UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended May 31, 20122015
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 000-51788001-35992
Oracle Corporation
(Exact name of registrant as specified in its charter)
Delaware | 54-2185193 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
500 Oracle Parkway | ||
Redwood City, California | 94065 | |
(Address of principal executive offices) | (Zip Code) |
(650) 506-7000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Name of each exchange on which registered | |
Common Stock, par value $0.01 per share 2.25% senior notes due January 2021 3.125% senior notes due July 2025 | New York Stock New York Stock Exchange New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES x NO ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES ¨ NO x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES x NO ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x | Accelerated filer ¨ | |
Non-accelerated filer ¨ | Smaller reporting company ¨ | |
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO x
The aggregate market value of the voting stock held by non-affiliates of the registrant was $119,072,791,000$136,863,594,000 based on the number of shares held by non-affiliates of the registrant as of May 31, 2012,2015, and based on the closing sale price of common stock as reported by the NASDAQ Global Select MarketNew York Stock Exchange on November 30, 2011,28, 2014, which is the last business day of the registrant’s most recently completed second fiscal quarter. This calculation does not reflect a determination that persons are affiliates for any other purposes.
Number of shares of common stock outstanding as of June 20, 2012: 4,882,506,000.18, 2015: 4,336,077,000.
Documents Incorporated by Reference:
Portions of the registrant’s definitive proxy statement relating to its 20122015 annual stockholders’ meeting are incorporated by reference into Part III of this Annual Report on Form 10-K where indicated.
ORACLE CORPORATION
FISCAL YEAR 20122015
FORM 10-K
ANNUAL REPORT
Cautionary Note on Forward-Looking Statements
For purposes of this Annual Report, the terms “Oracle,” “we,” “us” and “our” refer to Oracle Corporation and its consolidated subsidiaries. This Annual Report on Form 10-K contains statements that are not historical in nature, are predictive in nature, or that depend upon or refer to future events or conditions or otherwise contain forward-looking statements within the meaning of Section 21 of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. These include, among other things, statements regarding:
our expectation tothat we will continue to acquire companies, products, services and technologies;
our intention thatbeliefs regarding how our direct sales forceacquisitions, investments and innovations will sell proportionately more ofhelp us achieve our hardware systems products in the future;long-term strategic plans;
continued realization of gains or losses with respect to our foreign currency exposures;
our expectation that our software and cloud business’ total revenues generally will continue to increase;
our belief that software license updates and product support revenues and margins will grow;
our expectation that our hardware business will have lower operating margins as a percentage of revenues than our software and cloud business;
our international operations providing a significant portion of our total revenues and expenses;
our expectation to continue to innovate and invest in Java technology;
our expectation tothat we will continue to make significant investments in research and development and related product opportunities, including those related to hardware products and services;
services, and our expectationbelief that research and development efforts are essential to growmaintaining our consulting revenues;competitive position;
the sufficiency of our sources of funding for acquisitions, ordividends, stock repurchases and other matters;
our expectation that we will continue paying comparable cash dividends on a quarterly basis;
our belief that we have adequately provided for any reasonably foreseeable outcomes related to our tax audits and that any tax settlement will not have a material adverse effect on our consolidated financial position or results of operations;operations, and our assumptions regarding the potential U.S. income tax liability associated with any repatriation of our undistributed earnings held by our foreign subsidiaries;
our expectationestimates and current intentions regarding potential future goodwill impairment losses, if any;
our belief that the outcome of certain legal proceedings and claims to continue paying comparable cash dividends onwhich we are a quarterly basis;party will not, individually or in the aggregate, result in losses that are materially in excess of amounts already recognized, if any;
our expectations regarding the timing and amount of expenses relating to the Fiscal 2015 Oracle Restructuring Plan and the improved efficiencies in our operations that such Plan will have;
the timing and amount of our stock repurchases;
our expectation that seasonal trends will continue in fiscal 2013;the future;
our expectation tothat we will continue to depend on third party manufacturers to build certain hardware systems products and third party logistics providers to deliver our products;
our expectation that to the extent customers renew support contracts or cloud software subscriptionas a service and platform as a service contracts, we will recognize revenues for the full contracts’ values over the respective renewal periods;
our ability to predict quarterly hardware systems revenues;
the timing of customer orders and delays in our ability to manufacture or deliver a few large transactions substantially affecting the amount of hardware systems products revenues, expenses and operating margins that we will report;
as well as other statements regarding our future operations, financial condition and prospects, and business strategies. Forward-looking statements may be preceded by, followed by or include the words “expects,” “anticipates,
“anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “will,” “should,” “is designed to” and similar expressions. We claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 for all forward-looking statements. We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to risks, uncertainties and assumptions about our business that could affect our future results and could cause those results or other outcomes to differ materially from those expressed or implied in the forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in “Risk Factors” included elsewhere in this Annual Report and as may be updated in filings we make from time to time with the U.S. Securities and Exchange Commission (the SEC), including the Quarterly Reports on Form 10-Q to be filed by us in our fiscal year 2013,2016, which runs from June 1, 20122015 to May 31, 2013.2016.
We have no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or risks, except to the extent required by applicable securities laws. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements. New information, future events or risks could cause the forward-looking events we discuss in this Annual Report not to occur. You should not place undue reliance on these forward-looking statements, which reflect our opinionsexpectations only as of the date of this Annual Report.
General
We are the world’s largest provider of enterprise software and a leading provider of computer hardwareOracle Corporation provides products and services.services that address all aspects of corporate information technology (IT) environments—application, platform and infrastructure—and are available to customers either via cloud computing or on-premises deployment models. Our software, hardware systems, and services businesses develop, manufacture, market, host and supportproducts include database and middleware software, applicationsapplication software, cloud infrastructure software and hardware systems (Oracle Engineered Systems, servers, storage, networking and industry specific products), along with the latter consisting primarily of computer serversupport and storage products. Our businesses provide products and services that are built upon industry standards, are engineered to work together or independently within existing customer information technology (IT) environments, and run securely on a wide range of customer IT environments, including cloud computing environments.
Cloud computing environments provide on demand access to a shared pool of computing resources in a scalable, self-service manner, delivering advantages in speed, agility and efficiency. Cloud computing has evolved from technologies and services that Oracle has provided for many years, including clustering, server virtualization, Service-Oriented Architecture (SOA), shared services, large-scale management automation, and more recently, engineered systems. Our secure, reliable, and scalable product offerings are designed to improve business efficiencies at a lower total cost of ownership.related services. We seek to be an industry leader in each of the product categories in which we compete, and to expand into new and emerging markets.
We believe our ability to offer our customers choice and flexibility in the manner in which they deploy our products and services—while maintaining enterprise-grade reliability, security, and interoperability based upon industry standards—is important to our corporate strategy. Oracle Fusion Applications, for example, offerover 400,000 worldwide customers a choice of deployment models to runbest suit their needs including (1) the deployment of our standards-based software applications in on-premiseproducts via our Oracle Cloud offerings, (2) the acquisition of Oracle products and services for an on-premises IT environment or (3) a mix of these two models.
For customers opting for a cloud computing model, Oracle offers a wide range of 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 offerings are designed to be: rapidly deployable to enable customers shorter time to innovation; easily maintainable to reduce integration and testing work; and cost effective by requiring lower upfront customer investment. Our Oracle Cloud offerings integrate the software, hardware and services on the customers’ behalf in IT environments that we deploy, support and manage for the customer. We are a leader in the core technologies of cloud IT environments, including database and middleware software as well as enterprise applications, virtualization, clustering, large-scale systems management and related infrastructure. Our products and services are the building blocks of our Oracle Cloud services, our partners’ cloud services and our customers’ cloud IT environments.
In addition to offering a broad spectrum of cloud products and services, Oracle for decades has developed and sold its products and services to our customers worldwide for use in their global data centers and on-premises IT environments. Oracle Cloud is a familyAn important element of our cloud-based software subscription offerings that provides accesscorporate strategy is to select Oracle software applicationscontinue our investments in, and software platforms on a subscription basis in a secure, standards-based cloud computing environment. Oracle Cloud includes software applications as a service, such as Oracle Fusion Human Capital Management (HCM) Cloud Service and Oracle Fusion Customer Relationship Management (CRM) Cloud Service, and software platform services such as Oracle Database Cloud Service and Oracle Java Cloud Service, among others.
We believe our internal growth and continued innovation with respect to, our products and services that we offer through our software and cloud, hardware and services businesses are the foundation of our long-term strategic plans.businesses. In each of fiscal 20122015, 2014 and 2011,2013, we invested $4.5$5.5 billion, $5.2 billion and in fiscal 2010, we invested $3.3$4.9 billion, respectively, in research and development to enhance our existing portfolio of products and services and to develop new products and services. We have a deep understanding as to how all components within IT environments—application, platform and infrastructure—interact and function with one another. We focus our development efforts on improving the performance, operation and integration of these differing technologies to make them more cost-effective and easier to deploy, manage and maintain for our customers and to improve their computing performance relative to our competitors. After purchasing Oracle products and services, customers can continue to take advantage of Oracle’s research and development investments and deep IT expertise by purchasing and renewing Oracle support offerings, which may include product enhancements that we periodically deliver to our Oracle E-Business Suite, Siebel, PeopleSoft and JD Edwards application software products, among others, or by renewing their SaaS, PaaS and IaaS contracts with us.
