						Fair Value Measurements Using Input Types
(in millions)	Level 1		Level 2		Total		Level 1		Level 2		Total
Assets:
Corporate debt securities and other	$	223	$	44,079	$	44,302	$	580	$	41,038	$	41,618
Commercial paper debt securities		—		1,647		1,647		—		5,053		5,053
Money market funds		6,500		—		6,500		3,302		—		3,302
Derivative financial instruments		—		29		29		—		40		40

Total assets	$	6,723	$	45,755	$	52,478	$	3,882	$	46,131	$	50,013

Liabilities:
Derivative financial instruments	$	—	$	158	$	158	$	—	$	191	$	191

Our valuation techniques used to measure the fair values of our marketable securities that were classified as Level 1 in the table above were derived from quoted market prices and active markets for these instruments that exist. Our valuation techniques used to measure the fair values of Level 2 instruments listed in the table above, the counterparties to which have high credit ratings, were derived from the following: non-binding market consensus prices that were corroborated by observable market data, quoted market prices for similar instruments, or pricing models, such as discounted cash flow techniques, with all significant inputs derived from or corroborated by observable market data including LIBOR-based yield curves, among others.

Based on the trading prices of the $58.0 billion and $54.0 billion of senior notes and the related fair value hedges that we had outstanding as of May 31, 2018 and 2017, respectively, the estimated fair values of the senior notes and the related fair value hedges using Level 2 inputs at May 31, 2018 and 2017 were $59.0 billion and $56.5 billion, respectively.

Index to Financial Statements

ORACLE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

May 31, 2018

5.	PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment, net consisted of the following:


	Estimated Useful Life		May 31,
(Dollars in millions)		2018		2017
Computer, network, machinery and equipment		1-5 years	$	6,156		$	5,112
Buildings and improvements		1-40 years		3,893			3,466
Furniture, fixtures and other		5-15 years		662			651
Land		—		868			830
Construction in progress		—		229			235

Total property, plant and equipment		1-40 years		11,808			10,294
Accumulated depreciation				(5,911	)		(4,979	)

Total property, plant and equipment, net			$	5,897		$	5,315

6.	INTANGIBLE ASSETS AND GOODWILL

The changes in intangible assets for fiscal 2018 and the net book value of intangible assets as of May 31, 2018 and 2017 were as follows:


	Intangible Assets, Gross									Accumulated Amortization											Intangible Assets, Net				Weighted Average Useful Life(1)
(Dollars in millions)	May 31, 2017		Additions		Retirements			May 31, 2018		May 31, 2017			Expense			Retirements		May 31, 2018			May 31, 2017		May 31, 2018
Developed technology	$	5,397	$	153	$	(241	)	$	5,309	$	(2,295	)	$	(758	)	$	239	$	(2,814	)	$	3,102	$	2,495	3 years
Cloud services and license support agreements and related relationships		5,670		423		(94	)		5,999		(1,648	)		(731	)		94		(2,285	)		4,022		3,714	5 years
Other		1,998		37		(413	)		1,622		(1,443	)		(131	)		413		(1,161	)		555		461	5 years

Total intangible assets, net	$	13,065	$	613	$	(748	)	$	12,930	$	(5,386	)	$	(1,620	)	$	746	$	(6,260	)	$	7,679	$	6,670	4 years

(1)	Represents weighted-average useful lives of intangible assets acquired during fiscal 2018.

Total amortization expense related to our intangible assets was $1.6 billion, $1.5 billion and $1.6 billion in fiscal 2018, 2017 and 2016, respectively. As of May 31, 2018, estimated future amortization expenses related to intangible assets were as follows (in millions):


Fiscal 2019	$	1,605
Fiscal 2020		1,400
Fiscal 2021		1,174
Fiscal 2022		966
Fiscal 2023		613
Thereafter		912

Total intangible assets, net	$	6,670

Index to Financial Statements

ORACLE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

May 31, 2018

The changes in the carrying amounts of goodwill, net, which is generally not deductible for tax purposes, for our operating segments for fiscal 2018 and 2017 were as follows:


(in millions)	Cloud and License			Hardware		Services			Total Goodwill, net
Balances as of May 31, 2016	$	30,336		$	2,367	$	1,887		$	34,590
Goodwill from acquisitions		8,543			—		—			8,543
Goodwill adjustments, net(1)		(88	)		—		—			(88	)

Balances as of May 31, 2017		38,791			2,367		1,887			43,045

Goodwill from acquisitions		1,052			—		—			1,052
Goodwill adjustments, net(1)		(243	)		—		(99	)		(342	)

Balances as of May 31, 2018	$	39,600		$	2,367	$	1,788		$	43,755

(1)

Pursuant to our business combinations accounting policy, we recorded goodwill adjustments for the effects on goodwill of changes 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). Amounts also include any changes in goodwill balances for the periods presented that resulted from foreign currency translations.

Index to Financial Statements

ORACLE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

May 31, 2018

7.	NOTES PAYABLE AND OTHER BORROWINGS

Notes payable and other borrowings consisted of the following:


		May 31, 2018					May 31, 2017
(Dollars in millions)	Date of Issuance	Amount			Effective Interest Rate		Amount			Effective Interest Rate
Fixed-rate senior notes:
$2,500, 1.20%, due October 2017	October 2012	$	—			N.A.	$	2,500			1.24%
$2,500, 5.75%, due April 2018	April 2008		—			N.A.		2,500			5.76%
$1,500, 2.375%, due January 2019(1)	July 2013		1,500			2.44%		1,500			2.44%
$1,750, 5.00%, due July 2019	July 2009		1,750			5.05%		1,750			5.05%
$2,000, 2.25%, due October 2019(1)	July 2014		2,000			2.27%		2,000			2.27%
$1,000, 3.875%, due July 2020	July 2010		1,000			3.93%		1,000			3.93%
€1,250, 2.25%, due January 2021(2)(3)	July 2013		1,446			2.33%		1,395			2.33%
$1,500, 2.80%, due July 2021(1)	July 2014		1,500			2.82%		1,500			2.82%
$4,250, 1.90%, due September 2021(5)	July 2016		4,250			1.94%		4,250			1.94%
$2,500, 2.50%, due May 2022	May 2015		2,500			2.56%		2,500			2.56%
$2,500, 2.50%, due October 2022	October 2012		2,500			2.51%		2,500			2.51%
$1,250, 2.625%, due February 2023(6)	November 2017		1,250			2.64%		—			N.A.
$1,000, 3.625%, due July 2023	July 2013		1,000			3.73%		1,000			3.73%
$2,500, 2.40%, due September 2023(5)	July 2016		2,500			2.40%		2,500			2.40%
$2,000, 3.40%, due July 2024	July 2014		2,000			3.43%		2,000			3.43%
$2,000, 2.95%, due November 2024(6)	November 2017		2,000			2.98%		—			N.A.
$2,500, 2.95%, due May 2025	May 2015		2,500			3.00%		2,500			3.00%
€750, 3.125%, due July 2025(2)(4)	July 2013		868			3.17%		837			3.17%
$3,000, 2.65%, due July 2026(5)	July 2016		3,000			2.69%		3,000			2.69%
$2,750, 3.25%, due November 2027(6)	November 2017		2,750			3.26%		—			N.A.
$500, 3.25%, due May 2030	May 2015		500			3.30%		500			3.30%
$1,750, 4.30%, due July 2034	July 2014		1,750			4.30%		1,750			4.30%
$1,250, 3.90%, due May 2035	May 2015		1,250			3.95%		1,250			3.95%
$1,250, 3.85%, due July 2036(5)	July 2016		1,250			3.85%		1,250			3.85%
$1,750, 3.80%, due November 2037(6)	November 2017		1,750			3.83%		—			N.A.
$1,250, 6.50%, due April 2038(1)	April 2008		1,250			6.52%		1,250			6.52%
$1,250, 6.125%, due July 2039	July 2009		1,250			6.19%		1,250			6.19%
$2,250, 5.375%, due July 2040	July 2010		2,250			5.45%		2,250			5.45%
$1,000, 4.50%, due July 2044	July 2014		1,000			4.50%		1,000			4.50%
$2,000, 4.125%, due May 2045	May 2015		2,000			4.15%		2,000			4.15%
$3,000, 4.00%, due July 2046(5)	July 2016		3,000			4.00%		3,000			4.00%
$2,250, 4.00%, due November 2047(6)	November 2017		2,250			4.03%		—			N.A.
$1,250, 4.375%, due May 2055	May 2015		1,250			4.40%		1,250			4.40%
Floating-rate senior notes:
$1,000, three-month LIBOR plus 0.20%, due July 2017	July 2014		—			N.A.		1,000			1.35%
$500, three-month LIBOR plus 0.58%, due January 2019	July 2013		500			2.93%		500			1.74%
$750, three-month LIBOR plus 0.51%, due October 2019	July 2014		750			2.84%		750			1.67%
Revolving credit agreements and other borrowings:
$3,800, LIBOR plus 0.50%, due June 2017	May 2017		—			N.A.		3,800			1.54%
$2,500, LIBOR plus 0.50%, due June 2018	May 2018		2,500			2.48%		—			N.A.
Other borrowings due August 2025	November 2016		113			3.53%		113			3.53%

Total senior notes and other borrowings		$	60,927				$	58,145

Unamortized discount/issuance costs			(282	)				(276	)
Hedge accounting fair value adjustments(1)			(26	)				40

Total notes payable and other borrowings		$	60,619				$	57,909

Notes payable and other borrowings, current		$	4,491				$	9,797

Notes payable and other borrowings, non-current		$	56,128				$	48,112

Index to Financial Statements

ORACLE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

May 31, 2018

(1)

We have entered into certain interest rate swap agreements that have the economic effects of modifying the fixed-interest obligations associated with the 2.375% senior notes due January 2019 (January 2019 Notes), the 2.25% senior notes due October 2019 (October 2019 Notes), the 2.80% senior notes due July 2021 (July 2021 Notes), and the 6.50% senior notes due April 2038 (April 2038 Notes) so that the interest payable on these notes effectively became variable based on LIBOR. The effective interest rates after consideration of these fixed to variable interest rate swap agreements were 3.00% and 1.81%, respectively, for the January 2019 Notes, 2.81% and 1.64%, respectively, for the October 2019 Notes, and 2.96% and 1.79%, respectively, for the July 2021 Notes as of May 31, 2018 and 2017, respectively. The effective interest rate as of May 31, 2018 after consideration of the fixed to variable interest rate swap agreements was 5.65% for the April 2038 Notes. Refer to Notes 1 and 10 for a description of our accounting for fair value hedges.

