Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

| --- | --- |

We begin Management’s Discussion and Analysis of Financial Condition and Results of Operations with an overview of our businesses and significant trends. This overview is followed by a summary of our critical accounting policies and estimates that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results. We then provide a more detailed analysis of our results of operations and financial condition.

Business Overview

Oracle provides products and services that address enterprise information technology (IT) environments. Our products and services include enterprise applications and infrastructure offerings that are delivered worldwide through a variety of flexible and interoperable IT deployment models. These models include on-premise deployments, cloud-based deployments, and hybrid deployments (an approach that combines both on-premise and cloud-based deployments). Accordingly, we offer choice and flexibility to our customers and facilitate the product, service and deployment combinations that best suit our customers’ needs. Through our worldwide sales force and Oracle Partner Network, we sell to customers all over the world including businesses of many sizes, government agencies, educational institutions and resellers.

We have three businesses: cloud and license; hardware; and services; each of which comprises a single operating segment. The descriptions set forth below as a part of this Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations and the information contained within Note 9 of Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report provide additional information related to our businesses and operating segments and align to how our chief operating decision makers (CODMs), which include our Chief Executive Officer and Chief Technology Officer, view our operating results and allocate resources.

Impacts of the COVID-19 Pandemic on Oracle’s Business

For a discussion of the impacts on and risks to our business from COVID-19, please refer to “Impacts of the COVID-19 Pandemic on Oracle’s Business” included in Item 1 Business and certain risk factors included in Item 1A Risk Factors in our Annual Report on Form 10-K for the fiscal year ended May 31, 2021; and the information presented below in Results of Operations as a part of this Item 2 of this Quarterly Report.

Cloud and License Business

Our cloud and license business, which represented 85% of our total revenues on a trailing 4-quarter basis, markets, sells and delivers a broad spectrum of enterprise applications and infrastructure technologies through our cloud and license offerings. Revenue streams included in our cloud and license business are:

	•	Cloud services and license support revenues, which include:

	o	license support revenues, which are earned by providing Oracle license support services to customers that have elected to purchase support services in connection with the purchase of Oracle applications and infrastructure software licenses for use in cloud, on-premise and other IT environments. Substantially all license support customers renew their support contracts with us upon expiration in order to continue to benefit from technical support services and the periodic issuance of unspecified updates and enhancements, which current license support customers are entitled to receive. License support contracts are generally priced as a percentage of the net fees paid by the customer to purchase a cloud license and/or on-premise license; are generally billed in advance of the support services being performed; are generally renewed at the customer’s option; and are generally recognized as revenues ratably over the contractual period that the support services are provided, which is generally one year; and

	o	cloud services revenues, which provide customers access to Oracle Cloud applications and infrastructure technologies via cloud-based deployment models that Oracle develops, provides unspecified updates and enhancements for, deploys, hosts, manages and supports and that customers access by entering into a subscription agreement with us for a stated period. Oracle Cloud Services arrangements are generally billed in advance of the cloud services being performed; generally have durations of one to three years; are generally renewed at the customer’s option; and are generally recognized as revenues ratably over the contractual period of the cloud contract or, in the case of usage model contracts, as the cloud services are consumed over time.

	•	Cloud license and on-premise license revenues, which include revenues from the licensing of our software products including Oracle Applications, Oracle Database, Oracle Middleware and Java, among others, which our customers deploy within cloud-based, on-premise and other IT environments. Our cloud license and on-premise license transactions are generally perpetual in nature and are generally recognized as revenues up front at the point in time when the software is made available to the customer to download and use. Revenues from usage-based royalty arrangements for distinct cloud licenses and on-premise licenses are recognized at the point in time when the software end user usage occurs. The timing of a few large license transactions can substantially affect our quarterly license revenues due to the point-in-time nature of revenue recognition for license transactions, which is different than the typical revenue recognition pattern for our cloud services and license support revenues in which revenues are generally recognized ratably over the contractual terms. Cloud license and on-premise license customers have the option to purchase and renew license support contracts, as further described above.

Providing choice and flexibility to our customers as to when and how they deploy Oracle applications and infrastructure technologies are important elements of our corporate strategy. In recent periods, customer demand for our applications and infrastructure technologies delivered through our Oracle Cloud Services has increased. To address customer demand and enable customer choice, we have introduced certain programs for customers to pivot their applications and infrastructure licenses and the related license support to the Oracle Cloud for new deployments and to migrate to and expand with the Oracle Cloud for their existing workloads. The proportion of our cloud services and license support revenues relative to our cloud license and on-premise license revenues, hardware revenues and services revenues has increased and we expect this trend to continue. Cloud services and license support revenues represented 73% and 74% of our total revenues for the three and six months ended November 30, 2021, respectively, and 72% and 73% for the three and six months ended November 30, 2020, respectively.

Our cloud and license business’ revenue growth is affected by many factors, including the strength of general economic and business conditions; governmental budgetary constraints; the strategy for and competitive position of our offerings; customer satisfaction with our offerings; the continued renewal of our cloud services and license support customer contracts by the customer contract base; substantially all customers continuing to purchase license support contracts in connection with their license purchases; the pricing of license support contracts sold in connection with the sales of licenses; the pricing, amounts and volumes of licenses and cloud services sold; our ability to manage Oracle Cloud capacity requirements to meet existing and prospective customer demand; and foreign currency rate fluctuations.

On a constant currency basis, we expect that our total cloud and license revenues generally will continue to increase due to:

	•	expected growth in our cloud services and license support offerings; and

	•	continued demand for our cloud license and on-premise license offerings.

We believe these factors should contribute to future growth in our cloud and license business’ total revenues, which should enable us to continue to make investments in research and development and our cloud operations to develop, improve, increase the capacity of and expand the geographic footprint of our cloud and license products and services.

Our cloud and license business’ margin has historically trended upward over the course of the four quarters within a particular fiscal year due to the historical upward trend of our cloud and license business’ revenues over those quarterly periods and because the majority of our costs for this business are generally fixed in the short term. The

historical upward trend of our cloud and license business’ revenues over the course of the four quarters within a particular fiscal year is primarily due to the addition of new cloud services and license support contracts to the customer contract base that we generally recognize as revenues ratably or based upon customer usage over the respective contractual terms and the renewal of existing customers’ cloud services and license support contracts over the course of each fiscal year that we generally recognize as revenues in a similar manner; and the historical upward trend of our cloud license and on-premise license revenues, which we generally recognize at a point in time upon delivery; in each case over those four fiscal quarterly periods.