Oracle customers are increasingly electing to run their IT environments using our suite of Oracle Cloud offerings. As customers deploy with the Oracle Cloud, many are adopting a hybrid IT model whereby certain of their IT resources are deployed and managed through the Oracle Cloud, while other of their IT resources are deployed and managed on-premises, and both sets of resources can be managed as one. We focus the engineering of our hardwareproducts and software productsservices to make them work together more effectivelybest connect these different deployment models to enable flexibility, ease, agility, compatibility, extensibility and deliver improved computing performance, reliability,seamlessness.
A selective and security to our customers. For example, Oracle Engineered Systems, which include our Oracle Exadata Database Machine, Oracle Exalogic Elastic Cloud, and SPARC SuperCluster products, amongst others, combine certain of our hardware and software offerings to provide engineered systems that increase computing performance and reduce storage requirements relative to our competitors’ products, creating time savings, efficiencies, and operational cost advantages for our customers.
We also believe that an active acquisition program is ananother important element of our corporate strategy as it strengthensstrategy. We believe our competitive position, enhancesacquisitions enhance the products and services that we can offer to customers, expandsexpand our customer base, providesprovide greater scale to accelerate innovation, growscontribute to our revenues and earnings, and increasesincrease stockholder value. In recent years, we have invested billions of dollars to acquire a number of companies, products, services and technologies that add to, are complementary to, or have otherwise enhanced our existing offerings. We expect to continue to acquire companies, products, services and technologies to further our corporate strategy.
We are organized intohave three businesses—businesses that deliver our application, platform and infrastructure technologies: software and cloud, hardware systems, and services—which areservices. These businesses can be further divided into certain operating segments. Oursegments (Note 16 of Notes to Consolidated Financial Statements, included elsewhere in this Annual Report, provides additional information related to our operating segments):
our software and cloud business is comprised of twothree operating segments: (1) new software licenses and cloud software subscriptions, which includes our SaaS and PaaS offerings, (2) cloud infrastructure as a service and (3) software license updates and product support. Our software and cloud business represented 77%, 76% and 75% of our total revenues in fiscal 2015, 2014 and 2013, respectively;
our hardware systems business consistsis comprised of two operating segments: (1) hardware systems products and (2) hardware systems support. Our hardware systems business represented 14% of our total revenues in each of fiscal 2015, 2014 and 2013; and
our services business is comprised of the remainder of our operating segments and offers consulting services, managed cloudenhanced support services
and education services. Our software, hardware systemsservices business represented 9%, 10% and services businesses represented 70%, 17% and 13%11% of our total revenues respectively, in fiscal 2012; 68%, 19%2015, 2014 and 13%, respectively, in fiscal 2011; and 77%, 9% and 14%, respectively, in fiscal 2010. Prior to our acquisition of Sun Microsystems, Inc. (Sun) in January 2010, we did not have a hardware systems business. See Note 16 of Notes to Consolidated Financial Statements, included elsewhere in this Annual Report, for additional information related to our operating segments.2013, respectively.
Oracle Corporation was incorporated in 2005 as a Delaware corporation and is the successor to operations originally begun in June 1977.
OracleApplication, Platform and Cloud ComputingInfrastructure Technologies
Our cloud computing strategy offers customers a broadOracle’s comprehensive portfolio of enterprise-grade softwareapplication, platform and hardware productsinfrastructure technologies address an organization’s business, infrastructure and services thatdevelopment IT requirements. Our applications, platform and infrastructure technologies are secure, scalable, and reliable, and based upon industry standards and are designed to be enterprise grade, reliable, scalable and secure. We offer these technologies through our software and cloud, hardware and services businesses and deliver them through flexible and interoperable deployment models that enable interoperabilitycustomer choice and portability. Additionally,best meet customer IT needs.
Application and Platform Technologies
Our application and platform technologies consist of comprehensive software and cloud offerings including our SaaS and PaaS offerings, Oracle Applications, Oracle Database, Oracle Fusion Middleware and Java, among others, and related support.
Our application and platform technologies are substantially built on standards-based architectures that are designed to help customers reduce the cost and complexity of their IT infrastructure. Our commitment to industry standards results in software that works in customer environments with Oracle or non-Oracle hardware or software components and that can be adapted to meet specific industry or business needs. This approach is designed to support customer choice and reduce customer risk. Our software offerings are substantially designed to operate on both single server and clustered server configurations for cloud or on-premises IT environments, and to support a choice of operating systems including Oracle Solaris, Oracle Linux, Microsoft Windows and third party UNIX products, among others.
Our application and platform technologies are marketed, sold and delivered through our software and cloud business, which includes our new software licenses and cloud software subscriptions segment and software license updates and product support segment, among others. New software licenses and cloud software subscriptions revenues represented 26% of our total revenues in fiscal 2015 and 28% in each of fiscal 2014 and 2013. Software license updates and product support revenues represented 49%, 47% and 46% of our total revenues in fiscal 2015, 2014 and 2013, respectively.
Application Technologies
Our application technologies are available through the purchase of an on-premises software license or via subscription to our Oracle SaaS offerings. Regardless of the deployment model selected, our application technologies are designed to reduce the risk, cost and complexity of our customers’ IT infrastructures, while supporting customer choice with flexible deployment models that readily enable agility, compatibility and extendibility.
Our application technologies are designed using an industry standards-based architecture to manage and automate core business functions across the enterprise, as well as to help customers differentiate and innovate in those processes unique to their industries or organizations. In addition to applications that are deployable to meet a number of business automation requirements across a broad range of industries, we also offer industry-specific applications through a focused strategy of investments in internal development and strategic acquisitions. Our industry specific applications provide solutions to customers in the communications, engineering and construction, financial services, healthcare, hospitality and retail, manufacturing, public and utilities sectors, among others. Our ability to offer applications to address industry specific complex processes provides us an opportunity to expand our customers’ knowledge of our broader product offerings and address customer specific technology challenges.
Oracle Software as a Service (SaaS)
Our broad spectrum of SaaS offerings provides customers a pragmatic roadmap to adopt the cloud computingchoice of software applications that are delivered via a cloud-based IT environment that we host, manage and support. Our SaaS offerings are built upon open industry standards such as SQL, Java and HTML5 for easier application portability, integration and development. Our SaaS offerings include a broad suite of modular, next-generation cloud software applications that span core business functions including human capital management (HCM), customer experience (CX), enterprise resource planning (ERP), enterprise performance management (EPM) and supply chain management (SCM), among others. We also offer a number of cloud-based industry solutions to address specific customer needs within certain industries.
We believe the comprehensiveness of our SaaS offerings provides greater benefit to our customers and differentiates us from many of our competitors that offer more limited or specialized cloud-based applications. Our SaaS offerings are designed to be interoperable with one another, thereby limiting the integration and tuning of multiple cloud applications from multiple vendors. Our SaaS offerings are designed to deliver secure data isolation and flexible upgrades, self-service access controls for users, a Service-Oriented Architecture (SOA) for integration with on-premises systems, built-in social, mobile and business insight capabilities, and a high performance, high availability infrastructure based on our infrastructure technologies including Oracle Engineered Systems. These SaaS capabilities are designed to simplify IT environments and enable customers to focus resources on business growth opportunities.
Oracle Human Capital Management Cloud
Our HCM cloud applications are designed to be complete and integrated to help organizations find, grow and retain the best fits their needs, whether that is a “private”talent, enable collaboration, provide complete workforce insights, increase operational efficiency and enable people to connect from any device. Oracle HCM Cloud delivers global human resources, workforce rewards, workforce management and talent management cloud or a “public” cloud. Private cloudsservices.
Oracle Enterprise Resource Planning Cloud
Our ERP cloud applications are exclusivedesigned to a single organization, whereas “public” cloudsbe complete and integrated to help organizations achieve business insight, improve workforce productivity and operate globally. Oracle ERP Cloud delivers financial management, financial reporting, procurement and project portfolio management cloud services.
Oracle Customer Experience Cloud
Our CX cloud applications are used by multipledesigned to be complete and integrated to help organizations on a shared basisdeliver consistent and hostedpersonalized customer experiences across all channels, touch points and managed by a third-party service provider.interactions. Our enterprise-grade software and hardware products and services for private and publicCX cloud computing environmentsapplications include, among others:
Oracle Marketing Cloud, which was createdis designed to give access to certain Oracle software in a secure, elastically scalable, highly available, cloud-based IT environment that we offer to customerspersonalize customer experiences on a subscription basis, includes access, hosting, infrastructureconsistent platform and to increase customer engagement, advocacy, and revenue generating possibilities using cross-channel, content, and social marketing solutions with integrated data management the use of software updates, and support;activation;
Oracle Engineered Systems,Sales Cloud, which include our is designed to enable sales teams to engage with their customers earlier and to generate customer orders more frequently via a platform that equips sales teams with processes, tools, resources, and intelligence to leverage as a part of the sales cycle;
Oracle Exadata Database Machine, Commerce Cloud, which is designed to enable secure customer transactions through almost any device, to be scalable and to support personalized customer experiences through customer search, merchandising, promotions, and content management capabilities;
Oracle Exalogic ElasticServices Cloud, which is designed to provide a unified web, social, and contact center platform that is used to understand customer needs, to resolve customer problems and to ensure the delivery of accurate information to users; and
Oracle Exalytics In-Memory Machine,Configure, Price and Quote Cloud, which is designed to help sales teams, channels, and ecommerce sites sell faster, more easily, and more accurately through almost any device.