(2)

In July 2013, we issued €2.0 billion of fixed-rate senior notes comprised of €1.25 billion of 2.25% senior notes due January 2021 (January 2021 Notes) and €750 million of 3.125% senior notes due July 2025 (July 2025 Notes, and together with the January 2021 Notes, the Euro Notes). Principal and unamortized discount/issuance costs for the Euro Notes in the table above were calculated using foreign currency exchange rates as of May 31, 2018 and May 31, 2017, respectively. The Euro Notes are registered and trade on the New York Stock Exchange.

(3)

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-denominated debt, including annual interest payments and the payment of principal at maturity, to a fixed-rate, U.S. Dollar-denominated debt of $1.6 billion with a fixed annual interest rate of 3.53% (see Note 10 for additional information).

(4)

We designated the July 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 Euro with respect to the U.S. Dollar in connection with the issuance of the July 2025 Notes. In our fourth quarter of fiscal 2018 we de-designated the 2025 Notes as a net investment hedge and entered into certain cross-currency interest rate swap agreements that have the economic effect of converting our fixed-rate, Euro-denominated debt, including annual interest payments and the payment of principal at maturity, to a variable-rate, U.S. Dollar-denominated debt of $0.9 billion based on LIBOR. The effective interest rate as of May 31, 2018 after consideration of the cross-currency interest rate swap agreements was 5.17% for the July 2025 Notes. Refer to Notes 1 and 10 for a description of our accounting for fair value hedges.

(5)

In July 2016, we issued $14.0 billion of senior notes for general corporate purposes, which may include stock repurchases, payment of cash dividends on our common stock and repayment of indebtedness and future acquisitions. The interest is payable semi-annually. We may redeem some or all of the senior notes of each series prior to their maturity, subject to certain restrictions, and the payment of an applicable make-whole premium in certain instances.

(6)

In November 2017, we issued $10.0 billion of senior notes for general corporate purposes, which may include stock repurchases, payment of cash dividends on our common stock and repayment of indebtedness and future acquisitions. The interest is payable semi-annually. We may redeem some or all of the senior notes of each series prior to their maturity, subject to certain restrictions, and the payment of an applicable make-whole premium in certain instances.

Future principal payments (adjusted for the effects of the cross-currency swap agreements associated with the January 2021 Notes and July 2025 Notes) for all of our borrowings at May 31, 2018 were as follows (in millions):


Fiscal 2019	$	4,500
Fiscal 2020		4,500
Fiscal 2021		2,446
Fiscal 2022		8,250
Fiscal 2023		3,750
Thereafter		37,481

Total	$	60,927

Senior Notes

Interest is payable semi-annually for the senior notes listed in the above table except for the Euro Notes for which interest is payable annually and the floating-rate senior notes for which interest is payable quarterly. We may redeem some or all of the senior notes of each series prior to their maturity, subject to certain restrictions, and the payment of an applicable make-whole premium in certain instances except for the floating-rate senior notes which may not be redeemed prior to their maturity.

Index to Financial Statements

ORACLE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

May 31, 2018

The senior notes rank pari passu with any other notes we may issue in the future pursuant to our commercial paper program (see additional discussion regarding our commercial paper program below) and all existing and future unsecured senior indebtedness of Oracle Corporation. All existing and future liabilities of the subsidiaries of Oracle Corporation are or will be effectively senior to the senior notes and any future issuances of commercial paper notes. We were in compliance with all debt-related covenants at May 31, 2018.

Revolving Credit Agreements

In May 2018, we entered into three revolving credit agreements with JPMorgan Chase Bank, N.A., as initial lender and administrative agent (the 2018 Credit Agreements) and borrowed $2.5 billion pursuant to these agreements. The 2018 Credit Agreements provided us with short-term borrowings for working capital and other general corporate purposes. Interest for the 2018 Credit Agreements is based on either (1) a LIBOR-based formula or (2) the Base Rate formula, as set forth in the 2018 Credit Agreements. The borrowings are due and payable on June 28, 2018, which is the termination date of the 2018 Credit Agreements.

In May 2017, we borrowed $3.8 billion pursuant to four revolving credit agreements with JPMorgan Chase Bank, N.A., as initial lender and administrative agent (the 2017 Credit Agreements). In June 2017, we repaid the $3.8 billion and the 2017 Credit Agreements expired pursuant to their terms.

In May 2016, we borrowed $3.8 billion pursuant to three revolving credit agreements with JPMorgan Chase Bank, N.A., as initial lender and administrative agent (the 2016 Credit Agreements). In June 2016, we repaid the $3.8 billion and the 2016 Credit Agreements expired pursuant to their terms.

In April 2013, we entered into a $3.0 billion Revolving Credit Agreement with Wells Fargo Bank, N.A., Bank of America, N.A., BNP Paribas, JPMorgan Chase Bank, N.A. and certain other lenders (the 2013 Credit Agreement). The 2013 Credit Agreement provided for an unsecured 5-year revolving credit facility to be used for general corporate purposes including back-stopping any commercial paper notes that we may issue. In April 2018, the 2013 Credit Agreement expired. No amounts were outstanding as of the expiration date nor as of May 31, 2017.

Commercial Paper Program and Commercial Paper Notes

In April 2013, pursuant to our existing $3.0 billion commercial paper program which allows us to issue and sell unsecured short-term promissory notes pursuant to a private placement exemption from the registration requirements under federal and state securities laws, we entered into new dealer agreements with various banks and a new Issuing and Paying Agency Agreement with JP Morgan Chase Bank, N.A (JP Morgan). Effective on December 22, 2014, Deutsche Bank Trust Companies Americas became the Successor Issuing and Paying Agent replacing JP Morgan. Since that time, we have entered into new dealer agreements with additional banks. As of May 31, 2018 and 2017, we did not have any outstanding commercial paper notes.

Other Borrowings Activities

In connection with our acquisition of NetSuite in the second quarter of fiscal 2017 (see Note 2 above), we assumed $310 million par value of legacy NetSuite convertible notes (NetSuite Debt), which had a fair value of $342 million as of the acquisition date. In December 2016, we repurchased and settled for cash substantially all of the NetSuite Debt.

In the second quarter of fiscal 2017, we assumed $113 million of debt that bears interest at 3.53% and matures in August 2025 in connection with our acquisition of certain land and buildings.

8.	RESTRUCTURING ACTIVITIES

Fiscal 2017 Oracle Restructuring Plan

During the first quarter of fiscal 2017, our management approved, committed to and initiated plans to restructure and further improve efficiencies in our operations due to our recent acquisitions and certain other

Index to Financial Statements

ORACLE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

May 31, 2018

operational activities (2017 Restructuring Plan). Restructuring costs associated with the 2017 Restructuring Plan were recorded to the restructuring expense line item within our consolidated statements of operations as they were incurred. We recorded $601 million and $486 million of restructuring expenses in connection with the 2017 Restructuring Plan in fiscal 2018 and 2017, respectively. Actions pursuant to the 2017 Restructuring Plan were substantially complete as of May 31, 2018.

Fiscal 2015 Oracle Restructuring Plan

During the second quarter of fiscal 2015, our management approved, committed to and initiated plans to restructure and further improve efficiencies in our operations due to our acquisition of MICROS Systems, Inc. and certain other operational activities (2015 Restructuring Plan). Restructuring costs associated with the 2015 Restructuring Plan were recorded to the restructuring expense line item within our consolidated statements of operations as they were incurred. We recorded $462 million of restructuring expenses in connection with the 2015 Restructuring Plan in fiscal 2016. Actions pursuant to the 2015 Restructuring Plan were substantially complete as of May 31, 2016.