Hardware Business

Our hardware business, which represented 8% of our total revenues on a trailing 4-quarter basis, provides a broad selection of enterprise hardware products and hardware-related software products including Oracle Engineered Systems, servers, storage, industry-specific hardware offerings, operating systems, virtualization, management and other hardware-related software, and related hardware support. Each hardware product and its related software, such as an operating system or firmware, are highly interdependent and interrelated and are accounted for as a combined performance obligation. The revenues for this combined performance obligation are generally recognized at the point in time that the hardware product and its related software are delivered to the customer and ownership is transferred to the customer. We expect to make investments in research and development to improve existing hardware products and services and to develop new hardware products and services. The majority of our hardware products are sold through indirect channels, including independent distributors and value-added resellers. Our hardware support offerings provide customers with unspecified software updates for software components that are essential to the functionality of our hardware products and associated software products. Our hardware support offerings can also include product repairs, maintenance services and technical support services. Hardware support contracts are entered into and renewed at the option of the customer, are generally priced as a percentage of the net hardware products fees and are generally recognized as revenues ratably as the hardware support services are delivered over the contractual terms.

We generally expect our hardware business to have lower operating margins as a percentage of revenues than our cloud and license business due to the incremental costs we incur to produce and distribute these products and to provide support services, including direct materials and labor costs.

Our quarterly hardware revenues are difficult to predict. Our hardware revenues, cost of hardware and hardware operating margins that we report are affected by many factors, including our manufacturing partners’ abilities to timely manufacture or deliver a few large hardware transactions, with this factor becoming more pronounced in recent quarters due to global supply chain constraints for certain technology components; our strategy for and the position of our hardware products relative to competitor offerings; customer demand for competing offerings, including cloud infrastructure offerings; the strength of general economic and business conditions; governmental budgetary constraints; whether customers decide to purchase hardware support contracts at or in close proximity to the time of hardware product sale; the percentage of our hardware support contract customer base that renews its support contracts and the close association between hardware products, which have a finite life, and customer demand for related hardware support as hardware products age; customer decisions to either maintain or upgrade their existing hardware infrastructure to newly developed technologies that are available; and foreign currency rate fluctuations.

Services Business

Our services business, which represented 7% of our total revenues on a trailing 4-quarter basis, helps customers and partners maximize the performance of their investments in Oracle applications and infrastructure technologies. We believe that our services are differentiated based on our focus on Oracle technologies, extensive experience, broad sets of intellectual property and best practices. Our services offerings include consulting services and advanced customer services. Our services business has lower margins than our cloud and license and hardware businesses. Our services revenues are affected by many factors including our strategy for, and the competitive position of, our services; customer demand for our cloud and license and hardware offerings and the related services that we may market and sell in connection with these offerings; general economic conditions; governmental budgetary constraints; personnel reductions in our customers’ IT departments; tighter controls over customer discretionary spending; and foreign currency rate fluctuations.

Acquisitions

Our selective and active acquisition program is another important element of our corporate strategy. Historically, we have invested billions of dollars to acquire a number of complementary companies, products, services and technologies. The pace of our acquisitions has slowed in recent years, but as compelling opportunities become available, we may acquire companies, products, services and technologies in furtherance of our corporate strategy. Note 2 of Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report provides additional information related to our recent acquisitions.

We believe that we can fund our future acquisitions with our internally available cash, cash equivalents and marketable securities, cash generated from operations, additional borrowings or from the issuance of additional securities. We estimate the financial impact of any potential acquisition with regard to earnings, operating margin, cash flows and return on invested capital targets, among others, before deciding to move forward with an acquisition.

Critical Accounting Policies and 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 Accounting Standards Codification (ASC), and we consider the various staff accounting bulletins and other applicable guidance issued by the SEC. GAAP, as set forth within the ASC, requires 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 financial statements will be affected. The accounting policies that reflect our more significant estimates, judgments and assumptions and which we believe are the most critical to aid in fully understanding and evaluating our reported financial results include:

	•	Revenue Recognition;

	•	Business Combinations;

	•	Goodwill and Intangible Assets—Impairment Assessments;

	•	Accounting for Income Taxes; and

	•	Legal and Other Contingencies.

During the first half of fiscal 2022, there were no significant changes to our critical accounting policies and estimates. Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of our Annual Report on Form 10-K for our fiscal year ended May 31, 2021 provides a more complete discussion of our critical accounting policies and estimates.

Results of Operations

Presentation of Operating Segment Results and Other Financial Information

In our results of operations discussion below, we provide an overview of our total consolidated revenues, total consolidated operating expenses and total consolidated operating margin, all of which are presented on a GAAP basis. We also present a GAAP-based discussion below for substantially all of the other expense items as presented in our condensed consolidated statements of operations that are not directly attributable to our three businesses.

In addition, we discuss below the results of each of our three businesses—cloud and license, hardware and services—which are our operating segments as defined pursuant to ASC 280, Segment Reporting. The financial reporting for our three businesses that is presented below is presented in a manner that is consistent with that used by our CODMs. Our operating segment presentation below reflects revenues, direct costs and sales and marketing expenses that correspond to and are directly attributable to each of our three businesses. We also

utilize these inputs to calculate and present a segment margin for each of our three businesses in the discussion below.

Consistent with our internal management reporting processes, the below operating segment presentation for the first half of fiscal 2021 is noted to include any revenues adjustments related to cloud services and license support contracts that would have otherwise been recorded by the acquired businesses as independent entities but were not recognized in our condensed consolidated statements of operations for the periods presented due to business combination accounting requirements. Refer to “Supplemental Disclosure Related to Certain Charges” below for additional discussion of these items and Note 9 of Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report for a reconciliation of the summations of our total operating segment revenues as presented in the discussion below to total revenues as presented per our condensed consolidated statements of operations for all periods presented.

In addition, research and development expenses, general and administrative expenses, stock-based compensation expenses, amortization of intangible assets, certain other expense allocations, acquisition related and other expenses, restructuring expenses, interest expense, non-operating income or expenses, net and benefit from (provision for) income taxes are not attributed to our three operating segments because our management does not view the performance of our three businesses including such items and/or it is impractical to do so. Refer to “Supplemental Disclosure Related to Certain Charges” below for additional discussion of certain of these items and Note 9 of Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report for a reconciliation of the summations of total segment margin as presented in the discussion below to total (loss) income before income taxes as presented per our condensed consolidated statements of operations for all periods presented.

We experienced COVID-19 related impacts to our businesses during each of the fiscal 2022 and 2021 periods presented. Certain of these historical impacts to our operating results are further discussed below. Any future impacts are currently unknown.

Separately, as described further below and in Note 11 of Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report, we remitted and recorded $4.7 billion for certain litigation related items during the fiscal 2022 periods presented.