Oracle SPARC SuperCluster products, and whichEnterprise Performance Management Cloud
Our EPM cloud applications are designed to be foundationsintegrated to help organizations improve and simplify enterprise performance reporting and enterprise planning processes. Oracle EPM Cloud delivers financial and management reporting and planning and budgeting cloud services.
Oracle Supply Chain Management Cloud
Our SCM cloud applications are designed to help organizations optimize their supply chain and innovate products quickly. Oracle SCM Cloud delivers transportation and global trade management, inventory and cost management, innovation management and product development cloud services.
Oracle Cloud Industry Solutions
Oracle Cloud Industry Solutions are industry specific SaaS applications that are designed to address the distinct requirements of the communications, financial services, healthcare, hospitality and retail, manufacturing and utilities sectors, among others.
Oracle Data as a Service
Oracle Data as a Service (DaaS) provides a centralized way to source, manage and furnish external data to business users through a cloud service for cloud computingmarketing and customer intelligence purposes. Oracle DaaS offerings connect business users and applications to a rich set of information to inform business actions with a vendor-agnostic approach so customers can activate the data in an application or engine of choice.
Oracle Applications
We license Oracle Applications software for use in on-premises, data center and related IT environments to manage and automate core business functions across the enterprise including human capital and talent management; customer experience and customer relationship management; financial management and governance, risk and compliance; procurement; project portfolio management; supply chain management; business analytics and enterprise performance management; and industry specific applications, among others. Our Oracle Applications software strategy is designed to provide customers with complete choice and a secure path to benefit from the latest technology advances.
Our Oracle Applications Unlimited program is Oracle’s commitment to ongoing investment and innovation in our current application offerings including our Oracle E-Business Suite, Siebel, PeopleSoft and JD Edwards application software products, among others. Since announcing the Oracle Applications Unlimited program in 2005, we have delivered major releases of all application product lines by incorporating pre-integratedcombining business functionality with innovative technologies, providing customers with more adaptive industry processes, business intelligence and optimized combinations of hardwareoptimal end-user productivity.
Platform Technologies
Our comprehensive platform technologies include license and subscription based database, middleware and development software that deliver high performance efficientlyofferings including Oracle Database software, the world’s most popular enterprise database, and atJava, the computer industry’s most widely-used software development language, among others.
Our platform technologies are designed to provide a lowercost-effective, standards-based, high-performance platform for running and managing business applications for midsize businesses, as well as large, global enterprises. Our customers are increasingly focused on reducing the total cost of ownership;their IT infrastructure and we believe that our platform technologies help them achieve this goal.
Our Oracle software productplatform technologies are designed to accommodate demanding, non-stop business environments using clustered middleware and hardware-related software portfolio, which includes:
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Our Oracle hardware product portfolio, which includes our Oracle Engineered Systems hardware, our SPARC and x86 baseddatabase servers and our storage and networking products, and which provides the underlying mission-critical infrastructure for Oracle’s various cloud offerings andstorage. These clusters are designed to scale incrementally as required to address our customers’ IT capacity requirements, satisfy their planning and partners’ privateprocurement needs, support their business applications with a standardized platform architecture, reduce their risk of data loss and public cloud offerings, including software-as-a-service (SaaS, software that we offer on a subscription basisIT infrastructure downtime and deliverefficiently utilize available IT resources to meet quality of service expectations.
Oracle Platform as a service to customers that includes access, hosting,
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Oracle CloudService (PaaS)
Oracle CloudPaaS is a family of our cloud-based software subscription offerings that provides our customersdesigned to deliver Oracle Database, Java and other platform services in the cloud to enable developers to extend applications, including Oracle SaaS applications, or build new applications. Customers and partners subscription-based, self-service access to certain ofcan use our databaseopen, standards based platform services that are based on Oracle WebLogic Server and middleware, and applications software. Oracle Cloud provides many common services including: resource management and isolation, security, data exchange and integration, virus scanning, and centralized self-service monitoring.
Oracle Cloud provides customers with flexible deployment models to run our business applications in cloud computing or on-premise IT environments, and includes Oracle Fusion CRM Cloud Service, Oracle Fusion HCM Cloud Service and the Oracle Social Network. We also offer certain software applications via subscription-based, cloud computing delivery models including Oracle RightNow Customer Experience and Oracle Taleo Talent Management Cloud Service, among others.
Oracle Cloud also provides our software platforms as services including Oracle Java Cloud Service and Oracle Database Cloud Service. Oracle Java Cloud Service provides customers with an open, standards-based Javaservice, including tools for rapid application development, flexible cloud-based file sharing and deployment platform built on Oracle’s WebLogic Server functionality incollaboration, intuitive business analysis and reporting, and mobile device connectivity.
We believe our PaaS offerings are a large opportunity for us to expand our software and cloud environmentbusiness. We believe customers increasingly recognize the value of access to Oracle Database, Oracle Fusion Middleware and Java via a low cost, rapidly deployable, flexible and interoperable services model that we manage and offermaintain on their behalf. We believe we can market and sell our PaaS offerings to our extensive installed base of database and middleware customers, via a subscription-based arrangement. Customers and partners are able to use standardcurrent and future users of our popular Java Integrated Development Environments such as software development language, among others.
Oracle JDeveloper, NetBeans and Eclipse to create applications that can then be deployed on the Oracle JavaDatabase Cloud Service. Services
Oracle Database Cloud Service provides customers with access to the Oracle Database functionality invia a cloud environment that we managecomputing IT model and offer to customers via a subscription-based arrangement. customer choice of a dedicated database instance with direct network connections and full administrative control or a dedicated schema with a full development and deployment platform managed by Oracle.
Oracle Database Backup Service is a secure, scalable, on-demand storage solution for backing up Oracle databases to an off-site storage location in the cloud.
Oracle Business Intelligence Cloud Service
Oracle Business Intelligence Cloud Service includes the Oracle Application Express (APEX) application development environment andis a set ofcloud-based, enterprise-class analytics platform for creating business productivityintelligence applications that are designed to convert customer data into business insight, upon which these customers can optimize decision-making.
Oracle Java Cloud Service
Oracle Java Cloud Service is a complete platform and infrastructure cloud solution for building, deploying and managing Java EE applications. Oracle Java Cloud Service provides easy, rapid and agile deployment of any Java application—all on top of infrastructure provided by Oracle.
Oracle Developer Cloud Service
Oracle Developer Cloud Service is an easy-to-use, automatically provisioned enterprise development platform deployed in the cloud that supports the complete software development lifecycle.
Oracle Documents Cloud Service
Oracle Documents Cloud Service is an enterprise level, content collaboration solution that enables information to be easyaccessed, uploaded and shared via a cloud computing IT environment that is provided and secured by Oracle.
Oracle Messaging Cloud Service
Oracle Messaging Cloud Service is a cloud-based, reliable messaging service that enables communication between software components both on-premises and in the Oracle Cloud using standard interfaces.
Oracle Database
We license our Oracle Database software to usecustomers, which is designed to enable reliable and secure storage, retrieval and manipulation of all forms of data, including: transactional data, business information and analytics; semi-structured and unstructured data in the form of weblogs, text, social media feeds, XML files, office documents, images, video and spatial images; and other specialized forms of data, such as graph data. Oracle Database software is used for a variety of purposes, including with packaged applications and custom applications for transaction processing, data warehousing and business intelligence and as a document repository or specialized data store. Security continues to be a critical characteristic of the Oracle Database and our latest version, Oracle Database 12c, includes a number of security enhancements and new features including, among others, encryption of data in motion, conditional auditing, real application security, and transparent sensitive data protection. All security capabilities available are compatible with Oracle Database 12c’s new Oracle Multitenant architecture option, which enables customers to quickly and efficiently address the unique security requirements of each of their database instances.
A number of optional add-on products are available with Oracle Database Enterprise Edition software to address specific customer requirements, including:
a comprehensive portfolio of advanced defense, in depth security solutions that safeguard data at the source including Oracle Advanced Security, Oracle Database Vault, and Oracle Data Masking and Subsetting, as well as detective security options including Oracle Audit Vault and Database Firewall. Oracle Database security options are designed to ensure data privacy, protect against insider threats, and enable regulatory compliance for both Oracle and non-Oracle databases;
in the areas of cloud computing and consolidation, we offer a new Oracle Multitenant software option that is designed to make it easier to consolidate multiple databases quickly and manage them as a cloud service, which enables customers to easily consolidate multiple databases into one without changing their applications. Our Oracle Multitenant architecture option offers the efficiency and cost savings of managing many databases at one time, yet retains the isolation and resource prioritization of separate databases that is necessary for multitenant cloud services; and
in the areas of performance and scalability, we offer Oracle Real Application Clusters, Oracle Database In-Memory, Oracle Advanced Compression and Oracle Partitioning software options. Deploying Oracle Database In-Memory option with virtually any existing Oracle Database compatible application requires no application changes as it is fully integrated with Oracle Database’s scale-up, scale-out, storage tiering, availability and security technologies, which makes any Oracle in-memory database enterprise-ready.