Summary of All Plans

Fiscal 2018 Activity


	Accrued May 31, 2017(2)		Year Ended May 31, 2018											Accrued May 31, 2018(2)
(in millions)		Initial Costs(3)		Adj. to Cost(4)		Cash Payments			Others(5)
Fiscal 2017 Oracle Restructuring Plan(1)
Cloud and license	$	85	$	156	$	(12	)	$	(150	)	$	3		$	82
Hardware		31		167		(15	)		(122	)		—			61
Services		25		48		(4	)		(54	)		1			16
Other(6)		44		267		(6	)		(208	)		(7	)		90

Total Fiscal 2017 Oracle Restructuring Plan	$	185	$	638	$	(37	)	$	(534	)	$	(3	)	$	249

Total other restructuring plans(7)	$	79	$	1	$	(14	)	$	(37	)	$	4		$	33

Total restructuring plans	$	264	$	639	$	(51	)	$	(571	)	$	1		$	282

Fiscal 2017 Activity


	Accrued May 31, 2016		Year Ended May 31, 2017											Accrued May 31, 2017(2)
(in millions)		Initial Costs(3)		Adj. to Cost(4)		Cash Payments			Others(5)
Fiscal 2017 Oracle Restructuring Plan(1)
Cloud and license	$	—	$	184	$	(6	)	$	(100	)	$	7		$	85
Hardware		—		91		(3	)		(57	)		—			31
Services		—		59		(1	)		(34	)		1			25
Other(6)		—		166		(4	)		(118	)		—			44

Total Fiscal 2017 Oracle Restructuring Plan	$	—	$	500	$	(14	)	$	(309	)	$	8		$	185

Total other restructuring plans(7)	$	283	$	8	$	(31	)	$	(169	)	$	(12	)	$	79

Total restructuring plans	$	283	$	508	$	(45	)	$	(478	)	$	(4	)	$	264

Index to Financial Statements

ORACLE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

May 31, 2018

Fiscal 2016 Activity


	Accrued May 31, 2015		Year Ended May 31, 2016											Accrued May 31, 2016
(in millions)		Initial Costs(3)		Adj. to Cost(4)		Cash Payments			Others(5)
Fiscal 2015 Oracle Restructuring Plan(1)
Cloud and license	$	16	$	263	$	(8	)	$	(129	)	$	4		$	146
Hardware		6		67		(8	)		(43	)		1			23
Services		9		44		(4	)		(35	)		—			14
Other(6)		5		108		—			(56	)		(2	)		55

Total Fiscal 2015 Oracle Restructuring Plan	$	36	$	482	$	(20	)	$	(263	)	$	3		$	238

Total other restructuring plans(7)	$	84	$	2	$	(6	)	$	(27	)	$	(8	)	$	45

Total restructuring plans	$	120	$	484	$	(26	)	$	(290	)	$	(5	)	$	283

(1)	Restructuring costs recorded for individual line items primarily related to employee severance costs.

(2)	The balances at May 31, 2018 and 2017 included $257 million and $242 million, respectively, recorded in other current liabilities and $25 million and $22 million, respectively, recorded in other non-current liabilities.

(3)	Costs recorded for the respective restructuring plans during the periods presented.

(4)	All plan adjustments were changes in estimates whereby increases and decreases in costs were generally recorded to operating expenses in the period of adjustments.

(5)	Represents foreign currency translation and certain other adjustments.

(6)	Represents employee related severance costs for functions that are not included within our operating segments and certain facilities related restructuring costs.

(7)	Other restructuring plans presented in the tables above included condensed information for certain Oracle-based plans and other plans associated with certain of our acquisitions whereby we continued to make cash outlays to settle obligations under these plans during the periods presented but for which the periodic impact to our consolidated statements of operations was not significant.

9.	DEFERRED REVENUES

Deferred revenues consisted of the following:


	May 31,
(in millions)	2018		2017
Cloud services and license support	$	7,292	$	7,144
Hardware		645		640
Services		437		382
Cloud license and on-premise license		55		67

Deferred revenues, current		8,429		8,233
Deferred revenues, non-current (in other non-current liabilities)		625		602

Total deferred revenues	$	9,054	$	8,835

Deferred cloud services and license support revenues and deferred hardware revenues substantially represent customer payments made in advance for cloud or support contracts that are typically billed in advance with corresponding revenues generally being recognized ratably over the contractual periods. Deferred services revenues include prepayments for our services business and revenues for these services are generally recognized as the services are performed. Deferred new cloud license and on-premise license revenues typically resulted from customer payments that relate to undelivered products or specified enhancements, customer-

Index to Financial Statements

ORACLE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

May 31, 2018

specific acceptance provisions, time-based license arrangements and license transactions that cannot be separated from undelivered consulting or other services.

In connection with our acquisitions, we have estimated the fair values of the cloud services and license support, and hardware obligations, among others, assumed from our acquired companies. We generally have estimated the fair values of these obligations assumed using a cost build-up approach. The cost build-up approach determines fair value by estimating the costs related to fulfilling the obligations plus a normal profit margin. The sum of the costs and operating profit approximates, in theory, the amount that we would be 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 services and license support and hardware deferred revenues balances that we recorded as liabilities from these acquisitions and also reduced the resulting revenues that we recognized or will recognize over the terms of the acquired obligations during the post-combination periods.

10.	DERIVATIVE FINANCIAL INSTRUMENTS

Fair Value Hedges—Interest Rate Swap Agreements and Cross-Currency Interest Rate Swap Agreements

In May 2018, we entered into certain cross-currency interest rate swap agreements to manage the foreign currency exchange rate risk associated with our July 2025 Notes by effectively converting the fixed-rate, Euro denominated 2025 Notes, including the annual interest payments and the payment of principal at maturity, to variable-rate, U.S. Dollar denominated debt based on LIBOR. In April 2018, we entered into certain interest rate swap agreements that have the economic effect of modifying the fixed-interest obligations associated with our April 2038 Notes so that the interest payable on these senior notes effectively became variable based on LIBOR. In July 2014, we entered into certain interest rate swap agreements that have the economic effect of modifying the fixed-interest obligations associated with our October 2019 Notes and our July 2021 Notes so that the interest payable on these senior notes effectively became variable based on LIBOR. In July 2013, we entered into certain interest rate swap agreements that have the economic effect of modifying the fixed-interest obligations associated with our January 2019 Notes so that the interest payable on these senior notes effectively became variable based on LIBOR. The critical terms of the swap agreements match the critical terms of the July 2025 Notes, April 2038 Notes, October 2019 Notes, July 2021 Notes and the January 2019 Notes that the swap agreements pertain to, including the notional amounts and maturity dates.

We have designated the aforementioned swap agreements as qualifying hedging instruments and are accounting for them as fair value hedges pursuant to ASC 815. These transactions are characterized as fair value hedges for financial accounting purposes because they protect us against changes in the fair values of certain of our fixed-rate borrowings due to benchmark interest rate movements. The changes in fair values of these 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 (loss) attributable to the risk being hedged is recognized as interest expense in our consolidated statements of operations with the corresponding amount included in notes payable, non-current. The periodic interest settlements for the swap agreements for the July 2025 Notes, April 2038 Notes, October 2019 Notes, July 2021 Notes and the January 2019 Notes are recorded as interest expense and are included as a part of cash flows from operating activities.

We do not use any swap agreements for trading purposes.

Cash Flow Hedges—Cross-Currency Swap Agreements

In connection with the issuance of the January 2021 Notes, we entered into certain cross-currency swap agreements to manage the related foreign currency exchange risk by effectively converting the fixed-rate, Euro-denominated January 2021 Notes, including the annual interest payments and the payment of principal at

Index to Financial Statements

ORACLE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

May 31, 2018

maturity, to fixed-rate, U.S. Dollar-denominated debt. The economic effect of the swap agreements was to eliminate the uncertainty of the cash flows in U.S. Dollars associated with the January 2021 Notes by fixing the principal amount of the January 2021 Notes at $1.6 billion with a fixed annual interest rate of 3.53%. We have designated these cross-currency swap agreements as qualifying hedging instruments and are accounting for these as cash flow hedges pursuant to ASC 815. The critical terms of the cross-currency swap agreements correspond to the January 2021 Notes including the annual interest payments being hedged, and the cross-currency swap agreements mature at the same time as the January 2021 Notes.

We used the hypothetical derivative method to measure the effectiveness of our cross-currency swap agreements. The fair values of these cross-currency swap agreements are recognized as other assets or other non-current liabilities in our consolidated balance sheets. The effective portions of the changes in fair values of these cross-currency swap agreements are reported in accumulated other comprehensive loss in our consolidated balance sheets and an amount is reclassified out of accumulated other comprehensive loss into non-operating income, net in the same period that the carrying values of the Euro-denominated January 2021 Notes are remeasured and the interest expense is recognized. The ineffective portion of the unrealized gains and losses on these cross-currency swaps, if any, are recorded immediately to non-operating income, net. We evaluate the effectiveness of our cross-currency swap agreements on a quarterly basis. We did not record any ineffectiveness for fiscal 2018, 2017 or 2016. The cash flows related to the cross-currency swap agreements that 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 any cross-currency swap agreements for trading purposes.

Net Investment Hedge—Foreign Currency Borrowings

In July 2013, we designated our July 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 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 of the Euro-denominated July 2025 Notes due to remeasurement of the effective portion is reported in accumulated other comprehensive loss in our consolidated balance sheet and the remaining change in the carrying value of the ineffective portion, if any, was recognized in non-operating income, net in our consolidated statements of operations. We evaluated the effectiveness of our net investment hedge at the beginning of every quarter. We did not record any ineffectiveness for fiscal 2018, 2017 or 2016. In the fourth quarter of fiscal 2018, we de-designated the July 2025 Notes as a net investment hedge, and as noted above, we entered into cross-currency interest rate swap agreements to manage the foreign currency exchange risk associated with our July 2025 Notes by effectively converting the fixed-rate, Euro denominated debt, including the annual interest payments and the payment of principal at maturity, to variable-rate, U.S. Dollar denominated debt.

Foreign Currency Forward Contracts Not Designated as Hedges

We transact business in various foreign currencies and have established a program that primarily utilizes foreign currency forward contracts to offset the risks associated with the effects of certain foreign currency exposures. Under this program, our strategy is to enter into foreign currency forward contracts so that increases or decreases in our foreign currency exposures are offset by gains or losses on the foreign currency forward contracts in order to mitigate the risks and volatility associated with our foreign currency transactions. We may suspend this program from time to time. Our foreign currency exposures typically arise from intercompany sublicense fees, intercompany loans and other intercompany transactions that are generally expected to be cash settled in the near term. Our foreign currency forward contracts are generally short-term in duration. Our ultimate realized gain or loss with respect to currency fluctuations will generally depend on the size and type of

Index to Financial Statements

ORACLE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

May 31, 2018

cross-currency exposures that we enter into, the currency exchange rates associated with these exposures and changes in those rates, the net realized and unrealized gains or losses on foreign currency forward contracts to offset these exposures and other factors.