Constant Currency Presentation

Our international operations have provided and are expected to continue to provide a significant portion of each of our businesses’ revenues and expenses. As a result, each of our businesses’ revenues and expenses and our total revenues and expenses will continue to be affected by changes in the U.S. Dollar against major international currencies. In order to provide a framework for assessing how our underlying businesses performed, excluding the effects of foreign currency rate fluctuations, we compare the percent change in the results from one period to another period in this Quarterly Report using constant currency disclosure. To present this information, current and comparative prior period results for entities reporting in currencies other than U.S. Dollars are converted into U.S. Dollars at constant exchange rates (i.e., the rates in effect on May 31, 2021, which was the last day of our prior fiscal year) rather than the actual exchange rates in effect during the respective periods. For example, if an entity reporting in Euros had revenues of 1.0 million Euros from products sold on November 30, 2021 and 2020, our financial statements would reflect reported revenues of $1.12 million in the first half of fiscal 2022 (using 1.12 as the month-end average exchange rate for the period) and $1.17 million in the first half of fiscal 2021 (using 1.17 as the month-end average exchange rate for the period). The constant currency presentation, however, would translate the results for the first half of fiscal 2022 and 2021 using the May 31, 2021 exchange rate and indicate, in this example, no change in revenues during the period. In each of the tables below, we present the percent change based on actual, unrounded results in reported currency and in constant currency.

Total Revenues and Operating Expenses

		Three Months Ended November 30,												Six Months Ended November 30,
						Percent Change												Percent Change
(Dollars in millions)		2021				Actual		Constant		2020				2021				Actual		Constant		2020
Total Revenues by Geography:
Americas		$	5,736			9%		9%		$	5,259			$	11,056			7%		7%		$	10,327
EMEA(1)			2,953			4%		4%			2,852				5,737			3%		2%			5,590
Asia Pacific			1,671			-1%		1%			1,689				3,294			1%		2%			3,250
Total revenues			10,360			6%		6%			9,800				20,087			5%		4%			19,167
Total Operating Expenses			11,184			80%		79%			6,217				17,485			41%		40%			12,373
Total Operating (Loss) Margin		$	(824	)		*		*		$	3,583			$	2,602			-62%		-60%		$	6,794
Total Operating Margin %		-8%								37%				13%								35%
% Revenues by Geography:
Americas		55%								54%				55%								54%
EMEA		29%								29%				29%								29%
Asia Pacific		16%								17%				16%								17%
Total Revenues by Business:
Cloud and license		$	8,791			7%		8%		$	8,204			$	16,974			6%		5%		$	16,037
Hardware			767			-9%		-8%			844				1,530			-8%		-8%			1,658
Services			802			7%		7%			752				1,583			8%		7%			1,472
Total revenues		$	10,360			6%		6%		$	9,800			$	20,087			5%		4%		$	19,167
% Revenues by Business:
Cloud and license		85%								83%				84%								83%
Hardware		7%								9%				8%								9%
Services		8%								8%				8%								8%

(1)	Comprised of Europe, the Middle East and Africa

*	Not meaningful

Excluding the effects of foreign currency rate fluctuations, our total revenues increased in the fiscal 2022 periods presented, relative to the corresponding prior year periods, due to growth in our cloud and license business’ revenues and services business’ revenues, which were partially offset by a decline in our hardware business’ revenues. The constant currency increases in our cloud and license business’ revenues during the fiscal 2022 periods presented, relative to the corresponding prior year periods, were attributable to growth in our cloud services and license support revenues and cloud license and on-premise license revenues as customers purchased our applications and infrastructure technologies via cloud and license deployment models and renewed their related cloud contracts and license support contracts to continue to gain access to the latest versions of our technologies and to receive support services. The constant currency increases in our services business’ revenues during the fiscal 2022 periods presented, relative to the corresponding prior year periods, were attributable to an increase in revenues for each of our primary services offerings. The constant currency decreases in our hardware business’ revenues during the fiscal 2022 periods presented, relative to the corresponding prior year periods, were due to the emphasis we placed on the marketing and sale of our growing cloud-based infrastructure technologies and the de-emphasis of our sales and marketing efforts for certain of our non-strategic hardware products and related support services. All three of our businesses’ revenues were adversely impacted during each of the first half of fiscal 2022 and 2021 due to the effects of the COVID-19 pandemic. While we expect these effects to be temporary, the impacts of COVID-19 for future periods are unknown. In constant currency, the Americas region contributed 76% and 80%, respectively, the EMEA region contributed 21% and 12%, respectively, and the Asia Pacific region contributed 3% and 8%, respectively, to the total revenues growth during the second quarter and the first half of fiscal 2022, respectively, in each case relative to the corresponding prior year periods.

Excluding the effects of foreign currency rate fluctuations, our total operating expenses increased during the fiscal 2022 periods presented, relative to the corresponding prior year periods, substantially due to certain litigation related charges recorded to acquisition related and other expenses during the fiscal 2022 periods presented and as further described below and in Note 11 of Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report; higher cloud services and license support expenses, which increased primarily due to higher infrastructure investments that were made to support the increase in our cloud and license business’ revenues; higher services expenses, which increased primarily due to higher employee related and external contractor expenses; and higher sales and marketing expenses and research and development expenses, both of which increased primarily due to higher employee related expenses. These constant currency expense increases were partially offset by lower hardware products and support costs and a related decrease in hardware sales and marketing costs, both of which aligned to lower hardware revenues, lower amortization of intangible assets, lower general and administrative expenses and lower restructuring expenses during the fiscal 2022 periods presented. In addition, during the second quarter and first half of fiscal 2022, we recorded $125 million and $250 million of gains on operating asset sales, respectively, which were allocated as a benefit to most of our operating expense lines as presented per our condensed consolidated statements of operations during these periods. During all periods presented, we curtailed a number of variable expenditures across all of our lines of businesses and functions including employee travel expenses and certain marketing expenses, among others, primarily in response to COVID-19. We expect certain of these expenses may normalize in future periods provided global economic and health conditions improve.

During the fiscal 2022 periods presented, certain litigation related charges as further described below and in Note 11 of Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report contributed to our constant currency operating loss during the second quarter of fiscal 2022 and reduced our constant currency operating margin during the first half of fiscal 2022, in each case relative to the corresponding prior year periods. The unfavorable impact of the litigation related charges to our fiscal 2022 operating results was partially offset by higher total margin generated by our operating segments and the aforementioned gains from operating asset sales during the fiscal 2022 periods presented.

Supplemental Disclosure Related to Certain Charges

To supplement our condensed consolidated financial information, we believe that the following information is helpful to an overall understanding of our past financial performance and prospects for the future.

Our operating results reported pursuant to GAAP included the following business combination accounting adjustments and expenses related to acquisitions and certain other expense and income items that affected our GAAP net (loss) income:

		Three Months Ended November 30,								Six Months Ended November 30,
(in millions)		2021				2020				2021				2020
Cloud services and license support deferred revenues(1)		$	—			$	—			$	—			$	1
Amortization of intangible assets(2)			299				345				603				690
Acquisition related and other(3)			4,667				76				4,687				95
Restructuring(4)			32				96				70				270
Stock-based compensation, operating segments(5)			192				133				344				249
Stock-based compensation, R&D and G&A(5)			489				355				882				667
Income tax effects(6)			(1,052	)			(212	)			(1,473	)			(548	)
		$	4,627			$	793			$	5,113			$	1,424

(1)

Due to business combination accounting rules that were applicable to acquisitions closed prior to fiscal 2022, we have estimated the fair values of the cloud services and license support contracts assumed and did not recognize the cloud services and license support revenue amounts presented in the above table that would have otherwise been recorded by the acquired businesses as independent entities upon delivery of the contractual obligations. To the extent customers for which these contractual obligations pertain renew these contracts with us, we expect to recognize revenues for the full contracts’ values over the respective contracts’ renewal periods.