In addition to Oracle Database, we also offer a portfolio of specialized database software products to address particular customer requirements, including the following:
MySQL, the world’s most popular open source database, designed for high performance and scalability of web applications and embedded applications, available in Enterprise, Standard, Classic, Cluster and Community editions;
Oracle TimesTen In-Memory Database, designed to deliver real-time data management and transaction processing speeds for performance-critical applications. Oracle TimesTen In-Memory Database can serve as a cache to accelerate Oracle Database and can work as a standalone database at the application tier;
Oracle Berkeley DB, a family of open source, embeddable, relational, XML and key-value (NoSQL) databases designed for developers to embed within their applications and devices; and
Oracle NoSQL Database, a distributed key-value database designed for high availability and massive scalability of high volume transaction processing with predictable low-latency.
Big Data
Oracle offers big data solutions to complement and extend its Oracle Database software offerings. Big data generally refers to a massive amount of unstructured, streaming and structured data that is so large that it is difficult to process using traditional IT techniques. As businesses drive more of their critical operations and information management through IT solutions, the volume of this data generated by businesses is increasing at unprecedented levels.
We believe most businesses view big data as a high-value source of business intelligence that can be quickly provisioned.used to gain new insights into customer behavior, anticipate future demand more accurately, align workforce deployment with business activity forecasts and accelerate the pace of operations, among others. Oracle offers a comprehensive portfolio of products and services to help enterprises capture, manage, and analyze big data alongside an enterprise’s existing enterprise and streaming data.
Our big data solutions for capturing unstructured, streaming and structured data complement existing Oracle Database environments and include Oracle NoSQL Database and popular open source software such as the Hadoop File System. Oracle Data Integration and Oracle Big Data Connectors are designed to easily and non-invasively integrate data from Hadoop file systems or Oracle NoSQL databases and Oracle databases to enable a data warehouse to further organize, analyze, interpret, report on and act on information from these high volume data sources.
We offer Oracle Business Analytics products that are designed to leverage big data and enterprise data to enable organizations to analyze the data and discover new ways to strategize, plan, optimize business operations and capture new market opportunities. Oracle Business Analytics products include data discovery software, enterprise performance management and analytic application software, business intelligence software, and predictive analytics and self-learning decision optimization software. The Oracle Exalytics In-Memory Machine is designed to run analytic environments at optimal performance and scale, which is ideal for use with big data environments.
Oracle Fusion Middleware
We license our Oracle Fusion Middleware software, which is a broad family of integrated application infrastructure software products. These products are designed to form a reliable and scalable foundation on which customers can build, deploy, secure, access and integrate business applications and automate their business processes. Built with our Java technology platform, Oracle Fusion Middleware products can be used as a foundation for custom, packaged and composite applications—or applications that can be deployed in cloud environments.
Oracle Fusion Middleware software is designed to protect customers’ IT investments and work with both Oracle and non-Oracle database, middleware and application software through its open architecture and adherence to industry standards. Specifically, Oracle Fusion Middleware software is designed to enable customers to integrate Oracle and non-Oracle business applications, automate business processes, scale applications to meet customer demand, simplify security and compliance, manage lifecycles of documents and get actionable, targeted business intelligence; all while continuing to utilize their existing IT systems. In addition, Oracle Fusion Middleware software supports multiple development languages and tools, which enables developers to build and deploy web services, websites, portals and web-based applications.
Oracle Fusion Middleware software is available in various software products and suites, including the following:
Oracle WebLogic Server and Oracle Cloud Application Foundation, designed to be the most complete, best-of-breed platform for developing cloud applications;
Oracle SOA Suite of software products used to create, deploy and manage applications on a Service-Oriented Architecture;
Oracle Data Integration software products, which are designed to enable pervasive and continuous access to timely and trusted data across heterogeneous systems, including real-time and bulk data movement, transformation, bi-directional replication, data services and data quality for customer and product domains;
Oracle Business Process Management Suite software products that are designed to enable businesses and IT professionals to design, implement, automate and evolve business processes and workflows within and across organizations;
Oracle WebCenter software products, a complete set of web experience management, portals, content management and social networks software, designed to help people work together more efficiently through contextual collaboration tools that optimize connections between people, information and applications and to ensure users have access to the right information in the context of the business process in which they are engaged;
Oracle Business Intelligence Suite, a comprehensive set of analytic software products designed to provide customers with the information they need to make better business decisions;
Oracle Identity Management software, which is designed to enable customers to manage internal and external users, to secure corporate information from potential software threats and to streamline compliance initiatives while lowering the total cost of their security and compliance initiatives; and
Development Tools for application development, database development and business intelligence, including Oracle JDeveloper, an integrated software environment designed to facilitate rapid development of applications using Oracle Fusion Middleware and popular open source technologies.
Mobile Computing
Among its other middleware offerings, Oracle provides a wide range of software for mobile computing to address the development needs of businesses that are increasingly focused on delivering mobile device applications to their customers. For example, Oracle Mobile Platform enables developers to build and extend enterprise applications for popular mobile devices from a single code base. Oracle Mobile Platform supports access to native device services, enables offline applications and is designed to protect enterprise investments from future technology shifts. Oracle Mobile Security offers comprehensive mobile identity and application management for provisioning of trusted access. Oracle Business Intelligence Mobile provides business intelligence functionality, from interactive dashboards to location intelligence, while enabling users to initiate business processes from a mobile device.
Java
Java is the computer industry’s most widely-used software development language and is viewed as a global standard. The Java programming language and platform together represent one of the most popular and powerful development environments in the world, one that is used by millions of developers globally to develop business applications. Oracle Fusion Middleware software products and certain of our Oracle Applications are built using our Java technology platform, which we believe is a key advantage for our business.
Java is designed to enable developers to write software on a single platform and run it on many other different platforms, independent of operating system and hardware architecture. Java has been adopted by both independent software vendors (ISV) that have built their products on Java and by enterprise organizations building custom applications or consuming Java-based ISV products.
Software License Updates and Product Support
We seek to protect and enhance our customers’ current investments in Oracle application and platform technologies by offering proactive and personalized support services, including Oracle Lifetime Support and product enhancements and upgrades. Software license updates provide customers with rights to unspecified software product upgrades and maintenance releases and patches released during the term of the support period. Product support includes internet and telephone access to technical support personnel located in our global support centers, as well as internet access to technical content through “My Oracle Support”. Software license updates and product support contracts are generally priced as a percentage of the net new software license fees. Substantially all of our customers purchase software license updates and product support contracts when they acquire new software licenses and renew their software license updates and product support contracts annually.
Cloud Infrastructure as a Service (IaaS)
Our Oracle IaaS offerings, which are a part of our software and cloud business and represented 2% of total revenues in fiscal 2015 and 1% of total revenues in each of fiscal 2014 and 2013, provide deployment and management offerings for our software and hardware and related IT infrastructure, including:
comprehensive software and hardware management and maintenance services for customer IT infrastructure for a stated term that is hosted at our Oracle data center facilities, select partner data centers or physically on-premises at customer facilities;
virtual machine instance services in which we deploy, secure, provision, manage and maintain certain of our hardware products for our customers to provide them with a set of cloud-based core infrastructure capabilities like elastic compute and storage services to run workloads in the cloud; and
hardware and related support services offerings for certain of our Oracle Engineered Systems that are deployed at our customers’ data centers for a monthly fee that includes the option of elastic compute capacity on demand and Oracle Platinum and PlatinumPlus Services for a higher level of support and advisory services designed to ensure these hardware products remain configured and tuned correctly with quarterly automated assessments for performance, availability and security.
Infrastructure Technologies
Oracle infrastructure technologies consist of our hardware systems products including Oracle Engineered Systems, servers, storage, networking, industry specific hardware, virtualization software, operating systems, management software and related hardware services including support. We also offer Oracle IaaS, which provides elastic compute and storage capabilities, among others.
Our infrastructure technologies help customers manage growing amounts of data and business requirements, meet increasing compliance and regulatory demands and reduce energy, space and operational costs. Our infrastructure technologies support many of the world’s largest on-premises and cloud IT environments, including the Oracle Cloud. Our infrastructure technologies are designed to seamlessly connect on-premises and cloud IT environments to further enable interoperability, interchangeability and extendibility. We design our infrastructure technologies to work in customer environments that may include other Oracle or non-Oracle hardware or software components. Our flexible and open approach provides Oracle customers with a broad range of choices in how they deploy our infrastructure technologies, which we believe is a priority for our customers.
We focus the operation and integration of our infrastructure technologies to make them easier to deploy, manage and maintain for our customers and to improve computing performance relative to our competitors’ offerings. For example, our Oracle Engineered Systems are designed to integrate multiple Oracle technology components to work together to deliver improved performance, availability, security and operational efficiency relative to our competitors’ products. These same Oracle technology components are tested together and supported together to streamline system deployment and maintenance cycles. We also engineer our hardware systems with virtualization and management capabilities to enable the rapid deployment and efficient management of cloud and on-premises IT infrastructures.
Our infrastructure technologies are substantially marketed, sold and delivered through our hardware business, which includes our hardware systems products segment and hardware systems support segment. Our hardware systems products revenues represented 8% of our total revenues in each of fiscal 2015, 2014 and 2013. Our hardware systems support revenues represented 6% of our total revenues in each of fiscal 2015, 2014 and 2013.