Neither do we use these foreign currency forward contracts for trading purposes nor do we designate these forward contracts as hedging instruments pursuant to ASC 815. Accordingly, we recorded the fair values of these contracts as of the end of each reporting period to our consolidated balance sheets with changes in fair values recorded to our consolidated statements of operations. The balance sheet classification for the fair values of these forward contracts is prepaid expenses and other current assets for forward contracts in an unrealized gain position and other current liabilities for forward contracts in an unrealized loss position. The statement of operations classification for changes in fair values of these forward contracts is non-operating income, net, for both realized and unrealized gains and losses.

The notional amounts of the forward contracts we held to purchase U.S. Dollars in exchange for other major international currencies was $3.4 billion as of each of May 31, 2018 and 2017 and the notional amounts of forward contracts we held to sell U.S. Dollars in exchange for other major international currencies was $1.4 billion as of each of May 31, 2018 and 2017. The fair values of our outstanding foreign currency forward contracts were nominal at May 31, 2018 and 2017. The cash flows related to these foreign currency contracts are classified as operating activities. Net gains or losses related to these forward contracts are included in non-operating income, net.

The effects of derivative and non-derivative instruments designated as hedges on certain of our consolidated financial statements were as follows as of or for each of the respective periods presented below (amounts presented exclude any income tax effects):

Fair Values of Derivative and Non-Derivative Instruments Designated as Hedges in Consolidated Balance Sheets


		Fair Value as of May 31,
(in millions)	Balance Sheet Location	2018			2017
Interest rate swap agreements designated as fair value hedges	Other current liabilities	$	(7	)	$	—

Interest rate swap agreements designated as fair value hedges	Other non-current assets	$	29		$	40

Interest rate swap agreements designated as fair value hedges	Other non-current liabilities	$	(48	)	$	—

Cross-currency swap agreements designated as cash flow hedges	Other non-current liabilities	$	(103	)	$	(191	)

Foreign currency borrowings designated as net investment hedge	Notes payable, non-current	$	—		$	(980	)

Effects of Derivative and Non-Derivative Instruments Designated as Hedges on Income and Other Comprehensive Income (OCI) or Loss (OCL)


	Amount of Gain (Loss) Recognized in Accumulated OCI or OCL (Effective Portion)
	Year Ended May 31,
(in millions)	2018			2017			2016
Cross-currency swap agreements designated as cash flow hedges	$	88		$	27		$	26

Foreign currency borrowings designated as net investment hedge	$	(30	)	$	(1	)	$	(25	)

Index to Financial Statements

ORACLE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

May 31, 2018


	Amount of Gain (Loss) Reclassified from Accumulated OCI or OCL into Income (Effective Portion)
		Year Ended May 31,
(in millions)	Location	2018		2017		2016
Cross-currency swap agreements designated as cash flow hedges	Non-operating income (expense), net	$	51	$	2	$	41


	Amount of Gain (Loss) Recognized in Income on Derivative
		Year Ended May 31,
(in millions)	Location	2018			2017			2016
Interest rate swap agreements designated as fair value hedges	Interest expense	$	(66	)	$	(82	)	$	48


	Amount of Gain (Loss) on Hedged Item Recognized in Income Attributable to Risk Being Hedged
		Year Ended May 31,
(in millions)	Location	2018		2017		2016
Interest rate swap agreements designated as fair value hedges	Interest expense	$	66	$	82	$	(48	)

11.	COMMITMENTS AND CERTAIN CONTINGENCIES

Lease Commitments

We lease certain facilities, furniture and equipment under operating leases. As of May 31, 2018, future minimum annual operating lease payments and future minimum payments to be received from non-cancelable subleases were as follows:


(in millions)
Fiscal 2019	$	377
Fiscal 2020		314
Fiscal 2021		248
Fiscal 2022		184
Fiscal 2023		144
Thereafter		372

Future minimum operating lease payments		1,639
Less: minimum payments to be received from non-cancelable subleases		(29	)

Total future minimum operating lease payments, net	$	1,610

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 8. We have approximately $61 million in facility obligations, net of estimated sublease income and other costs, in accrued restructuring for these locations in our consolidated balance sheet at May 31, 2018.

Rent expense was $292 million, $273 million and $283 million for fiscal 2018, 2017 and 2016, respectively, net of sublease income of approximately $104 million, $87 million and $45 million for fiscal 2018, 2017 and 2016, respectively. Certain lease agreements contain renewal options providing for extensions of the lease terms.

Unconditional Obligations

In the ordinary course of business, we enter into certain unconditional purchase obligations with our suppliers, which are agreements that are enforceable and legally binding and specify terms, including: fixed or minimum

Index to Financial Statements

ORACLE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

May 31, 2018

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 for our hardware products and to perform final assembly and testing of finished hardware products. We also obtain individual components for our hardware products from a variety of individual suppliers based on projected demand information. Such purchase commitments are based on our forecasted component and manufacturing requirements and typically provide for fulfillment within agreed upon lead-times and/or commercially standard lead-times for the particular part or product and have been included in the amounts below. Routine arrangements for other materials and goods that are not related to our external manufacturers and certain other suppliers and that are entered into in the ordinary course of business are not included in the amounts below, as they are generally entered into in order to secure pricing or other negotiated terms and are difficult to quantify in a meaningful way.

As of May 31, 2018, our unconditional purchase and certain other obligations were as follows (in millions):


Fiscal 2019	$	757
Fiscal 2020		291
Fiscal 2021		189
Fiscal 2022		114
Fiscal 2023		24

Total	$	1,375

As described in Notes 7 and 10 above, as of May 31, 2018 we have senior notes and other borrowings of $60.9 billion that mature at various future dates and derivative financial instruments outstanding that we leverage to manage certain risks and exposures.

Guarantees

Our cloud, license and hardware sales agreements generally include certain provisions for indemnifying customers against liabilities if our products infringe a third party’s intellectual property rights. To date, we have not incurred any material costs as a result of such indemnifications and have not accrued any material liabilities related to such obligations in our consolidated financial statements. Certain of our sales agreements also include provisions indemnifying customers against liabilities in the event we breach confidentiality or service level requirements. It is not possible to determine the maximum potential amount under these indemnification agreements due to our limited and infrequent history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement.

Our Oracle Cloud Services agreements generally include a warranty that the cloud services will be performed in all material respects as defined in the agreement during the service period. Our license and hardware agreements also generally include a warranty that our products will substantially operate as described in the applicable program documentation for a period of one year after delivery. We also warrant that services we perform will be provided in a manner consistent with industry standards for a period of 90 days from performance of the services.

We occasionally are required, for various reasons, to enter into financial guarantees with third parties in the ordinary course of our business including, among others, guarantees related to taxes, import licenses and letters of credit on behalf of parties with whom we conduct business. Such agreements have not had a material effect on our results of operations, financial position or cash flows.

Index to Financial Statements

ORACLE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

May 31, 2018

In connection with certain litigation, we posted certain court-mandated surety bonds with a court and entered into related indemnification agreements with each of the surety bond issuing companies. Additional information is provided in Note 17 below.

12.	STOCKHOLDERS’ EQUITY

Common Stock Repurchases

Our Board of Directors has approved a program for us to repurchase shares of our common stock. During fiscal 2018, our Board of Directors approved expansions of our stock repurchase program totaling $24.0 billion. As of May 31, 2018, approximately $17.8 billion remained available for stock repurchases pursuant to our stock repurchase program. We repurchased 238.0 million shares for $11.5 billion (including 3.8 million shares for $180 million that were repurchased but not settled), 85.6 million shares for $3.5 billion and 271.9 million shares for $10.4 billion in fiscal 2018, 2017 and 2016, respectively, under the stock repurchase program.

Our stock repurchase authorization does not have an expiration date and the pace of our repurchase activity will depend on factors such as our working capital needs, our cash requirements for acquisitions and dividend payments, our debt repayment obligations or repurchases of our debt, our stock price, and economic and market conditions. Our stock repurchases may be effected from time to time through open market purchases and pursuant to a Rule 10b5-1 plan. Our stock repurchase program may be accelerated, suspended, delayed or discontinued at any time.

Dividends on Common Stock

During fiscal 2018, 2017 and 2016, our Board of Directors declared cash dividends of $0.76, $0.64 and $0.60 per share of our outstanding common stock, respectively, which we paid during the same period.

In June 2018, our Board of Directors declared a quarterly cash dividend of $0.19 per share of our outstanding common stock. The dividend is payable on July 31, 2018 to stockholders of record as of the close of business on July 17, 2018. 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 components of our accumulated other comprehensive loss, net of income taxes:


	May 31,
(in millions)	2018			2017
Foreign currency translation losses and other, net	$	(974	)	$	(679	)
Unrealized losses on defined benefit plans, net		(322	)		(356	)
Unrealized (losses) gains on marketable securities, net		(422	)		187
Unrealized gains on cash flow hedges, net		82			45

Total accumulated other comprehensive loss	$	(1,636	)	$	(803	)

Index to Financial Statements

ORACLE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

May 31, 2018

13.	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 performance awards, including restricted stock-based awards, non-qualified stock options and incentive stock options, as well as stock purchase rights and stock appreciation rights, to our eligible employees, officers and directors who are also employees or consultants, independent consultants and advisers.

	•		In fiscal 2011, our stockholders, upon the recommendation of our Board of Directors (the Board), approved the adoption of the Amended and Restated 2000 Long-Term Equity Incentive Plan (the 2000 Plan), which extended the termination date of the 2000 Plan by 10 years and increased the number of authorized shares of stock that may be issued by 388,313,015 shares.

	•		In fiscal 2014, our stockholders, upon the recommendation of the Board, 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, long-term full value awards are granted in the form of restricted stock units (RSUs) and performance stock units (PSUs). For each share granted as a full value award under the 2000 Plan, an equivalent of 2.5 shares is deducted from our pool of shares available for grant.