(2)	Represents the amortization of intangible assets, substantially all of which were acquired in connection with our acquisitions. As of November 30, 2021, estimated future amortization related to intangible assets was as follows (in millions):

	Remainder of fiscal 2022		$	534
	Fiscal 2023			716
	Fiscal 2024			473
	Fiscal 2025			124
	Fiscal 2026			24
	Fiscal 2027			6
	Thereafter			4
	Total intangible assets, net		$	1,881

(3)

Acquisition related and other expenses substantially consisted of certain litigation related charges during the fiscal 2022 periods presented as further described in Note 11 of Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report. We consider the litigation related charges that are included in this line item to be outside our ordinary course of business based on the following considerations: (i) the unprecedented nature of the litigation related charges including the nature and size of the damages awarded; (ii) the dissimilarity of this litigation and related charges to recurring litigation of which we are a party in our normal business course for which any and all such charges are included in our GAAP operating results and are not separately quantified and disclosed within this line item or any other line in the table presented above; (iii) the complexity of the case; (iv) the counterparty involved; and (v) our expectation that litigation related charges of this nature will not recur in future periods; amongst other factors. For all periods presented, acquisition related and other expenses also consisted of personnel related costs for transitional and certain other employees, certain business combination adjustments including certain adjustments after the measurement period has ended, and certain other operating items, net.

(4)

Restructuring expenses during the fiscal 2022 periods presented primarily related to employee severance in connection with our Fiscal 2022 Oracle Restructuring Plan (2022 Restructuring Plan). Restructuring expenses during the fiscal 2021 periods presented primarily related to employee severance in connection with our Fiscal 2019 Oracle Restructuring Plan (2019 Restructuring Plan). Additional information regarding certain of our restructuring plans is provided in management’s discussion below under “Restructuring Expenses,” in Note 5 of Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report and in Note 8 of Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended May 31, 2021.

(5)	Stock-based compensation was included in the following operating expense line items of our condensed consolidated statements of operations (in millions):

			Three Months Ended November 30,								Six Months Ended November 30,
			2021				2020				2021				2020
	Cloud services and license support		$	50			$	36			$	90			$	66
	Hardware			4				3				7				6
	Services			18				14				32				26
	Sales and marketing			120				80				215				151
	Stock-based compensation, operating segments			192				133				344				249
	Research and development			423				314				767				590
	General and administrative			66				41				115				77
	Total stock-based compensation		$	681			$	488			$	1,226			$	916

(6)

For the second quarter and first half of fiscal 2022 the applicable jurisdictional tax rates applied to our (loss) income before benefit from (provision for) income taxes after excluding the tax effects of items within the table above such as for stock-based compensation, amortization of intangible assets, restructuring, and certain acquisition related and other items, and after excluding the net deferred tax effects associated with a previously recorded income tax benefit that resulted from a partial realignment of our legal entity structure, resulted in effective tax rates of 19.2% and 18.6%, respectively, instead of (16.6%) and (2.1%), respectively, which represented our effective tax benefit rates as derived per our condensed consolidated statements of operations. For the second quarter and first half of fiscal 2021, the applicable jurisdictional tax rates applied to our income before income taxes after excluding the tax effects of items within the table above such as for stock-based compensation, amortization of intangible assets, restructuring, and certain acquisition related and other items resulted in effective tax rates of 18.7% and 18.9%, respectively, instead of 17.8% and 15.7%, respectively, which represented our effective tax rates as derived per our condensed consolidated statements of operations.

Cloud and License Business

Our cloud and license business engages in the sale and marketing of our applications and infrastructure technologies that are delivered through various deployment models and include: Oracle license support offerings; Oracle Cloud Services offerings; and Oracle cloud license and on-premise license offerings. License support revenues are typically generated through the sale of applications and infrastructure license support contracts related to cloud licenses and on-premise licenses; are purchased by our customers at their option; and are generally recognized as revenues ratably over the contractual term, which is generally one year. Our cloud services

deliver applications and infrastructure technologies on a subscription basis via cloud-based deployment models that we develop, provide unspecified updates and enhancements for, deploy, host, manage and support. Revenues for our cloud services are generally recognized over the contractual term, which is generally one to three years, or in the case of usage model contracts, as the cloud services are consumed. 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 up front at the point in time when the software is made available to the customer to download and use. We continue to place significant emphasis, both domestically and internationally, on direct sales through our own sales force. We also continue to market certain of our offerings through indirect channels. Costs associated with our cloud and license business are included in cloud services and license support expenses, and sales and marketing expenses. These costs are largely personnel and infrastructure related including the cost of providing our cloud services and license support offerings, salaries and commissions earned by our sales force for the sale of our cloud and license offerings, and marketing program costs.

		Three Months Ended November 30,												Six Months Ended November 30,
						Percent Change												Percent Change
(Dollars in millions)		2021				Actual		Constant		2020				2021				Actual		Constant		2020(1)
Cloud and License Revenues:
Americas		$	4,994			11%		11%		$	4,494			$	9,575			9%		8%		$	8,815
EMEA			2,458			4%		5%			2,369				4,755			2%		1%			4,662
Asia Pacific			1,339			0%		2%			1,341				2,644			3%		4%			2,561
Total revenues			8,791			7%		8%			8,204				16,974			6%		5%			16,038
Expenses:
Cloud services and license support(2)			1,184			17%		18%			1,008				2,337			19%		18%			1,966
Sales and marketing(2)			1,696			5%		5%			1,620				3,322			2%		2%			3,253
Total expenses(2)			2,880			10%		10%			2,628				5,659			8%		8%			5,219
Total Margin		$	5,911			6%		7%		$	5,576			$	11,315			5%		4%		$	10,819
Total Margin %		67%								68%				67%								67%
% Revenues by Geography:
Americas		57%								55%				56%								55%
EMEA		28%								29%				28%								29%
Asia Pacific		15%								16%				16%								16%
Revenues by Offerings:
Cloud services and license support(1)		$	7,554			6%		6%		$	7,112			$	14,925			6%		6%		$	14,060
Cloud license and on-premise license			1,237			13%		16%			1,092				2,049			4%		4%			1,978
Total revenues(1)		$	8,791			7%		8%		$	8,204			$	16,974			6%		5%		$	16,038
Cloud Services and License Support Revenues by Ecosystem:
Applications cloud services and license support		$	3,149			9%		8%		$	2,901			$	6,190			8%		7%		$	5,718
Infrastructure cloud services and license support			4,405			5%		5%			4,211				8,735			5%		4%			8,342
Total cloud services and license support revenues		$	7,554			6%		6%		$	7,112			$	14,925			6%		6%		$	14,060

(1)

Revenues presented for the first half of fiscal 2021 included cloud services and license support revenue adjustments related to certain cloud services and license support contracts that would have otherwise been recorded as revenues by the acquired businesses as independent entities but were not recognized in our GAAP-based condensed consolidated statements of operations for the periods presented due to business combination accounting rules that were applicable to acquisitions closed prior to fiscal 2022. Such revenue adjustments were included in our operating segment results for the first half of fiscal 2021 for purposes of reporting to and review by our CODMs. See “Presentation of Operating Segment Results and Other Financial Information” above for additional information.