Oracle Engineered SystemsSoftware License Updates and Product Support
An important element ofWe seek to protect and enhance our corporate strategycustomers’ current investments in Oracle application and platform technologies by offering proactive and personalized support services, including Oracle Lifetime Support and product development efforts is to engineer our hardwareenhancements and software products together to deliver efficiencies that simplify our customers’ IT environments; provide increased IT performance, reliability, and security; and free up resources that customers can use to invest in innovation and competitive differentiation. Oracle Engineered Systems are a part of our hardware systems segment, and are pre-integrated products engineered to include multiple elements of Oracle software and hardware products. Oracle Engineered Systems provide the foundation for IT consolidation and cloud computing, and are designed to deliver high performance and scalability; provide faster time to production; reduce data storage costs; and enable customers to efficiently purchase, deploy and support their IT environments. All Oracle Engineered Systems are tested in the factory and delivered ready to run. These pre-integrated products are also designed to be upgraded effectively and efficiently. As integrated systems, Oracle Engineered Systems simplify routine maintenance, such as software patching, by providing a single solution that covers the entire system. Oracle Engineered Systems include Oracle Exadata Database Machine, Oracle Exalogic Elastic Cloud, Oracle Exalytics In-Memory Machine, SPARC SuperCluster, Oracle Database Appliance, and Oracle Big Data Appliance.
Oracle Exadata Database Machine
Oracle Exadata Database Machine is a family of integrated software and hardware products that combines our database, storage and operating system software with our server, storage and networking hardware. Oracle Exadata Database Machine is designed to enable customers to consolidate databases, manage large volumes of data, improve query response times, and reduce costs by improving data storage and using fewer IT resources.
Oracle Exalogic Elastic Cloud
Oracle Exalogic Elastic Cloud is an engineered system that combines Oracle Fusion Middleware software with our hardware to run Java and non-Java applications andupgrades. Software license updates provide customers with an applications platform for cloud computing. Oracle Exalogic Elastic Cloud is designedrights to improveunspecified software product upgrades and maintenance releases and patches released during the performance of applications that run
on it and enable customers to consolidate multiple applications onto a single system that is designed to be scalable, reliable and secure.
Oracle Exalytics In-Memory Machine
The Oracle Exalytics In-Memory Machine is a single server that is designed to be configured for in-memory analytics for business intelligence workloads. The Oracle Exalytics In-Memory Machine features an optimized Oracle Business Intelligence Foundation Suite and Oracle TimesTen In-Memory Database. The Oracle Business Intelligence Foundation Suite takes advantage of large memory, processors, storage, networking, operating system and system configurationterm of the support period. Product support includes internet and telephone access to technical support personnel located in our global support centers, as well as internet access to technical content through “My Oracle Exalytics hardware. This optimization is designed to provide better query responsiveness, higher user scalabilitySupport”. Software license updates and lower total costproduct support contracts are generally priced as a percentage of ownership.
SPARC SuperCluster
Our SPARC SuperCluster is a general purpose engineered system that combines the computing powernet new software license fees. Substantially all of our SPARC processor, the performance and scalability of Oracle Solaris, the optimized database performance of Oracle Exadata storage and the accelerated middleware processing of the Oracle Exalogic Elastic Cloud. Oracle SPARC SuperCluster is designed to provide the scalability and performance demanded by a wide range of Oracle and non-Oracle enterprise workloads. It is an ideal mission-critical consolidation platform that is designed to run multiple tiers, from database to middleware to application, and to support multiple applications and operating systems side by side. SPARC SuperCluster enables faster deployment, increased systems utilization and reduced data center space and energy requirements.
Oracle Database Appliance
Oracle Database Appliance is an integrated, fault resilient system of software, servers, storage and networking in a single box that is designed to deliver high-availability database services for a wide range of homegrown and packaged online transaction processing (OLTP) and data warehousing applications. The Oracle Database Appliance is designed to enable enterprises to consolidate OLTP and data warehousing databases up to four terabytes in size.
Oracle Big Data Appliance
Oracle Big Data Appliance is an engineered system designed for acquiring, organizing and loading unstructured data into an Oracle database. By integrating the key components of a big data platform into a single product, Oracle Big Data Appliance is a scalable and supported big data infrastructure that reduces the risks of a custom built solution. Built using our industry-standard hardware, Oracle Big Data Appliance is installed and configured for high performance and availability.
Software, Hardware Systems and Services Businesses
Software Business
Our software business consists of our new software licenses segment andcustomers purchase software license updates and product support segment.
New Software Licenses
Thecontracts when they acquire new software licenses operating segmentand renew their software license updates and product support contracts annually.
Cloud Infrastructure as a Service (IaaS)
Our Oracle IaaS offerings, which are a part of our software and cloud business primarilyand represented 2% of total revenues in fiscal 2015 and 1% of total revenues in each of fiscal 2014 and 2013, provide deployment and management offerings for our software and hardware and related IT infrastructure, including:
comprehensive software and hardware management and maintenance services for customer IT infrastructure for a stated term that is hosted at our Oracle data center facilities, select partner data centers or physically on-premises at customer facilities;
virtual machine instance services in which we deploy, secure, provision, manage and maintain certain of our hardware products for our customers to provide them with a set of cloud-based core infrastructure capabilities like elastic compute and storage services to run workloads in the cloud; and
hardware and related support services offerings for certain of our Oracle Engineered Systems that are deployed at our customers’ data centers for a monthly fee that includes the licensingoption of databaseelastic compute capacity on demand and middlewareOracle Platinum and PlatinumPlus Services for a higher level of support and advisory services designed to ensure these hardware products remain configured and tuned correctly with quarterly automated assessments for performance, availability and security.
Infrastructure Technologies
Oracle infrastructure technologies consist of our hardware systems products including Oracle Engineered Systems, servers, storage, networking, industry specific hardware, virtualization software, as well as applications software.operating systems, management software and related hardware services including support. We also offer Oracle IaaS, which provides elastic compute and storage capabilities, among others.
Our software solutionsinfrastructure technologies help customers manage growing amounts of data and business requirements, meet increasing compliance and regulatory demands and reduce energy, space and operational costs. Our infrastructure technologies support many of the world’s largest on-premises and cloud IT environments, including the Oracle Cloud. Our infrastructure technologies are designed to help customers reduce the costseamlessly connect on-premises and complexity of theircloud IT infrastructures by delivering solutions via an industry standards-based, integrated architecture. This standards-based architecture enablesenvironments to further enable interoperability, interchangeability and extendibility. We design our softwareinfrastructure technologies to work in customer environments that may include other Oracle or non-Oracle hardware or software components. ThisOur flexible and open approach is designed to support customer choice, to reduce customer risk and to be adapted to the specific needs of any industry or application. In this model, our database and certain of our middleware offerings are designed to manage and protectprovides Oracle customers with a customer’s underlying business information, while
application servers run enterprise applications that are designed to automate multiple business functions and provide intelligence in critical functional areas. Our software products are designed to operate on both single server and clustered server configurations for on-premise or cloud computing IT environments and to support a choice of operating systems, including, for example, Oracle Solaris, Oracle Linux, Microsoft Windows and third party UNIX products.
New software license revenues represented 27%, 26% and 28% of total revenues in fiscal 2012, 2011 and 2010, respectively.
Database and Middleware Software
Our database and middleware software provide abroad range of offerings that are designed to provide a cost-effective, high-performance platform for running and managing business applications for midsize businesses, as well as large, global enterprises. Our customers are increasingly focused on reducing the total cost of their ITchoices in how they deploy our infrastructure and we believe that our software offerings help them achieve this goal. Our software is designed to accommodate demanding, non-stop business environments using clustered middleware and database servers and storage. These clusters are designed to scale incrementally as required to address our customers’ IT capacity, satisfy their planning and procurement needs, support their business applications with a standardized platform architecture, reduce their risk of data loss and IT infrastructure downtime and efficiently utilize available IT resources to meet quality of service expectations.
New software license revenues from database and middleware products represented 70% of our new software license revenues in fiscal 2012 and 72% in each of fiscal 2011 and 2010.
Database Software
Oracle Database software is the world’s most popular enterprise database software. It is designed to enable reliable and secure storage, retrieval and manipulation of all forms of data, including: transactional data, business information, and analytics; semi-structured and unstructured data in the form of weblogs, text, social media feeds, XML files, office documents, images, video and spatial images; and other specialized forms of data, such as human genomic and medical data. Oracle Database software is used for a variety of purposes, including packaged applications, custom application development, OLTP applications, data warehousing and business intelligence, and as a document repository or specialized data store.
Oracle Database software is available in four editions: Enterprise Edition, Standard Edition, Standard Edition One and Express Edition. All editions are built using the same underlying code, which means that our database software can scale from small, single processor servers to clusters of multi-processor servers and our Oracle Exadata Database Machines.
We also offer customers in-memory database software, including Oracle TimesTen In-Memory, the world’s most popular in-memory database, and Oracle In-Memory Database Cache. Oracle TimesTen In-Memory Database is designed to deliver real-time data management and transaction processing speeds for performance-critical applications, from complex analytical queries and speed-of-thought data visualization, to mission-critical, industry-specific applications such as call centers, trading platforms, reservation systems, and smart meters. Oracle TimesTen In-Memory Database supports multiple computing platforms, is compatible with Oracle Database software, and can work as a standalone database at the applications tier. Oracle In-Memory Database Cache acts as a high performance cache for Oracle Database Enterprise Edition and is used to provide immediate access to historical data in existing Oracle Databases that are frequently accessed such as customer and user lists, open orders, and product catalogs.