	•		In fiscal 2018, our stockholders, upon the recommendation of the Board, approved a further increase in the number of authorized shares of stock that may be issued under the 2000 Plan by 330,000,000 shares, and approved material terms of the performance goals under which PSUs and performance-based stock options (PSOs) could be granted.

As of May 31, 2018, the 2000 Plan had 83 million unvested RSUs outstanding, 3 million unvested PSUs outstanding, 69 million PSOs outstanding and service-based stock options (SOs) to purchase 231 million shares of common stock outstanding of which 197 million shares were vested. As of May 31, 2018, approximately 376 million shares of common stock were available for future awards under the 2000 Plan. To date, we have not issued any stock purchase rights or stock appreciation rights under the 2000 Plan.

The vesting schedule for all awards grated under the 2000 Plan are established by the Compensation Committee of the Board of Directors. RSUs generally require vesting 25% annually over four years. The vesting schedule for PSUs currently requires achieving performance targets and providing service over four fiscal years. SOs are granted at not less than fair market value, become exercisable generally 25% annually over four years under our current practice, and generally expire 10 years from the date of grant. PSOs granted to four of our executive officers in fiscal 2018 consist of seven numerically equivalent vesting tranches that potentially may vest. One tranche vests solely on attainment of a market-based metric. The remaining six tranches require the attainment of both a performance metric and a market capitalization metric. In each case, the market-based metric, performance metrics and market capitalization metrics may be achieved at any time during a five year performance period, assuming continued employment and service through the date the Compensation Committee of the Board of Directors certifies that performance has been achieved. The PSOs have contractual lives of eight years in comparison to the typical ten year contractual lives for SOs. For the six tranches of the PSOs with both performance and market conditions, stock-based compensation expense is to be recognized once each vesting tranche becomes probable of achievement over the longer of the estimated implicit service period or derived service. We have preliminarily estimated service periods for those tranches that have been deemed probable of achievement to be approximately three to five years. Stock-based compensation for the market-based tranche will be recognized using the derived service period for the market-based metric achievement, which we have initially estimated to be approximately three years.

Index to Financial Statements

ORACLE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

May 31, 2018

In fiscal 1993, the Board adopted the 1993 Directors’ Stock Plan (the Directors’ Plan), which provides for the issuance of RSUs and other stock-based awards, including non-qualified stock options, to non-employee directors. The Directors’ Plan has from time to time been amended and restated. Under the terms of the Directors’ Plan, 10 million shares of common stock are reserved for issuance (including a fiscal 2013 amendment to increase the number of shares of our common stock reserved for issuance by 2 million shares). In prior years, we granted stock options at not less than fair market value, that vest over four years, and expire no more than 10 years from the date of grant. The Directors’ Plan was most recently amended on April 29, 2016 and permits the Compensation Committee of the Board to determine the amount and form of automatic grants of stock awards to each non-employee director upon first becoming a director and thereafter on an annual basis, as well as automatic nondiscretionary grants for chairing certain Board committees, subject to certain stockholder approved limitations set forth in the Directors’ Plan. As of May 31, 2018, approximately 109,000 unvested RSUs and stock options to purchase approximately 1 million shares of common stock (of which approximately 1 million were vested) were outstanding under the Directors’ Plan. As of May 31, 2018, approximately 1 million shares were available for future stock awards under this plan.

In connection with certain of our acquisitions, we assumed certain outstanding restricted stock-based awards and stock options under each acquired company’s respective stock plans, or we substituted substantially similar awards under the 2000 Plan. These restricted stock-based awards and stock options assumed or substituted generally retain all of the rights, terms and conditions of the respective plans under which they were originally granted. As of May 31, 2018, approximately 3 million shares of restricted stock-based awards and stock options to purchase 3 million shares of common stock were outstanding under these plans.

The following table summarizes restricted stock-based award activity, including service based awards and performance-based awards, granted pursuant to Oracle-based stock plans and stock plans assumed from our acquisitions for our last three fiscal years ended May 31, 2018:


	Restricted Stock-Based Awards Outstanding
(in millions, except fair value)	Number of Shares			Weighted-Average Grant Date Fair Value
Balance, May 31, 2015		28		$	40.63
Granted		34		$	38.50
Vested and Issued		(7	)	$	40.39
Canceled		(3	)	$	39.73

Balance, May 31, 2016		52		$	39.29
Granted		42		$	39.40
Assumed		14		$	37.83
Vested and Issued		(18	)	$	40.39
Canceled		(7	)	$	39.73

Balance, May 31, 2017		83		$	39.18
Granted		44		$	47.42
Vested and Issued		(27	)	$	39.10
Canceled		(11	)	$	41.97

Balance, May 31, 2018		89		$	42.93

The total grant date fair value of restricted stock-based awards that were vested and issued in fiscal 2018, 2017 and 2016 was $1.0 billion, $715 million and $261 million, respectively. As of May 31, 2018, total unrecognized stock-based compensation expense related to non-vested restricted stock-based awards was $2.5 billion and is expected to be recognized over the remaining weighted-average vesting period of 2.70 years.

In each of fiscal 2017 and 2016, 2 million PSUs were granted which vest upon the attainment of certain performance metrics and service-based vesting. Based upon actual attainment relative to the “target”

Index to Financial Statements

ORACLE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

May 31, 2018

performance metric, certain participants have the ability to be issued up to 150% of the target number of PSUs originally granted, or to be issued no PSUs at all. In fiscal 2018, 2.4 million PSUs vested and 1.6 million PSUs remained outstanding as of May 31, 2018.

The following table summarizes stock option activity, including SOs and PSOs, and includes awards granted pursuant to the 2000 Plan and stock plans assumed from our acquisitions for our last three fiscal years ended May 31, 2018:


	Options Outstanding
(in millions, except exercise price)	Shares Under Stock Option			Weighted-Average Exercise Price
Balance, May 31, 2015		413		$	28.64
Granted(1)		25		$	40.34
Assumed		1		$	4.97
Exercised		(53	)	$	25.13
Canceled		(11	)	$	35.19

Balance, May 31, 2016		375		$	29.66
Granted(1)		18		$	40.90
Assumed		2		$	13.06
Exercised		(77	)	$	26.65
Canceled		(6	)	$	36.28

Balance, May 31, 2017		312		$	29.02
Granted(2)		77		$	50.95
Exercised		(78	)	$	28.78
Canceled		(7	)	$	45.70

Balance, May 31, 2018		304		$	36.11

(1)	7 million SOs were granted in total during each of fiscal 2017 and 2016 to our Chief Executive Officers and Chief Technology Officer and have contractual lives of five years versus the ten-year contractual lives for most of the other SOs granted.

(2)	Awards granted in fiscal 2018 included 69 million PSOs granted in total to our Chief Executive Officers, Chief Technology Officer, and President, Product Development, the contractual terms of which are described in greater detail above.

Stock options outstanding that have vested and that are expected to vest as of May 31, 2018 were as follows:


	Outstanding Stock Options (in millions)		Weighted- Average Exercise Price		Weighted- Average Remaining Contract Term (in years)		Aggregate Intrinsic Value(1) (in millions)
Vested		201	$	30.06		3.89	$	3,344
Expected to vest(2)		60	$	45.91		6.90		202

Total		261	$	33.74		4.59	$	3,546

(1)	The aggregate intrinsic value was calculated based on the gross difference between our closing stock price on the last trading day of fiscal 2018 of $46.72 and the exercise prices for all “in-the-money” options outstanding, excluding tax effects.

(2)	The unrecognized compensation expense calculated under the fair value method for shares expected to vest (unvested shares net of expected forfeitures) as of May 31, 2018 was approximately $375 million and is expected to be recognized over a weighted-average period of 3.33 years. Approximately 43 million shares outstanding as of May 31, 2018 were not expected to vest.

Stock-Based Compensation Expense and Valuations of Stock Awards

We estimated the fair values of our restricted stock-based awards that are solely subject to service-based vesting requirements based upon their market values as of the grant dates, discounted for the present values of expected dividends.

Index to Financial Statements

ORACLE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

May 31, 2018

The fair values of our PSUs were also measured based upon their market values as of their respective grant dates, discounted for the present values of expected dividends. The vesting conditions and related terms of our PSUs were communicated to each participating employee as of their respective grant dates and included attainment metrics that were defined, fixed and based upon consistent U.S. GAAP metrics or internal metrics that are defined, fixed and consistently determined, and that require the employee to render service. Therefore, these awards met the performance-based award classification criteria as defined within ASC 718.

We estimated the fair values of our stock options that were solely subject to service-based vesting requirements using the Black-Scholes-Merton option-pricing model, which was developed for use in estimating the fair values of stock options. Option valuation models, including the Black-Scholes-Merton option-pricing model, require the input of assumptions, including stock price volatility. Changes in the input assumptions can affect the fair value estimates and ultimately how much we recognize as stock-based compensation expense. The fair values of our stock options were estimated at the grant dates or at the 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 2018, 2017 and 2016:


	Year Ended May 31,
	2018		2017		2016
Expected life (in years)		4.7		4.8		4.8
Risk-free interest rate		2.0%		1.0%		1.6%
Volatility		22%		23%		24%
Dividend yield		1.5%		1.5%		1.5%
Weighted-average fair value per share	$	9.34	$	8.18	$	8.49

The expected life input is based on historical exercise patterns and post-vesting termination behavior, the risk-free interest rate input is based on U.S. Treasury instruments, the annualized dividend yield input is based on the per share dividend declared by the Board and the volatility input is calculated based on the implied volatility of our publicly traded options.