(2)	Excludes stock-based compensation and certain expense allocations. Also excludes amortization of intangible assets and certain other GAAP-based expenses, which were not allocated to our operating segment results for purposes of reporting to and review by our CODMs, as further described under “Presentation of Operating Segment Results and Other Financial Information” above.

Excluding the effects of foreign currency rate fluctuations, our cloud and license business’ total revenues increased in the fiscal 2022 periods presented, relative to the corresponding prior year periods, due to growth in our cloud services and license support revenues and growth in our cloud license and on-premise license revenues as customers purchased our applications and infrastructure technologies via cloud and license deployment models

and renewed their related cloud contracts and license support contracts to continue to gain access to the latest versions of our technologies and to receive support for which we delivered such cloud and support services during the periods presented. The growth in our cloud and license business’ revenues was adversely impacted during each of the fiscal 2022 and 2021 periods presented due to the COVID-19 pandemic, and the impacts of COVID-19 for future periods are unknown. In constant currency, the Americas region contributed 77% and 82%, respectively, the EMEA region contributed 18% and 6%, respectively, and the Asia Pacific region contributed 5% and 12%, respectively, to the revenues growth for this business during the second quarter and the first half of fiscal 2022, respectively.

In constant currency, our total cloud and license business’ expenses increased in the fiscal 2022 periods presented, relative to the corresponding prior year periods, due to higher cloud services and license support expenses which were primarily attributable to higher technology infrastructure expenses and higher employee related expenses due to higher headcount to support the increase in our cloud and license business’ revenues; and higher sales and marketing expenses, primarily due to higher employee related expenses from higher headcount. These constant currency expense increases were partially offset by an allocation of gains from fiscal 2022 operating asset sales as described above. Our cloud services and license support expenses have grown in recent periods and we expect this growth to continue to accelerate during fiscal 2022 as we increase our existing data center capacity and establish data centers in new geographic locations in order to meet current and expected customer demand.

Excluding the effects of currency rate fluctuations, our cloud and license business’ total margin increased during the fiscal 2022 periods presented, relative to the corresponding prior year periods, due to the increase in total revenues for this business. In constant currency, total margin as a percentage of revenues for this segment was flat in the second quarter of fiscal 2022 and decreased slightly during the first half of fiscal 2022, each in comparison to the corresponding prior year periods, due to expenses growth.

Hardware Business

Our hardware business’ revenues are generated from the sales of our Oracle Engineered Systems, server, storage, and industry-specific hardware offerings. The hardware product and related software, such as an operating system or firmware, are highly interdependent and interrelated and are accounted for as a combined performance obligation. The revenues for this combined performance obligation are generally recognized at the point in time that the hardware product is delivered to the customer and ownership is transferred to the customer. Our hardware business also earns revenues from the sale of hardware support contracts purchased by our customers at their option and that are generally recognized as revenues ratably as the hardware support services are delivered over the contractual term, which is generally one year. The majority of our hardware products are sold through indirect channels such as independent distributors and value-added resellers and we also market and sell our hardware products through our direct sales force. Operating expenses associated with our hardware business include the cost of hardware products, which consists of expenses for materials and labor used to produce these products by our internal manufacturing operations or by third-party manufacturers, warranty and related expenses and the impact of periodic changes in inventory valuation, including the impact of inventory determined to be excess and obsolete; the cost of materials used to repair customer products; the cost of labor and infrastructure to provide support services; and sales and marketing expenses, which are largely personnel related and include variable compensation earned by our sales force for the sales of our hardware offerings.

		Three Months Ended November 30,												Six Months Ended November 30,
						Percent Change												Percent Change
(Dollars in millions)		2021				Actual		Constant		2020				2021				Actual		Constant		2020
Hardware Revenues:
Americas		$	368			-12%		-12%		$	419			$	740			-11%		-11%		$	828
EMEA			228			-5%		-4%			241				460			0%		0%			461
Asia Pacific			171			-7%		-6%			184				330			-10%		-10%			369
Total revenues			767			-9%		-8%			844				1,530			-8%		-8%			1,658
Expenses:
Hardware products and support(1)			221			-6%		-6%			236				459			-3%		-4%			475
Sales and marketing(1)			88			-6%		-6%			94				177			-8%		-8%			192
Total expenses(1)			309			-6%		-6%			330				636			-5%		-5%			667
Total Margin		$	458			-11%		-10%		$	514			$	894			-10%		-10%		$	991
Total Margin %		60%								61%				58%								60%
% Revenues by Geography:
Americas		48%								50%				48%								50%
EMEA		30%								28%				30%								28%
Asia Pacific		22%								22%				22%								22%

(1)	Excludes stock-based compensation and certain expense allocations. Also excludes amortization of intangible assets and certain other GAAP‑based expenses, which were not allocated to our operating segment results for purposes of reporting to and review by our CODMs, as further described under “Presentation of Operating Segment Results and Other Financial Information” above.

Our constant currency hardware revenues declined in the fiscal 2022 periods presented, relative to the corresponding prior year periods, primarily due to our continued emphasis on the marketing and sale of our growing cloud-based infrastructure technologies and the de-emphasis of our sales and marketing efforts for certain of our non-strategic hardware products and related support services, the net impact of which resulted in reduced sales volumes of certain of our hardware product lines and also impacted the volume of hardware support contracts sold in recent periods. Our hardware business’ revenues were also adversely impacted during each of the fiscal 2022 and 2021 periods presented due to the impacts of the COVID-19 pandemic, including global supply chain shortages for technology components that resulted in certain manufacturing delays, and any such prospective impacts are unknown. Geographically, we experienced constant currency revenue declines in all regions during the fiscal 2022 periods presented.

Excluding the effects of currency rate fluctuations, total hardware expenses decreased in the fiscal 2022 periods presented, relative to the corresponding prior year periods, primarily due to lower hardware product expenses, lower hardware support costs and lower sales and marketing costs, all of which aligned to lower hardware revenues.

In constant currency, our hardware business’ total margin and total margin as a percentage of revenues decreased during the fiscal 2022 periods presented, relative to the corresponding prior year periods, due to lower total revenues for this business.