A number of optional add-on products are available with Oracle Database Enterprise Edition software to address specific customer requirements. In the areas of performance and scalability, we offer Oracle Real Application Clusters, Oracle Advanced Compression and Oracle Partitioning software options. In the area of data security, we offer Oracle Advanced Security, Oracle Database Vault, Oracle Audit Vault and Oracle Database Firewall software options.
In addition to the four editions of Oracle Database, we also offer a portfolio of specialized database software products to address particular customer requirements, including:
MySQL, the world’s most popular open source database, designed for high performance and scalability of web applications and embedded applications, available in Enterprise, Standard, Classic, Cluster and Community editions;
Oracle Berkeley DB, a family of open source, embeddable, relational, XML and key-value (NoSQL) databases designed for developers to embed within their applications and devices; and
Oracle NoSQL Database, a distributed key-value database designed for high availability and massive scalability of high volume transaction processing with predictable low-latency.
Middleware Software
Oracle Fusion Middleware software is a broad family of integrated application infrastructure software products that is designed to form a reliable and scalable foundation on which customers can build, deploy, secure, access and integrate business applications and automate their business processes. Built with Oracle’s Java technology platform, Oracle Fusion Middleware products can be used as a foundation for custom, packaged and composite applications—or applications that can be deployed in private or public cloud environments.
Oracle Fusion Middleware software is designed to protect customers’ IT investments and work with both Oracle and non-Oracle database, middleware and applications software through its open architecture and adherence to industry standards such as Java Enterprise Edition (Java EE) and Business Process Execution Language (BPEL), among others.
By using Oracle Fusion Middleware software, we believe customers can better adapt to business changes rapidly, reduce their risks related to security and compliance, increase user productivity and drive better business decisions. Specifically, Oracle Fusion Middleware software is designed to enable customers to integrate heterogeneous business applications, automate business processes, scale applications to meet customer demand, simplify security and compliance, manage lifecycles of documents and get actionable, targeted business intelligence; all while continuing to utilize their existing IT systems. In addition, Oracle Fusion Middleware software supports multiple development languages and tools, which enables developers to build and deploy web services, websites, portals and web-based applications.
Oracle Fusion Middleware software is used to integrate, extend, rapidly configure and secure enterprise applications. Oracle Fusion Middleware integrates with Oracle Applications as well as other third party applications, including applications in clouds. Oracle Fusion Middleware software is also the foundation for Oracle Fusion Applications—providing customers greater benefits from a unified application platform.
Oracle Fusion Middleware software is available in various software products and suites, including the following functional areas:
Application Server and Cloud Application Foundation;
Service-Oriented Architecture and Business Process Management;
Business Intelligence;
Identity and Access Management;
Data Integration;
Web Experience Management, Portals, Content Management and Social Networks; and
Development Tools.
Application Server and Cloud Application Foundation
The foundation of Oracle Fusion Middleware software is Oracle WebLogic Server—an application server that is compliant with the Java EE specification. Oracle WebLogic Server incorporates clustering and caching technology,
which increases application reliability, performance, security and scalability. In addition to Oracle WebLogic, Oracle combines cloud infrastructure components into the Oracle cloud application foundation, including Oracle Virtual Assembly Builder, Oracle Coherence, Oracle JRockit, Oracle Tuxedo and Oracle GlassFish Server.
Oracle Virtual Assembly Builder works with Oracle WebLogic Server to increase the efficiency of application virtualization and to enable users to quickly and easily design and deploy multi-tier applications to virtualized IT environments, both conventional and cloud. Oracle Coherence is an in-memory data grid solution that enables organizations to predictably scale applications by providing fast and reliable access to frequently used data. Oracle JRockit is a high performance Java Virtual Machine designed to run Java applications on multi-core processors with higher and more predictable performance. Oracle Tuxedo runs legacy, mainframe and non-Java applications written in the C, C++ and COBOL languages that have transaction reliability, scalability and performance requirements. Oracle GlassFish Server enhances the value of Oracle Fusion Middleware software for developers by accelerating development practices and decreasing application time-to-market.
Service-Oriented Architecture and Business Process Management
Service-Oriented Architecture is a software development and architecture methodology that creates a modular, re-usable approach to applications development; makes it easy to integrate systems with each other; and reduces the need for costly custom development. Oracle SOA Suite is a suite of middleware software products used to create, deploy and manage applications on a Service-Oriented Architecture including Oracle JDeveloper, Oracle BPEL Process Manager, Oracle Web Services Manager, Oracle Business Rules, Oracle Business Activity Monitoring and Oracle Service Bus. Oracle Business Process Management Suite is a suite of software that is designed to enable business and IT professionals to design, implement, automate and evolve business processes and workflows within and across organizations. Oracle SOA Governance is designed to maintain the security and integrity of our customers’ SOA deployments.
Business Intelligence
Oracle Business Intelligence (BI) is a comprehensive set of analytic software products designed to provide customers with the information they need to make better business decisions. Oracle’s Business Intelligence software products include Oracle BI Suite Enterprise Edition, a comprehensive query and analysis server; Oracle Essbase, an online analytical processing server; Oracle BI Publisher, a self-service production and operational reporting tool; and Oracle Real-Time Decisions, a real-time data classification and optimization solution. Users can access these tools from a variety of user interfaces including browser-based interactive dashboards; ad hoc query and analysis; proactive detection and alerts integrated with e-mail; Microsoft Office integration including support for Excel, Word and PowerPoint; and mobile analytics for mobile and smart phones.
Identity and Access Management
Oracle’s identity and access management software products are designed to enable customers to manage internal and external users, secure corporate information from potential software threats and streamline compliance initiatives while lowering the total cost of their security and compliance initiatives. These software products include a lightweight directory access protocol (LDAP) directory service to store and manage user identities and policies; identity provisioning to provision users and roles in multiple enterprise applications and systems; access management to manage access control and entitlements for customers, partners and employees; and identity analytics to audit and identify users attempting to access systems for which they are not authorized.
Data Integration
Oracle’s data integration offerings consist of Oracle GoldenGate, Oracle Data Integrator and Oracle Enterprise Data Quality products. Oracle GoldenGate is a high performance data movement and continuous availability solution designed to capture transaction records on one system and to move and apply them to other systems with low impact on system and network performance. Oracle Data Integrator is an extract-transform-load (ETL) solution that enables users to extract data from one system, transform it from the source system’s format to a target system’s format and load it into the target system (such as a data warehouse). Oracle Data Integrator also
includes big data capabilities to transform and load unstructured data from non-Oracle environments into Oracle Database or Oracle Exadata. Additionally, Oracle Enterprise Data Quality enables users to profile any type of data (customer or product-oriented) and to clean it using a variety of automated matching and cleansing rules making the data more reliable and more accurate.
Web Experience Management, Portals, Content Management and Social Networks
Oracle WebCenter is designed to deliver a complete user engagement platform for social business, connecting people and information. It brings together a broad portfolio of portal, web experience management, content, social and collaboration technologies, into a single product suite. Oracle WebCenter is designed to improve customer loyalty and sales by helping marketing-driven organizations deliver contextual and targeted web experiences to users and give employees readily available access to information and applications in the context of an interaction and business process through portals and composite applications. Oracle WebCenter helps people work together more efficiently through contextual collaboration tools that optimize connections among people, information and applications while ensuring users have access to the right information in the context of their daily business processes.
Oracle WebCenter Content is an enterprise content management software suite that is designed to enable users to capture, manage and publish information that is either unstructured, not easily readable or has not been stored, including documents, images, audio, video and a wide variety of other forms of digital content. Oracle WebCenter Sites enables marketers and business users to easily create and manage contextually relevant, social and interactive online experiences across multiple channels on a global scale. Oracle WebCenter Portal is a portal and composite applications solution that is designed to deliver intuitive user experiences for the enterprise that are seamlessly integrated with enterprise applications. Oracle WebCenter social, which includes Oracle Social Network and Oracle WebCenter Real-Time Collaboration, enables secure social networking and enterprise collaboration tools for the enterprise.
Development Tools
Oracle JDeveloper is an integrated software environment that is designed to facilitate rapid development of a variety of different types of applications using Oracle Fusion Middleware software and popular open source technologies. Oracle JDeveloper software provides support for developing Java applications; web services, composite SOA applications and business processes; rich user interfaces using AJAX/DHTML and Flash technologies; and websites using popular scripting languages. Oracle JDeveloper software also provides comprehensive application lifecycle management facilities including modeling, building, debugging, unit testing, profiling and optimizing applications and is integrated with the Oracle Application Development Framework software, which provides a declarative framework for building business applications and popular open source tools, including Eclipse and NetBeans.
Java
Java is the computer industry’s most widely-used software development language and is viewed as a global standard. The Java programming language and platform together represent one of the most popular and powerful development environments in the world, one that is used by millions of developers globally to develop business applications. Oracle Fusion Middleware software products and Oracle Fusion Applications are built using our Java technology platform, which we believe is a key advantagepriority for our business.customers.
Java isWe focus the operation and integration of our infrastructure technologies to make them easier to deploy, manage and maintain for our customers and to improve computing performance relative to our competitors’ offerings. For example, our Oracle Engineered Systems are designed to enable developersintegrate multiple Oracle technology components to write software on a single platformwork together to deliver improved performance, availability, security and run it on many other different platforms, independent of operatingoperational efficiency relative to our competitors’ products. These same Oracle technology components are tested together and supported together to streamline system deployment and maintenance cycles. We also engineer our hardware architecture. Java has been adopted by both independent software vendors (ISV) that have built their products on Javasystems with virtualization and by enterprise organizations building custom applications or consuming Java-based ISV products.