We estimated the fair values of the PSOs issued during fiscal 2018 using a Monte Carlo simulation approach as of the grant date with the following assumptions: risk-free interest rate of 2.14%, expected term of 7 years, expected volatility of 22.44% and dividend yield of 1.49%. Stock-based compensation expense is included in the following operating expense line items in our consolidated statements of operations:


	Year Ended May 31,
(in millions)	2018			2017			2016
Cloud services and license support	$	82		$	54		$	44
Hardware		10			11			12
Services		52			44			29
Sales and marketing		361			306			220
Research and development		921			770			609
General and administrative		180			130			120
Acquisition related and other		1			35			3

Total stock-based compensation		1,607			1,350			1,037

Estimated income tax benefit included in provision for income taxes		(451	)		(423	)		(322	)

Total stock-based compensation, net of estimated income tax benefit	$	1,156		$	927		$	715

Index to Financial Statements

ORACLE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

May 31, 2018

Tax Benefits from Exercises of Stock Options and Vesting of Restricted Stock-Based Awards

Total cash received as a result of option exercises was approximately $2.3 billion, $2.1 billion and $1.3 billion for fiscal 2018, 2017 and 2016, respectively. The total aggregate intrinsic value of restricted stock-based awards that vested and were issued and stock options that were exercised was $3.0 billion, $2.0 billion and $1.0 billion for fiscal 2018, 2017 and 2016, respectively. In connection with the vesting and issuance of restricted stock-based awards and stock options that were exercised, the tax benefits realized by us were $860 million, $614 million and $311 million for fiscal 2018, 2017 and 2016, 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 period. As of May 31, 2018, 48 million shares were reserved for future issuances under the Purchase Plan. We issued 3 million shares in each of fiscal 2018, 2017 and 2016, respectively, under the Purchase Plan.

Defined Contribution and Other Postretirement Plans

We offer various defined contribution plans for our U.S. and non-U.S. employees. Total defined contribution plan expense was $384 million, $366 million and $387 million for fiscal 2018, 2017 and 2016, respectively. The number of plan participants in our benefit plans has generally increased in recent years as we have hired additional employees and assumed eligible employees from our acquisitions.

In the United States, regular employees can participate in the Oracle Corporation 401(k) Savings and Investment Plan (Oracle 401(k) Plan). Participants can generally contribute up to 40% of their eligible compensation on a per-pay-period basis as defined by the Oracle 401(k) Plan document or by the section 402(g) limit as defined by the U.S. Internal Revenue Service (IRS). We match a portion of employee contributions, currently 50% up to 6% of compensation each pay period, subject to maximum aggregate matching amounts. Our contributions to the Oracle 401(k) Plan, net of forfeitures, were $151 million, $157 million and $153 million in fiscal 2018, 2017 and 2016, respectively.

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 specified by the employee in accordance with the plans. Deferred compensation plan assets and liabilities were each approximately $555 million as of May 31, 2018 and were each approximately $487 million as of May 31, 2017 and were presented in other assets and other non-current liabilities in the accompanying consolidated balance sheets.

We sponsor certain defined benefit pension plans that are offered primarily by certain of our foreign subsidiaries. Many of these plans were assumed through our acquisitions or are required by local regulatory requirements. We may deposit funds for these plans with insurance companies, third-party trustees, or into government-managed accounts consistent with local regulatory requirements, as applicable. Our total defined benefit plan pension expenses were $102 million, $85 million and $95 million for fiscal 2018, 2017 and 2016, respectively. The aggregate projected benefit obligation and aggregate net liability (funded status) of our defined benefit plans as of May 31, 2018 was $1.1 billion and $711 million, respectively, and as of May 31, 2017 was $1.1 billion and $712 million, respectively.

14.	INCOME TAXES

Our effective tax rates for each of the periods presented are the result of the mix of income earned in various tax jurisdictions that apply a broad range of income tax rates. In the third quarter of fiscal 2018 the Tax Act was signed into law. The more significant provisions of the Tax Act as applicable to us are described in Note 1 above under “Impacts of the U.S. Tax Cuts and Jobs Act of 2017”. Our provision for income taxes for fiscal 2018 varied from the 21% U.S. statutory rate imposed by the Tax Act due primarily to the January 1, 2018 effective date of

Index to Financial Statements

ORACLE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

May 31, 2018

the Tax Act, the impacts of the Tax Act upon adoption, state taxes, the U.S. research and development tax credit, settlements with tax authorities, the tax effects of stock-based compensation and the U.S. domestic production activity deduction. Prior to the January 1, 2018 effective date of the Tax Act, our provision for income taxes historically differed from the tax computed at the previous U.S. federal statutory income tax rate due primarily to certain earnings considered as indefinitely reinvested in foreign operations, state taxes, the U.S. research and development tax credit, settlements with tax authorities, the tax effects of stock-based compensation and the U.S. domestic production activity deduction.

The following is a geographical breakdown of income before the provision for income taxes:


	Year Ended May 31,
(in millions)	2018		2017		2016
Domestic	$	3,816	$	3,533	$	4,033
Foreign		9,075		7,984		7,409

Income before provision for income taxes	$	12,891	$	11,517	$	11,442

The provision for income taxes consisted of the following:


	Year Ended May 31,
(Dollars in millions)	2018			2017			2016
Current provision:
Federal	$	8,329		$	936		$	1,301
State		264			257			271
Foreign		1,084			1,475			1,074

Total current provision	$	9,677		$	2,668		$	2,646

Deferred benefit:
Federal	$	(614	)	$	(201	)	$	(123	)
State		(13	)		(36	)		(21	)
Foreign		16			(249	)		39

Total deferred benefit	$	(611	)	$	(486	)	$	(105	)

Total provision for income taxes	$	9,066		$	2,182		$	2,541

Effective income tax rate		70.3%			18.9%			22.2%

Index to Financial Statements

ORACLE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

May 31, 2018

The provision for income taxes differed from the amount computed by applying the federal statutory rate to our income before provision for income taxes as follows:


	Year Ended May 31,
(in millions)	2018			2017			2016
U.S. federal statutory tax rate		29.2%			35.0%			35.0%
Tax provision at statutory rate	$	3,765		$	4,031		$	4,005
Impact of the Tax Act of 2017
One-time transition tax		7,781			—			—
Deferred tax effects		(820	)		—			—
Foreign earnings at other than United States rates		(1,006	)		(1,299	)		(1,284	)
State tax expense, net of federal benefit		155			150			176
Settlements and releases from judicial decisions and statute expirations, net		(252	)		(189	)		(150	)
Domestic production activity deduction		(87	)		(119	)		(155	)
Stock-based compensation		(302	)		(149	)		74
Other, net		(168	)		(243	)		(125	)

Total provision for income taxes	$	9,066		$	2,182		$	2,541

We recorded a provisional adjustment to our U.S. deferred income taxes as of May 31, 2018 to reflect the reduction in the U.S statutory tax rate from 35% to 21% resulting from the Tax Act. The components of our deferred tax liabilities and assets were as follows:


	May 31,
(in millions)	2018			2017
Deferred tax liabilities:
Unrealized gain on stock	$	(78	)	$	(130	)
Acquired intangible assets		(1,254	)		(2,502	)
Unremitted earnings		—			(1,515	)
Depreciation and amortization		(158	)		(180	)
Other		(48	)		(23	)

Total deferred tax liabilities	$	(1,538	)	$	(4,350	)

Deferred tax assets:
Accruals and allowances	$	567		$	532
Employee compensation and benefits		789			1,251
Differences in timing of revenue recognition		310			385
Tax credit and net operating loss carryforwards		2,614			4,029

Total deferred tax assets	$	4,280		$	6,197

Valuation allowance		(1,308	)		(1,164	)

Net deferred tax assets	$	1,434		$	683

Recorded as:
Non-current deferred tax assets	$	1,491		$	1,143
Non-current deferred tax liabilities (in other non-current liabilities)		(57	)		(460	)

Net deferred tax assets	$	1,434		$	683

We provide for taxes on the undistributed earnings and the other outside basis temporary differences of foreign subsidiaries unless they are considered indefinitely reinvested outside the United States. At May 31, 2018, the

Index to Financial Statements

ORACLE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

May 31, 2018

amount of temporary differences related to other outside basis temporary differences of investments in foreign subsidiaries upon which United States income taxes have not been provided was approximately $7.9 billion. If the other outside basis differences were recognized in a taxable transaction, they would generate foreign tax credits that would reduce the federal tax liability associated with the foreign dividend or the otherwise taxable transaction. At May 31, 2018, assuming a full utilization of the foreign tax credits, the potential net deferred tax liability associated with these other outside basis temporary differences would be approximately $1.5 billion.

Our net deferred tax assets were $1.4 billion and $683 million as of May 31, 2018 and 2017, respectively. We believe that it is more likely than not that the net deferred tax assets will be realized in the foreseeable future. Realization of our net deferred tax assets is dependent upon our generation of sufficient taxable income in future years in appropriate tax jurisdictions to obtain benefit from the reversal of temporary differences, net operating loss carryforwards and tax credit carryforwards. The amount of net deferred tax assets considered realizable is subject to adjustment in future periods if estimates of future taxable income change.

The valuation allowance was $1.3 billion and $1.2 billion at each of May 31, 2018 and 2017, respectively. Substantially all of the valuation allowances as of May 31, 2018 and 2017 related to tax assets established in purchase accounting. Any subsequent reduction of that portion of the valuation allowance and the recognition of the associated tax benefits associated with our acquisitions will be recorded to our provision for income taxes subsequent to our final determination of the valuation allowance or the conclusion of the measurement period (as defined above), whichever comes first.