Services Business

We offer services to customers and partners to help maximize the performance of their investments in Oracle applications and infrastructure technologies. Services revenues are generally recognized over time as the services are performed. The cost of providing our services consists primarily of personnel related expenses, technology infrastructure expenditures, facilities expenses and external contractor expenses.

		Three Months Ended November 30,												Six Months Ended November 30,
						Percent Change												Percent Change
(Dollars in millions)		2021				Actual		Constant		2020				2021				Actual		Constant		2020
Services Revenues:
Americas		$	374			8%		8%		$	347			$	741			8%		8%		$	686
EMEA			267			11%		11%			241				522			12%		11%			466
Asia Pacific			161			-2%		0%			164				320			0%		1%			320
Total revenues			802			7%		7%			752				1,583			8%		7%			1,472
Total Expenses(1)			631			6%		6%			595				1,240			5%		4%			1,180
Total Margin		$	171			9%		10%		$	157			$	343			18%		18%		$	292
Total Margin %		21%								21%				22%								20%
% Revenues by Geography:
Americas		47%								46%				47%								46%
EMEA		33%								32%				33%								32%
Asia Pacific		20%								22%				20%								22%

(1)	Excludes stock-based compensation and certain allocations. Also excludes certain other GAAP-based expenses, which were not allocated to our operating segment results for purposes of reporting to and review by our CODMs, as further described under “Presentation of Operating Segment Results and Other Financial Information” above.

Excluding the effects of currency rate fluctuations, our total services revenues increased in the fiscal 2022 periods presented, relative to the corresponding prior year periods, due to revenue increases in each of our primary services offerings. Our services business revenues were adversely affected during the fiscal 2022 and 2021 periods presented by the impacts of COVID-19, including the impacts of consulting project delays due to customer resource constraints and in-person meeting restrictions imposed by certain jurisdictions, among others, and any such prospective impacts are unknown. In constant currency, the Americas region contributed 49% of our services revenues growth for each of the fiscal 2022 periods presented, while the EMEA region contributed 50% and 48%, respectively, and the Asia Pacific region contributed 1% and 3%, respectively, to the revenues growth for this business during the second quarter and the first half of fiscal 2022, respectively.

In constant currency, total services expenses increased during the fiscal 2022 periods presented, relative to the corresponding prior year periods, primarily due to higher employee related expenses and higher external contractor expenses.

In constant currency, our services business’ total margin and total margin as a percentage of revenues increased during the fiscal 2022 periods presented, relative to the corresponding prior year periods, due to higher total revenues for this business.

Research and Development Expenses: Research and development expenses consist primarily of personnel related expenditures. We intend to continue to invest significantly in our research and development efforts because, in our judgment, they are essential to maintaining our competitive position.

		Three Months Ended November 30,												Six Months Ended November 30,
						Percent Change												Percent Change
(Dollars in millions)		2021				Actual		Constant		2020				2021				Actual		Constant		2020
Research and development(1)		$	1,331			3%		3%		$	1,287			$	2,671			3%		2%		$	2,600
Stock-based compensation			423			35%		35%			314				767			30%		30%			590
Total expenses		$	1,754			10%		9%		$	1,601			$	3,438			8%		7%		$	3,190
% of Total Revenues		17%								16%				17%								17%

(1)	Excluding stock-based compensation

On a constant currency basis, total research and development expenses increased during the fiscal 2022 periods presented, relative to the corresponding prior year periods, primarily due to higher employee related expenses due to increased headcount and higher stock-based compensation expenses. The constant currency expense increases during the fiscal 2022 periods presented were partially offset by an allocation of gains from fiscal 2022 operating asset sales as described above.

General and Administrative Expenses: General and administrative expenses primarily consist of personnel related expenditures for IT, finance, legal and human resources support functions.

		Three Months Ended November 30,												Six Months Ended November 30,
						Percent Change												Percent Change
(Dollars in millions)		2021				Actual		Constant		2020				2021				Actual		Constant		2020
General and administrative(1)		$	253			-10%		-10%		$	283			$	503			-7%		-8%		$	542
Stock-based compensation			66			58%		58%			41				115			49%		49%			77
Total expenses		$	319			-2%		-2%		$	324			$	618			0%		-1%		$	619
% of Total Revenues		3%								3%				3%								3%

(1)	Excluding stock-based compensation

Excluding the effects of foreign currency rate fluctuations, total general and administrative expenses decreased slightly during the fiscal 2022 periods presented, relative to the corresponding prior year periods, primarily due to an allocation of gains from fiscal 2022 operating asset sales as described above, partially offset by higher stock-based compensation expenses.

Amortization of Intangible Assets: Substantially all of our intangible assets were acquired through our business combinations. We amortize our intangible assets over, and monitor the appropriateness of, the estimated useful lives of these assets. We also periodically review these intangible assets for potential impairment based upon relevant facts and circumstances. Note 4 of Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report has additional information regarding our intangible assets and related amortization.

		Three Months Ended November 30,												Six Months Ended November 30,
						Percent Change												Percent Change
(Dollars in millions)		2021				Actual		Constant		2020				2021				Actual		Constant		2020
Developed technology		$	125			-21%		-21%		$	158			$	252			-20%		-20%		$	316
Cloud services and license support agreements and related relationships			153			-7%		-6%			165				308			-6%		-6%			329
Other			21			-6%		-5%			22				43			-6%		-6%			45
Total amortization of intangible assets		$	299			-13%		-13%		$	345			$	603			-13%		-13%		$	690

Amortization of intangible assets decreased during the fiscal 2022 periods presented, relative to the corresponding prior year periods, due to a reduction in expenses associated with certain of our intangible assets that became fully amortized, partially offset by a smaller amount of additional amortization from intangible assets that we acquired in connection with our recent acquisitions.

Acquisition Related and Other Expenses**:** Acquisition related and other expenses substantially consisted of certain litigation related charges that we generally do not expect to recur during the fiscal 2022 periods presented as further described in Note 11 of Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report. For all periods presented, acquisition related and other expenses also consisted of personnel related costs for transitional and certain other employees, certain business combination adjustments, including adjustments after the measurement period has ended, and certain other operating items, net.

		Three Months Ended November 30,												Six Months Ended November 30,
						Percent Change												Percent Change
(Dollars in millions)		2021				Actual		Constant		2020				2021				Actual		Constant		2020
Transitional and other employee related costs		$	2			103%		102%		$	1			$	4			35%		34%		$	3
Business combination adjustments, net			1			*		*			—				4			*		*			1
Litigation related charges and other, net			4,664			*		*			75				4,679			*		*			91
Total acquisition related and other expenses		$	4,667			*		*		$	76			$	4,687			*		*		$	95

*	Not meaningful

On a constant currency basis, acquisition related and other expenses increased during the fiscal 2022 periods presented, relative to the corresponding prior year periods, primarily due to certain litigation related charges that we generally do not expect to recur as further described in Note 11 of Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report.