For customers, the Java platform is designed to enable a variety of compatible applications, independent of their vendor, and to support a global community of Java developers, support engineers and knowledge bases that can help customers reduce the risk of and time to deployment as well as the ongoing cost of ownership and maintenance.
There are three primary editions of Java (Standard, Enterprise and Micro) that support a broad spectrum of usage ranging from mobile phones to desktop computers to server applications. Java can also be found embedded in a variety of devices and machines, including printers, cars, airplanes, tablets, DVD players, set-top boxes, pens, smart meters and bank ATM machines; and JavaCard is designed for specialized use in smart cards. Certain of our products are built primarily to enable customers to run Java applications on and with them, such as Oracle WebLogic Server and Oracle Coherence. Many more of our products are built with and rely on Java, such as the Oracle Fusion Middleware software product family and Oracle Fusion Applications. We expect to continue to innovate and invest in Java technology for the benefit of customers and the Java community.
Management Software
Oracle Enterprise Manager is Oracle’s integrated enterprise IT management and cloud management family of products. Oracle Enterprise Manager is designed to combine the self-management capabilities built into Oracle products with its business-driven IT management capabilities to deliver a holistic approach toenable the rapid deployment and efficient management of cloud and on-premises IT management across the entire Oracle technology portfolio, including Oracle Databaseinfrastructures.
Our infrastructure technologies are substantially marketed, sold and Oracle Exadata, Oracle Fusion Middleware and Oracle Exalogic Elastic Cloud, Oracle Applications, Oracle Solaris, Oracle Linux, Oracle VM anddelivered through our complete hardware portfolio. Oracle Enterprise Manager is designed to manage Oracle’s softwarebusiness, which includes our hardware systems products segment and hardware portfolio whether deployed using traditional IT architectures or in cloud computing architectures. In both cases, Oracle Enterprise Manager is designed to provide a complete IT lifecycle management approach, including configuring elements of an IT environment, monitoring service levels; diagnosing and troubleshooting problems, patching and provisioning IT environments, managing compliance reporting, and providing change management in a unified way across physical and virtualized IT environments.
Virtualization Software
Oracle VM is server virtualization software for both Oracle SPARC and x86-based servers, and supports both Oracle and non-Oracle applications. Oracle VM software is designed to enable different applications to share a single physical system for higher utilization and efficiency, and simplify software deployment by enabling pre-configured software images to be created and rapidly deployed without installation or configuration errors.
Applications Software
Oracle Applications are designed using an industry standards-based, integrated architecture to manage and automate core business functions across the enterprise, as well as help customers differentiate and innovate in those processes unique to their industries or organizations. Oracle Applications are also designed to reduce the risk, cost, and complexitysystems support segment. Our hardware systems products revenues represented 8% of our customers’ IT infrastructures, while supporting customer choice and providing flexibility in deployment models and upgrade paths.
Through a focused strategy of investments in internal research and development and strategic acquisitions, we also provide industry-specific solutions for customers in a number of different industries, including communications, engineering and construction, financial services, health services, manufacturing, public sector, retail, and utilities. We continue to broaden the number of software applications that we offer on a subscription basis via a cloud computing environment to provide our customers with choice and flexibility in how they manage their software investments and software deployments. New software licensetotal revenues from applications software represented 30% of our new software license revenues in fiscal 2012 and 28% in each of fiscal 20112015, 2014 and 2010.
Oracle’s Applications strategy provides customers with a secure path to adopt2013. Our hardware systems support revenues represented 6% of our latest technology advances which are designed to improve the customer software experiencetotal revenues in each of fiscal 2015, 2014 and enable better business performance. Central to that strategy is Oracle’s Applications Unlimited program, which is our commitment to customer choice through ongoing investment and innovation in our current applications offerings. Oracle Fusion Applications build upon this commitment and are designed to work with and evolve customer investments in their existing applications portfolio. Oracle Lifetime Support helps ensure customers will continue to have a choice in upgrade paths based on their enterprise needs.2013.
We protect our customers’ current investments in Oracle Applications by delivering new product releases that incorporate customer-specific and industry-specific innovations across product lines. Since announcing our Applications Unlimited program in 2005, we have delivered major releases on all applications product lines by combining business functionality with innovative technologies such as role-based analytics, secure search, identity management, self-service and workflow to deliver adaptive industry processes, business intelligence and insights, and optimal end-user productivity.
Oracle Fusion Applications are part of a comprehensive suite of modular, next-generation software applications that enable efficient management of core business functions across the enterprise. Oracle Fusion Applications are designed using commercially-available technology standards such as Java and BPEL; the principles of SOA; and a common approach and architecture for the user experience, business intelligence, social networking and mobility. With their tailored user experience and embedded analytical capabilities, Oracle Fusion Applications are designed to increase user productivity and allow customers to manage functions across different environments more effectively. Using a SOA approach, Oracle Fusion Applications are engineered to provide customers with more flexibility to innovate and adopt next-generation technologies at their own pace, whether via one module, a product family, or an entire suite. Oracle Fusion Applications are engineered to be cloud-ready and thus offer flexible deployment options, including on-premise, public cloud, private cloud, or a combination of these options.
We also continue to offer and enhance Oracle Applications, including our Oracle E-Business Suite, Siebel, PeopleSoft, and JD Edwards product families. All Oracle Applications are enterprise-grade and based upon industry standards, and designed to automate core business processes and address industry-specific needs.
The primary applications software offerings include:
Human Capital Management;
Customer Relationship Management;
Financials;
Governance, Risk and Compliance (GRC);
Procurement;
Supply Chain Management (SCM);
Enterprise Project Portfolio Management (EPPM) ;
Enterprise Performance Management (EPM);
Business Intelligence / Analytic Applications;
Web Commerce; and
Industry-Specific Applications.
Human Capital Management
We offer a broad portfolio of Human Resource and Talent Management applications, and flexible deployment options for on-premise or cloud computing IT environments. Our complete and integrated offerings provide core human resource transactions, workforce service automation and delivery, and complete enterprise talent management. Our global, web-based, single system architecture is designed for organizations of every size, industry and region. In fiscal 2012, we acquired Taleo Corporation, a leading provider of cloud-based talent management software that helps organizations attract, develop, motivate, and retain human capital. We believe our portfolio of HCM solutions creates a broad offering for organizations to manage their human resource operations and employee careers, either via cloud offerings such as Oracle Fusion HCM Cloud Service and Oracle Taleo Talent Management service; or on-premise solutions, including Oracle Fusion HCM (which is also cloud ready), Oracle E-Business Suite HCM, and PeopleSoft HCM.
Customer Relationship Management
We offer a broad portfolio of CRM applications, including Siebel CRM, Oracle E-Business Suite CRM, PeopleSoft CRM, Oracle Fusion Applications for CRM, and Oracle RightNow CX Service Cloud, that are designed to help our customers manage their selling processes more efficiently; integrate marketing campaigns and content into their selling processes more effectively; and deliver high quality customer service across multiple channels, including call centers, web, and mobile devices. Our Oracle CRM On Demand and Siebel CRM offerings also provide many industry-specific features designed to support the specialized needs of users in key sectors, such as communications, consumer products, financial services, high technology, insurance, life sciences and the public sector. Customers may also elect to use our subscription-based CRM cloud offerings, including Oracle Fusion CRM Cloud Service and Oracle RightNow Customer Experience, among others.
Financials and Governance, Risk and Compliance
Our financial management and GRC solutions are designed to enable our customers to meet fiduciary and statutory requirements, more efficiently manage risk across a global enterprise, accelerate the credit-to-cash cycle of business transactions, track financial operations and cash flow through accounting and treasury functions and manage business performance. In addition to our portfolio of financial management applications from Oracle E-Business Suite, PeopleSoft, and JD Edwards, we also offer Oracle Fusion GRC, a component of the Oracle Fusion Applications suite, to provide unified intelligence and insight into all GRC activities, end-to-end support for cross-industry and industry-specific GRC processes, and automated controls that work across multiple business applications.
Procurement
We offer a broad portfolio of advanced procurement applications, including JD Edwards EnterpriseOne Supply Management, JD Edwards World Distribution Management and Supplier Self-Service, Oracle E-Business Suite Advanced Procurement, Oracle Fusion Procurement, and PeopleSoft Supplier Relationship Management, among others. These integrated procurement applications are designed to provide packaged integration to back-office applications that fully support “source-to-settle” processes for all categories of spend, including capital goods, direct materials, indirect goods and services. Our procurement applications also provide industry-specific capabilities and the flexibility to leverage applications on demand, on-premise or in any combination to achieve procurement objectives.
Supply Chain Management
We offer a broad portfolio of SCM applications, including Agile, Demantra, JD Edwards, Oracle E-Business Suite, and Oracle Fusion Applications, among others, that support supply chain management processes such as demand management, order management, supply chain planning, sales and operations planning, procurement and sourcing to product development, manufacturing, transportation and warehouse management. Our SCM software offerings are designed to provide our customers with the ability to forecast and fulfill demand for their products through end-to-end, integrated, yet modular software. For example, customers can use Demantra products to predict demand and market requirements; Agile products to manage the lifecycle of their products, innovate, and adapt them in response to volatile market conditions; Oracle Advanced Procurement products to optimize supplier and procurement networks and reduce costs; Oracle Fusion Order Orchestration to orchestrate and fulfill orders across global networks; and Oracle, PeopleSoft, and JD Edwards manufacturing applications to deploy lean, mixed-mode manufacturing with integrated manufacturing execution systems that meet both discrete and process requirements.