At May 31, 2018, we had federal net operating loss carryforwards of approximately $806 million, which are subject to limitation on their utilization. Approximately $802 million of these federal net operating losses expire in various years between fiscal 2019 and fiscal 2036. An immaterial amount of these federal net operating losses are not currently subject to expiration dates. We had state net operating loss carryforwards of approximately $2.4 billion at May 31, 2018, which expire between fiscal 2019 and fiscal 2036 and are subject to limitations on their utilization. We had total foreign net operating loss carryforwards of approximately $1.8 billion at May 31, 2018, which are subject to limitations on their utilization. Approximately $1.8 billion of these foreign net operating losses are not currently subject to expiration dates. The remainder of the foreign net operating losses, approximately $92 million, expire between fiscal 2019 and fiscal 2035. We had tax credit carryforwards of approximately $893 million at May 31, 2018, which are subject to limitations on their utilization. Approximately $738 million of these tax credit carryforwards are not currently subject to expiration dates. The remainder of the tax credit carryforwards, approximately $155 million, expire in various years between fiscal 2019 and fiscal 2038.

We classify our unrecognized tax benefits as either current or non-current income taxes payable in the accompanying consolidated balance sheets. The aggregate changes in the balance of our gross unrecognized tax benefits, including acquisitions, were as follows:


	Year Ended May 31,
(in millions)	2018			2017			2016
Gross unrecognized tax benefits as of June 1	$	4,919		$	4,561		$	4,038
Increases related to tax positions from prior fiscal years		200			128			350
Decreases related to tax positions from prior fiscal years		(65	)		(218	)		(111	)
Increases related to tax positions taken during current fiscal year		833			595			461
Settlements with tax authorities		(42	)		(85	)		(73	)
Lapses of statutes of limitation		(273	)		(47	)		(73	)
Cumulative translation adjustments and other, net		13			(15	)		(31	)

Total gross unrecognized tax benefits as of May 31	$	5,585		$	4,919		$	4,561

Index to Financial Statements

ORACLE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

May 31, 2018

As of May 31, 2018, 2017 and 2016, $4.2 billion, $3.4 billion and $3.1 billion, respectively, of unrecognized tax benefits would affect our effective tax rate if recognized. We recognized interest and penalties related to uncertain tax positions in our provision for income taxes line of our consolidated statements of operations of $127 million, $125 million and $26 million during fiscal 2018, 2017 and 2016, respectively. Interest and penalties accrued as of May 31, 2018 and 2017 were $992 million and $885 million, respectively.

Domestically, U.S. federal and state taxing authorities are currently examining income tax returns of Oracle and various acquired entities for years through fiscal 2017. 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 exemptions, domestic production activity, foreign tax credits, and research and development credits taken. With all of these domestic audit issues considered in the aggregate, we believe that it was reasonably possible that, as of May 31, 2018, the gross unrecognized tax benefits related to these audits could decrease (whether by payment, release, or a combination of both) in the next 12 months by as much as $665 million ($611 million net of offsetting tax benefits). Our U.S. federal income tax returns have been examined for all years prior to fiscal 2007 and we are no longer subject to audit for those periods. Our U.S. state income tax returns, with some exceptions, have been examined for all years prior to fiscal 2004, and we are no longer subject to audit for those periods.

Internationally, tax authorities for numerous non-U.S. jurisdictions are also examining returns affecting our unrecognized tax benefits. We believe that it was reasonably possible that, as of May 31, 2018, the gross unrecognized tax benefits, could decrease (whether by payment, release, or a combination of both) by as much as $162 million ($68 million net of offsetting tax benefits) in the next 12 months, related primarily to transfer pricing. With some exceptions, we are generally no longer subject to tax examinations in non-U.S. jurisdictions for years prior to fiscal 1997.

We believe that we have adequately provided under GAAP for outcomes related to our tax audits. However, there can be no assurances as to the possible outcomes or any related financial statement effect thereof. On July 27, 2015, in Altera Corp. v. Commissioner, the U.S. Tax Court issued an opinion related to the treatment of stock-based compensation expense in an intercompany cost-sharing arrangement. At this time, the U.S. Department of the Treasury has not withdrawn the requirement to include stock-based compensation from its regulations. We have reviewed this case and its impact on Oracle and concluded that no adjustment to the consolidated financial statements is appropriate at this time. We will continue to monitor ongoing developments and potential impacts to our consolidated financial statements.

We are under audit by the IRS and various other domestic and foreign tax authorities with regards to income tax and indirect tax matters and are involved in various challenges and litigation in a number of countries, including, in particular, Australia, Brazil, Canada, India, Indonesia, Korea, Mexico, Spain and the United Kingdom, where the amounts under controversy are significant. In some, although not all cases, we have reserved for potential adjustments to our provision for income taxes and accrual of indirect taxes that may result from examinations by, or any negotiated agreements with, these tax authorities or final outcomes in judicial proceedings, and we believe that the final outcome of these examinations, agreements or judicial proceedings will not have a material effect on our results of operations. If events occur which indicate payment of these amounts is unnecessary, the reversal of the liabilities would result in the recognition of benefits in the period we determine the liabilities are no longer necessary. If our estimates of the federal, state, and foreign income tax liabilities and indirect tax liabilities are less than the ultimate assessment, it could result in a further charge to expense.

15.	SEGMENT INFORMATION

ASC 280, Segment Reporting, establishes standards for reporting information about operating segments. Operating segments are defined as components of an enterprise about which separate financial information is

Index to Financial Statements

ORACLE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

May 31, 2018

available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. Our chief operating decision makers (CODMs) are our Chief Executive Officers and Chief Technology Officer. We are organized by line of business and geographically. While our CODMs 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. The footnote information below presents the financial information provided to our CODMs for their review and assists our CODMs with evaluating the company’s performance and allocating company resources.

We have three businesses—cloud and license, hardware and services—each of which are comprised of a single operating segment.

Our cloud and license business engages in the sale, marketing and delivery of our applications, platform and infrastructure technologies through various deployment models including license support offerings; Oracle Cloud Services offerings; and cloud license and on-premise license offerings. License support revenues are typically generated through the sale of license support contracts related to cloud license and on-premise licenses purchased by our customers at their option and are generally recognized as revenues ratably over the contractual term. Our Oracle Cloud Services offerings deliver certain of our applications, platform and infrastructure technologies on a subscription basis via cloud-based deployment models that we host, manage and support and revenues generally are recognized over the subscription period. Cloud license and on-premise license revenues represent fees earned from granting customers licenses, generally on a perpetual basis, to use our database and middleware and our applications software products within cloud and on-premise IT environments and are generally recognized as revenues when unrestricted access to the license is granted, provided all other revenue recognition criteria are met.

Our hardware business provides Oracle Engineered Systems, servers, storage, industry-specific hardware, operating systems, virtualization, management and other hardware-related software to support diverse IT environments. Our hardware business also includes hardware support, which provides customers with software updates for the software components that are essential to the functionality of the hardware products, such as Oracle Solaris and certain other software, and can include product repairs, maintenance services and technical support services.

Our services business provides services to customers and partners to help maximize the performance of their investments in Oracle applications, platform and infrastructure technologies.

We do not track our assets for each business. Consequently, it is not practical to show assets by operating segment.

Index to Financial Statements

ORACLE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

May 31, 2018

The following table presents summary results for each of our three businesses for each of fiscal 2018, 2017 and 2016:


	Year Ended May 31,
(in millions)	2018		2017		2016
Cloud and license:
Revenues(1)	$	32,491	$	30,389	$	28,997
Cloud services and license support expenses		3,447		2,885		2,545
Sales and marketing expenses		7,219		6,886		6,570

Margin(2)	$	21,825	$	20,618	$	19,882

Hardware:
Revenues(1)	$	3,993	$	4,152	$	4,669
Hardware products and support expenses		1,551		1,623		2,031
Sales and marketing expenses		635		820		867

Margin(2)	$	1,807	$	1,709	$	1,771

Services:
Revenues	$	3,394	$	3,358	$	3,391
Services expenses		2,739		2,668		2,634

Margin(2)	$	655	$	690	$	757

Totals:
Revenues(1)	$	39,878	$	37,899	$	37,057
Expenses		15,591		14,882		14,647

Margin(2)	$	24,287	$	23,017	$	22,410

(1)

Cloud and license revenues and hardware revenues presented for management reporting included revenues related to cloud and license obligations and hardware obligations that would have otherwise been recorded by the acquired businesses as independent entities but were not recognized in our consolidated statements of operations for the periods presented due to business combination accounting requirements. See Note 9 for an explanation of these adjustments and the table below for a reconciliation of our total operating segment revenues to our total revenues as reported in our consolidated statements of operations.

(2)

The margins reported reflect only the direct controllable costs of each line of business and do not include allocations of product development, general and administrative and certain other allocable expenses. Additionally, the margins reported above do not reflect amortization of intangible assets, acquisition related and other expenses, restructuring expenses, stock-based compensation, interest expense or certain other non-operating income, net. Refer to the table below for a reconciliation of our total margin for operating segments to our income before provision for income taxes as reported in our consolidated statements of operations.

Index to Financial Statements

ORACLE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

May 31, 2018

The following table reconciles total operating segment revenues to total revenues as well as total operating segment margin to income before provision for income taxes:


	Year Ended May 31,
(in millions)	2018			2017			2016
Total revenues for operating segments	$	39,878		$	37,899		$	37,057
Cloud and license revenues(1)		(47	)		(171	)		(9	)
Hardware revenues(1)		—			—			(1	)

Total revenues	$	39,831		$	37,728		$	37,047

Total margin for operating segments	$	24,287		$	23,017		$	22,410
Cloud and license revenues(1)		(47	)		(171	)		(9	)
Hardware revenues(1)		—			—			(1	)
Research and development		(6,091	)		(6,159	)		(5,787	)
General and administrative		(1,289	)		(1,176	)		(1,155	)
Amortization of intangible assets		(1,620	)		(1,451	)		(1,638	)
Acquisition related and other		(52	)		(103	)		(42	)
Restructuring		(588	)		(463	)		(458	)
Stock-based compensation for operating segments		(505	)		(415	)		(305	)
Expense allocations and other, net		(416	)		(369	)		(411	)
Interest expense		(2,025	)		(1,798	)		(1,467	)
Non-operating income, net		1,237			605			305

Income before provision for income taxes	$	12,891		$	11,517		$	11,442

(1)

Cloud and license revenues and hardware revenues presented for management reporting included revenues related to cloud and license obligations and hardware obligations that would have otherwise been recorded by the acquired businesses as independent entities but were not recognized in our consolidated statements of operations for the periods presented due to business combination accounting requirements. See Note 9 for an explanation of these adjustments and this table for a reconciliation of our total operating segment revenues to our total revenues as reported in our consolidated statements of operations.