Restructuring Expenses: Restructuring expenses resulted from the execution of management approved restructuring plans that were generally developed to improve our cost structure and/or operations, often in conjunction with our acquisition integration strategies and/or other strategic initiatives. Restructuring expenses consist of employee severance costs and other contract termination costs to improve our cost structure prospectively. For additional information regarding our restructuring plans, see Note 5 of Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report and Note 8 of Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended May 31, 2021.

		Three Months Ended November 30,												Six Months Ended November 30,
						Percent Change												Percent Change
(Dollars in millions)		2021				Actual		Constant		2020				2021				Actual		Constant		2020
Restructuring expenses		$	32			-67%		-67%		$	96			$	70			-74%		-74%		$	270

Restructuring expenses in the fiscal 2022 periods presented primarily related to our 2022 Restructuring Plan. Restructuring expenses in the fiscal 2021 periods presented primarily related to our 2019 Restructuring Plan, which is substantially complete. Our management approved, committed to and initiated the 2022 Restructuring Plan and the 2019 Restructuring Plan in order to restructure and further improve efficiencies in our operations. We may incur additional restructuring expenses in future periods due to the initiation of new restructuring plans or from changes in estimated costs associated with existing restructuring plans.

The majority of the initiatives undertaken by our 2022 Restructuring Plan were effected to implement our continued emphasis in developing, marketing and selling our cloud-based offerings. These initiatives primarily impacted certain of our sales and marketing and research and development operations. Certain of the cost savings realized pursuant to our 2022 Restructuring Plan initiatives were offset by investments in resources and geographies that better address the development, marketing, sale and delivery of our cloud‑based offerings including investments in our second‑generation cloud infrastructure.

Interest Expense**:**

		Three Months Ended November 30,												Six Months Ended November 30,
						Percent Change												Percent Change
(Dollars in millions)		2021				Actual		Constant		2020				2021				Actual		Constant		2020
Interest expense		$	679			13%		13%		$	600			$	1,384			14%		14%		$	1,214

Interest expense increased during the fiscal 2022 periods presented, relative to the corresponding prior year periods, primarily due to higher average borrowings resulting from our issuance of $15.0 billion of senior notes in March 2021, partially offset by lower interest expense that resulted from $5.8 billion of scheduled repayments made during the first half of fiscal 2022.

Non-Operating Income (Expenses), net: Non-operating income (expenses), net consists primarily of interest income, net foreign currency exchange 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 and expenses, including net realized gains and losses related to all of our investments, net unrealized gains and losses related to the small portion of our investment portfolio related to our deferred compensation plan, net unrealized gains and losses related to equity securities and non-service net periodic pension income and losses.

		Three Months Ended November 30,												Six Months Ended November 30,
						Percent Change												Percent Change
(Dollars in millions)		2021				Actual		Constant		2020				2021				Actual		Constant		2020
Interest income		$	21			-23%		-21%		$	27			$	40			-30%		-30%		$	58
Foreign currency losses, net			(46	)		179%		192%			(16	)			(81	)		21%		18%			(66	)
Noncontrolling interests in income			(42	)		-2%		-2%			(43	)			(89	)		11%		11%			(81	)
Other, net			74			251%		270%			21				96			25%		29%			76
Total non-operating income (expenses), net		$	7			*		*		$	(11	)		$	(34	)		158%		97%		$	(13	)

*	Not meaningful

Fiscal Second Quarter 2022 Compared to Fiscal Second Quarter 2021: In constant currency, we recorded non-operating income, net during the second quarter of fiscal 2022 in comparison to non-operating expenses, net that we incurred during the second quarter of fiscal 2021. Non-operating income, net during the second quarter of fiscal 2022 was primarily due to higher other income, net, which was primarily attributable to higher unrealized gains on certain marketable equity securities investments and was partially reduced by higher losses associated with equity investments for which we follow the equity method of accounting, in each case during the second quarter of fiscal 2022 in comparison to the corresponding prior year period. This increase in other income, net during the second quarter of fiscal 2022 was partially offset by lower interest income and higher foreign currency losses, net during this period.

First Half of Fiscal 2022 Compared to First Half of Fiscal 2021: Our non-operating expenses, net increased in the first half of fiscal 2022 compared to the first half of fiscal 2021 primarily due to lower interest income amounts and higher foreign currency losses, net that we recognized during the first half of fiscal 2022. These increases in our non-operating expenses, net were partially offset by higher other income, net as described above.

Benefit from (Provision for) Income Taxes: Our effective income tax rates for each of the periods presented were the result of the mix of income and losses earned in various tax jurisdictions that apply a broad range of income tax rates. Our benefit from (provision for) income taxes varied from that computed at the U.S. federal statutory income tax rate for the periods presented primarily due to earnings in foreign operations, state taxes, the U.S. research and development tax credit, settlements with tax authorities, the tax effects of stock-based compensation, the Foreign Derived Intangible Income deduction and the tax effect of Global Intangible Low-Taxed Income. Future effective tax rates could be adversely affected by an unfavorable shift of earnings weighted to jurisdictions with higher tax rates, by unfavorable changes in tax laws and regulations, by adverse rulings in tax related litigation, or by shortfalls in stock-based compensation realized by employees relative to stock-based compensation that was recorded for book purposes, among others.

		Three Months Ended November 30,												Six Months Ended November 30,
						Percent Change												Percent Change
(Dollars in millions)		2021				Actual		Constant		2020				2021				Actual		Constant		2020
Benefit from (provision for) income taxes		$	249			*		*		$	(530	)		$	25			*		*		$	(874	)
Effective tax (benefit) expense rate		(16.6%		)						17.8%				(2.1%		)						15.7%

*	Not meaningful

Provision for income taxes decreased during the fiscal 2022 periods presented, due primarily to tax implications of lower income before provision that, in each case, were primarily attributable to certain litigation related charges as further described in Note 11 of Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report and, to a much lesser extent, an increase in tax benefits recognized on stock-based compensation during the fiscal 2022 periods. These decreases to our fiscal 2022 income taxes relative to the corresponding prior year periods were partially offset by the absence of favorable unrecognized tax benefits due to settlements with tax authorities and other events that we realized in the fiscal 2021 periods presented.

Liquidity and Capital Resources

(Dollars in millions)		November 30, 2021				Change		May 31, 2021
Working capital		$	12,197			-61%		$	31,403
Cash, cash equivalents and marketable securities		$	22,838			-51%		$	46,554

Working capital: The decrease in working capital as of November 30, 2021 in comparison to May 31, 2021 was primarily due to $15.0 billion of cash used for repurchases of our common stock, $4.7 billion of cash paid for certain litigation related items that we generally do not expect to recur, $2.5 billion of long-term senior notes that were reclassified to current liabilities, cash used to pay dividends to our stockholders and cash used for capital expenditures during the first half of fiscal 2022. These unfavorable impacts were partially offset by the favorable impacts to our net current assets resulting from our net income, net cash proceeds of $318 million associated with the sale of certain operating assets, and cash proceeds from stock option exercises, all of which occurred during the first half of fiscal 2022. Our working capital may be impacted by some or all of the aforementioned factors in future periods, the amounts and timing of which are variable.

Cash, cash equivalents and marketable securities: Cash and cash equivalents primarily consist of deposits held at major banks, money market funds, Tier-1 commercial paper and other securities with original maturities of 90 days or less. Marketable securities consist of corporate debt securities and certain other securities. The decrease in cash, cash equivalents and marketable securities at November 30, 2021 in comparison to May 31, 2021 was primarily due to $15.0 billion of settled repurchases of our common stock, $5.8 billion of debt repayments, $4.7 billion of cash paid for certain litigation related items that we generally do not expect to recur, payments of cash dividends to our stockholders and cash used for capital expenditures. These cash outflows during the first half of fiscal 2022 were partially offset by certain cash inflows generated by our normal business operations, from the sales of certain operating assets, and from stock option exercises during the first half of fiscal 2022.

		Six Months Ended November 30,
(Dollars in millions)		2021				Change		2020
Net cash provided by operating activities		$	1,709			-77%		$	7,341
Net cash provided by (used for) investing activities		$	9,949			*		$	(5,803	)
Net cash used for financing activities		$	(23,521	)		113%		$	(11,047	)

*	Not meaningful

Cash flows from operating activities: Our largest source of operating cash flows is cash collections from our customers following the purchase and renewal of their license support agreements. Payments from customers for these license support agreements are generally received near the beginning of the contracts’ terms, which are generally one year in length. Over the course of a fiscal year, we also have historically generated cash from the sales of new licenses, cloud services, hardware offerings and other services. Our primary uses of cash from

operating activities are typically for employee related expenditures, material and manufacturing costs related to the production of our hardware products, taxes, interest payments and leased facilities.

Net cash provided by operating activities decreased during the first half of fiscal 2022, relative to the corresponding prior year period, primarily due to lower net income that was primarily the result of cash payments made in connection with certain litigation related charges that we generally do not expect to recur and certain other cash unfavorable working capital changes, net, in each case during the first half of fiscal 2022 relative to the first half of fiscal 2021.

Cash flows from investing activities: The changes in cash flows from investing activities primarily relate to the timing of our purchases, maturities and sales of our investments in marketable securities, and investments in capital and other assets, including certain intangible assets, to support our growth.

Net cash provided by investing activities was $9.9 billion during the first half of fiscal 2022 compared to $5.8 billion of net cash used for investing activities during the first half of fiscal 2021. The increase in net cash provided by investing activities was primarily due to an increase in cash proceeds from sales and maturities of marketable securities and other investments and a decrease in the cash used for the purchases of marketable securities and other investments, partially offset by an increase in cash used for capital expenditures, in each case during the first half of fiscal 2022 relative to the first half of fiscal 2021.

Cash flows from financing activities: The changes in cash flows from financing activities primarily relate to borrowings and repayments related to our debt instruments, stock repurchases, dividend payments and net proceeds related to employee stock programs.

Net cash used for financing activities increased during the first half of fiscal 2022 compared to the first half of fiscal 2021 primarily due to higher stock repurchases, higher debt repayments, higher payments of dividends and higher net cash used for our employee stock program, in each case during the first half of fiscal 2022 in comparison to the first half of fiscal 2021.

Free cash flow: To supplement our statements of cash flows presented on a GAAP basis, we use non-GAAP measures of cash flows on a trailing 4-quarter basis to analyze cash flows generated from our operations. We believe that free cash flow is also useful as one of the bases for comparing our performance with our competitors. The presentation of non-GAAP free cash flow is not meant to be considered in isolation or as an alternative to net income as an indicator of our performance, or as an alternative to cash flows from operating activities as a measure of liquidity. We calculate free cash flow as follows:

		Trailing 4-Quarters Ended November 30,
(Dollars in millions)		2021				Change		2020
Net cash provided by operating activities		$	10,255			-27%		$	13,967
Capital expenditures			(3,118	)		70%			(1,833	)
Free cash flow		$	7,137			-41%		$	12,134
Net income		$	10,262					$	10,380
Free cash flow as percent of net income		70%						117%

Recent Financing Activities:

Common Stock Repurchase Program: Our Board of Directors has approved a program for us to repurchase shares of our common stock. On December 9, 2021, we announced that our Board of Directors approved an expansion of our stock repurchase program by an additional $10.0 billion. As of November 30, 2021, approximately $648 million remained available for stock repurchases pursuant to our 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 or pursuant to a Rule 10b5-1 plan. Our stock repurchase program may be accelerated, suspended, delayed or discontinued at any time.

Contractual Obligations: During the first half of fiscal 2022, there were no significant changes to our estimates of future payments under our fixed contractual obligations and commitments as presented in Part II, Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for our fiscal year ended May 31, 2021.

We believe that our current cash, cash equivalents and marketable securities and cash generated from operations will be sufficient to meet our working capital, capital expenditures and contractual obligation requirements. In addition, we believe that we could fund our future acquisitions, dividend payments and repurchases of common stock or debt with our internally available cash, cash equivalents and marketable securities, cash generated from operations, additional borrowings or from the issuance of additional securities.

Restricted Stock-Based Awards and Stock Options

Our stock-based compensation program is a key component of the compensation package we provide to attract and retain certain of our talented employees and align their interests with the interests of existing stockholders.

We recognize that restricted stock-based awards and stock options dilute existing stockholders and have sought to control the number of stock-based awards granted while providing competitive compensation packages. Consistent with these dual goals, our cumulative potential dilution since June 1, 2018 has been a weighted-average annualized rate of 0.9% per year. The potential dilution percentage is calculated as the average annualized new restricted stock-based awards and stock options granted and assumed, net of restricted stock-based awards and stock options forfeited by employees leaving the company, divided by the weighted-average outstanding shares during the calculation period. This maximum potential dilution will only result if all restricted stock-based awards vest and all stock options are exercised. Of the outstanding stock options at November 30, 2021, which generally have a ten-year exercise period, all have exercise prices lower than the market price of our common stock on such date. In recent years, our stock repurchase program has more than offset the dilutive effect of our stock-based compensation program. However, we may modify the levels of our stock repurchases in the future depending on a number of factors, including the amount of cash we have available for acquisitions, to pay dividends, to repay or repurchase indebtedness or for other purposes. At November 30, 2021, the maximum potential dilution from all outstanding restricted stock-based awards and unexercised stock options, regardless of when granted and regardless of whether vested or unvested, was 8.4%.

Recent Accounting Pronouncements

For information with respect to recent accounting pronouncements, if any, and the impact of these pronouncements on our consolidated financial statements, if any, see Note 1 of Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report.