Geographic Information

Disclosed in the table below is geographic information for each country that comprised greater than three percent of our total revenues for any of fiscal 2018, 2017 or 2016.


	As of and for the Year Ended May 31,
	2018				2017				2016
(in millions)	Revenues		Long- Lived Assets(1)		Revenues		Long- Lived Assets(1)		Revenues		Long- Lived Assets(1)
United States	$	19,077	$	4,976	$	17,770	$	4,680	$	17,264	$	3,646
United Kingdom		2,172		510		1,999		402		2,349		334
Japan		1,693		388		1,618		380		1,465		375
Germany		1,375		179		1,417		116		1,438		40
Canada		1,143		78		1,102		60		1,096		44
Other countries		14,371		1,223		13,822		1,090		13,435		989

Total	$	39,831	$	7,354	$	37,728	$	6,728	$	37,047	$	5,428

(1)	Long-lived assets exclude goodwill, intangible assets, equity investments and deferred taxes, which are not allocated to specific geographic locations as it is impracticable to do so.

Index to Financial Statements

ORACLE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

May 31, 2018

16.	EARNINGS PER SHARE

Basic earnings per share is computed by dividing net income for the period by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income for the period by the weighted-average number of common shares outstanding during the period, plus the dilutive effect of outstanding restricted 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:


	Year Ended May 31,
(in millions, except per share data)	2018		2017		2016
Net income	$	3,825	$	9,335	$	8,901

Weighted average common shares outstanding		4,121		4,115		4,221
Dilutive effect of employee stock plans		117		102		84

Dilutive weighted average common shares outstanding		4,238		4,217		4,305

Basic earnings per share	$	0.93	$	2.27	$	2.11
Diluted earnings per share	$	0.90	$	2.21	$	2.07
Shares subject to anti-dilutive restricted stock-based awards and stock options excluded from calculation(1)		64		74		63

(1)	These weighted shares relate to anti-dilutive restricted stock-based awards and stock options as calculated using the treasury stock method and contingently issuable shares under PSO and PSU agreements. Such shares could be dilutive in the future. See Note 13 for information regarding the exercise prices of our outstanding, unexercised stock options.

17.	LEGAL PROCEEDINGS

Hewlett-Packard Company Litigation

On June 15, 2011, Hewlett-Packard Company, now Hewlett Packard Enterprise Company (HP), filed a complaint in the California Superior Court, County of Santa Clara against Oracle Corporation alleging numerous causes of action including breach of contract, breach of the covenant of good faith and fair dealing, defamation, intentional interference with prospective economic advantage, and violation of the California Unfair Business Practices Act. The complaint alleged that when Oracle announced on March 22 and 23, 2011 that it would no longer develop future versions of its software to run on HP’s Itanium-based servers, it breached a settlement agreement signed on September 20, 2010 between HP and Mark Hurd (the Hurd Settlement Agreement), who is our Chief Executive Officer and was both HP’s former chief executive officer and chairman of HP’s board of directors. HP sought a judicial declaration of the parties’ rights and obligations under the Hurd Settlement Agreement and other equitable and monetary relief.

Oracle answered the complaint and filed a cross-complaint, which was amended on December 2, 2011. The amended cross-complaint alleged claims including violation of the Lanham Act. Oracle alleged that HP had secretly agreed to pay Intel to continue to develop and manufacture the Itanium microprocessor, and had misrepresented to customers that the Itanium microprocessor had a long roadmap, among other claims. Oracle sought equitable rescission of the Hurd Settlement Agreement, and other equitable and monetary relief.

The court bifurcated the trial and tried HP’s causes of action for declaratory relief and promissory estoppel without a jury in June 2012. The court issued a final statement of decision on August 28, 2012, finding that the Hurd Settlement Agreement required Oracle to continue to develop certain of its software products for use on HP’s Itanium-based servers and to port such products at no cost to HP for as long as HP sells those servers (the Phase One Ruling). A jury trial began on May 23, 2016. On June 30, 2016, the jury returned a verdict in favor of HP on its claims for breach of contract and breach of the implied covenant of good faith and fair dealing and

Index to Financial Statements

ORACLE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

May 31, 2018

against Oracle on its claim for violation of the Lanham Act (the Phase Two Jury Verdict). The jury awarded HP damages in the amount of $3.0 billion, and HP is entitled to post-judgment interest on this award. On August 30, 2016, the court denied HP’s motion for pre-judgment interest. Judgment was entered on October 20, 2016. Oracle posted certain court-mandated surety bonds with the court in order to proceed with its motion for a new trial and entered into related indemnification agreements with each of the surety bond issuing companies. Oracle filed a motion for a new trial on November 14, 2016, which was denied.

Oracle filed its notice of appeal on January 17, 2017, specifying that it was appealing the trial court’s Phase One Ruling and Phase Two Jury Verdict. On February 2, 2017, HP filed a notice of appeal of the trial court’s denial of pre-judgment interest. No amounts have been paid or recorded to our results of operations either prior to or subsequent to the Phase One Ruling or Phase Two Jury Verdict. We continue to believe that we have meritorious defenses against HP’s claims, and we intend to present these defenses to the appellate court. Among the arguments we expect to make on appeal are the following: the trial court misapplied fundamental principles of contract law and misinterpreted the Hurd Settlement Agreement, including by disregarding the context of the Hurd Settlement Agreement and the evidence of the parties’ mutual intentions; that HP’s breach of contract claim should fail as a matter of law because HP does not claim and did not prove that Oracle failed to deliver any software under the trial court’s interpretation of the contract; that awarding HP both damages for breach of the Hurd Settlement Agreement and specific performance of that agreement constitutes an improper double recovery; and that the damages award is excessive, unsupported by the evidence, and contrary to law. We cannot currently estimate a reasonably possible range of loss for this action due to the complexities and uncertainty surrounding the appeal process and the nature of the claims. Litigation is inherently unpredictable, and the outcome of the appeal process related to this action is uncertain. It is possible that the resolution of this action could have a material impact to our future cash flows and results of operations.

Derivative Litigation

On May 3, 2017, a stockholder derivative lawsuit was filed in the Court of Chancery of the State of Delaware. The derivative suit is brought by an alleged stockholder of Oracle, purportedly on Oracle’s behalf, against Oracle, our Chairman of the Board of Directors and Chief Technology Officer in his capacities as a director, officer and an alleged controlling stockholder, one of our Chief Executive Officers (who is also a director), three other directors, and Oracle as a nominal defendant. Plaintiff alleges that the defendants breached their fiduciary duties by causing Oracle to agree to purchase NetSuite Inc. (NetSuite) at an excessive price. Plaintiff seeks declaratory relief, an order rescinding or reforming the NetSuite transaction, unspecified monetary damages (including interest), attorneys’ fees and costs, and disgorgement of various unspecified profits, fees, compensation, and benefits.

On July 18, 2017, a second stockholder derivative lawsuit was filed in the Court of Chancery of the State of Delaware, brought by another alleged stockholder of Oracle, purportedly on Oracle’s behalf. The suit is brought against all current members and one former member of our Board of Directors, and Oracle as a nominal defendant. Plaintiff alleges that the defendants breached their fiduciary duties by causing Oracle to agree to purchase NetSuite at an excessive price. Plaintiff seeks declaratory relief, unspecified monetary damages (including interest), and attorneys’ fees and costs.

On August 9, 2017, the court consolidated the two derivative cases. In a September 7, 2017 order, the court appointed plaintiff’s counsel in the second case as lead plaintiffs’ counsel and designated the July 18, 2017 complaint as the operative complaint. The defendants filed a motion to dismiss on October 27, 2017, and after briefing and argument, the court denied this motion on March 19, 2018. The parties stipulated that all of the individual defendants, except for our Chief Technology Officer and one of our Chief Executive Officers, should be dismissed from this case without prejudice, and on March 28, 2018, the court approved this stipulation. On May 4, 2018, the remaining defendants answered plaintiff’s complaint.

Index to Financial Statements

ORACLE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

May 31, 2018

On May 4, 2018, the Board of Directors established a Special Litigation Committee (the SLC) to investigate the allegations in this derivative action. Three outside directors serve on the SLC.

While Oracle continues to evaluate these claims, we do not believe this litigation will have a material impact on our financial position or results of operations.

Other Litigation

We are party to various other legal proceedings and claims, either asserted or unasserted, which arise in the ordinary course of business, including proceedings and claims that relate to acquisitions we have completed or to companies we have acquired or are attempting to acquire. While the outcome of these matters cannot be predicted with certainty, we do not believe that the outcome of any of these matters, individually or in the aggregate, will result in losses that are materially in excess of amounts already recognized, if any.

Index to Financial Statements

SCHEDULE II

ORACLE CORPORATION

VALUATION AND QUALIFYING ACCOUNTS


(in millions)	Beginning Balance		Additions Charged to Operations or Other Accounts		Write-offs			Translation Adjustments and Other		Ending Balance
Allowances for Doubtful Trade Receivables
Year Ended:
May 31, 2016	$	285	$	130	$	(90	)	$	2	$	327

May 31, 2017	$	327	$	129	$	(138	)	$	1	$	319

May 31, 2018	$	319	$	146	$	(98	)	$	3	$	370

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