Enterprise Project Portfolio Management
We offer a broad portfolio of EPPM applications, including JD Edwards EnterpriseOne Project Management, Oracle E-Business Suite’s family of Oracle Projects, Oracle Fusion Project Portfolio Management, PeopleSoft Enterprise Service Automation, and Primavera Project Portfolio Management. Oracle EPPM applications target project-intensive industries such as engineering and construction, aerospace and defense, utilities, oil and gas,
manufacturing, professional services, and project-intensive departments within other industries. Our EPPM products help companies propose, prioritize and select project investments; and plan, manage and control the most complex projects and project portfolios. Additionally, our Primavera Project Portfolio Management family of products provides industry-specific solutions for project-intensive industries such as oil and gas, utilities, engineering and construction, aerospace and defense, and public sector. Through role-based user experience, embedded analytics, and collaborative tools, our EPPM solutions are designed to provide project stakeholders, project managers, and team members with the information needed to plan, mandate and deliver across the organization.
Enterprise Performance Management
Our Oracle Hyperion Performance Management suite of products are a modular set of integrated applications that integrate with both Oracle and non-Oracle transactional systems to help organizations automate, integrate and administer a broad range of financial and operational management processes. Our EPM applications include Hyperion Strategy Management; Hyperion Financial Close and Reporting; Hyperion Planning, Budgeting and Forecasting; and Hyperion Profitability and Cost Management. These applications enable organizations to define and model their financial structure, define their operating plans and manage financial budgets, allocate indirect revenues and costs to better understand business unit profitability, consolidate and aggregate financial results from a variety of systems, and manage the financial close and statutory reporting processes.
Business Intelligence / Analytic Applications
We provide packaged business intelligence applications for cross-industry business processes as well as industry-specific analytic applications. Each of our business intelligence applications features packaged data models, packaged ETL processes, packaged key performance indicators (KPIs), and packaged dashboards to deliver insight that is tailored for specific business processes. Our business intelligence applications are built on Oracle’s business intelligence technology, and source data from multiple versions of Oracle’s comprehensive portfolio of applications as well as from non-Oracle data sources. Our EPM and business intelligence applications, together with our business intelligence technology, enable us to offer our customers an integrated solution that spans planning and budgeting, financial management, operational analytics, and reporting.
Web Commerce
Our Web Commerce solutions are designed to enable enterprises to deliver a consistent, relevant and personalized cross-channel buying experience through catalog, merchandising, marketing, guided search and navigation, personalization, automated recommendations and live-help capabilities. By combining certain technologies that we have recently acquired including Art Technology Group, Inc.’s and Endeca Technologies Inc.’s Web Commerce software with our legacy Oracle and Siebel CRM software, we offer a unified cross-channel commerce and CRM platform, which is designed to enable businesses to deliver a consistent experience across a variety of different customer points of contact, including online, in-store, mobile, social and kiosk. This combined platform is designed to enable our customers to strengthen their customers’ loyalty, improve brand value, achieve better operating results, increase customer service and improve business response times across online and traditional commerce environments.
Industry-Specific Applications
Oracle Applications can be tailored to offer customers a variety of industry-specific solutions. As a part of our strategy, we strive to ensure that our applications portfolio addresses the major industry-influenced technology challenges of customers in key industries that we view as strategic to our future growth, including communications, consumer goods, education, energy, engineering and construction, financial services, healthcare, life sciences, manufacturing, professional services, public sector, retail, travel, transportation and utilities. For example, we offer the financial services sector a suite of applications addressing cash management, trade, treasury, payments, lending, private wealth management, asset management, compliance, enterprise risk and business analytics, among others. We offer the retail sector software solutions designed to provide unified and actionable data among store, merchandising and financial operations. Our applications for consumer goods
manufacturers are designed to provide them with the ability to build their brand against retail private label programs by engaging directly with the consumer. Our Public Sector solutions are designed to provide national and local governments with the ability to improve service delivery to citizens, increase internal efficiency and improve transparency. Our ability to offer applications to address industry-specific complex processes provides us an opportunity to expand our customers’ knowledge of our broader product offerings and address customer specific technology challenges.
Software License Updates and Product Support
We seek to protect and enhance our customers’ current investments in Oracle softwareapplication and platform technologies by offering proactive and personalized support services, including ourOracle Lifetime Support policy and unspecified product enhancements and upgrades. Software license updates provide customers with rights to unspecified software product upgrades and maintenance releases and patches released during the term of the support period. Product support includes internet and telephone access to technical support personnel located in our global support centers, as well as internet access to technical content through “My Oracle Support”. Software license updates and product support contracts are generally priced as a percentage of the net new software license fees. Substantially all of our customers purchase software license updates and product support contracts when they acquire new software licenses and renew their software license updates and product support contracts annually.
Cloud Infrastructure as a Service (IaaS)
Our software license updates and product support revenues represented 43%, 42% and 49%Oracle IaaS offerings, which are a part of our software and cloud business and represented 2% of total revenues in fiscal 2012, 20112015 and 2010, respectively.1% of total revenues in each of fiscal 2014 and 2013, provide deployment and management offerings for our software and hardware and related IT infrastructure, including:
comprehensive software and hardware management and maintenance services for customer IT infrastructure for a stated term that is hosted at our Oracle data center facilities, select partner data centers or physically on-premises at customer facilities;
virtual machine instance services in which we deploy, secure, provision, manage and maintain certain of our hardware products for our customers to provide them with a set of cloud-based core infrastructure capabilities like elastic compute and storage services to run workloads in the cloud; and
hardware and related support services offerings for certain of our Oracle Engineered Systems that are deployed at our customers’ data centers for a monthly fee that includes the option of elastic compute capacity on demand and Oracle Platinum and PlatinumPlus Services for a higher level of support and advisory services designed to ensure these hardware products remain configured and tuned correctly with quarterly automated assessments for performance, availability and security.
Hardware Systems BusinessInfrastructure Technologies
Our hardware systems business consistsOracle infrastructure technologies consist of two operating segments:our hardware systems products and hardware systems support.
Hardwareincluding Oracle Engineered Systems, Products
We provide a complete selection of hardware systems and related services including servers, storage, networking, industry specific hardware, virtualization software, operating systems, and management software and related hardware services including support. We also offer Oracle IaaS, which provides elastic compute and storage capabilities, among others.
Our infrastructure technologies help customers manage growing amounts of data and business requirements, meet increasing compliance and regulatory demands and reduce energy, space and operational costs. Our infrastructure technologies support many of the world’s largest on-premises and cloud IT environments, including the Oracle Cloud. Our infrastructure technologies are designed to support diverse publicseamlessly connect on-premises and private cloud IT environments to further enable interoperability, interchangeability and extendibility. We design our infrastructure technologies to work in customer environments that may include other Oracle or non-Oracle hardware or software components. Our flexible and open approach provides Oracle customers with a broad range of choices in how they deploy our infrastructure technologies, which we believe is a priority for our customers.
We focus the operation and integration of our infrastructure technologies to make them easier to deploy, manage and maintain for our customers and to improve computing environments.performance relative to our competitors’ offerings. For example, our Oracle Engineered Systems are designed to integrate multiple Oracle technology components to work together to deliver improved performance, availability, security and operational efficiency relative to our competitors’ products. These same Oracle technology components are tested together and supported together to streamline system deployment and maintenance cycles. We also engineer our hardware systems with virtualization and management capabilities to enable the rapid deployment and efficient management of cloud infrastructures. Oracle’s hardware systems support many of the world’s largest public and private clouds, and power Oracle’s own internal cloud initiatives, including our software development private cloud and Oracle University’s self-service private cloud.on-premises IT infrastructures.
Our infrastructure technologies are substantially marketed, sold and delivered through our hardware products and services are designed to be “open,” or to work in customer environments that may include other Oracle or non-Oracle hardware or software components. These products and services also help to meet customers’ demands to manage growing amounts of data and business, requirements to meet increasing compliance and regulatory demands and to reduce energy, space and operational costs. We have also engineeredwhich includes our hardware systems products to create performancesegment and operational cost advantages for customers when our hardware and software products are combined as Oracle Engineered Systems.
Our Oracle Engineered Systems include Oracle Exadata Database Machine, Oracle Exalogic Elastic Cloud, Oracle Exalytics In-Memory Machine, SPARC SuperCluster, Oracle Database Appliance and Oracle Big Data Appliance. By combining our server and storage hardware with our software, our open, integrated products better address customer and cloud computing requirements for performance, scalability, reliability, security, ease of management and lower total cost of ownership.systems support segment. Our hardware systems products revenues represented 10%, 12%8% of our total revenues in each of fiscal 2015, 2014 and 2013. Our hardware systems support revenues represented 6% of our total revenues in each of fiscal 2012, 20112015, 2014 and 2010, respectively.2013.
Oracle Engineered Systems
Oracle Engineered Systems are core to our infrastructure technology offerings and are important elements of our data center and cloud computing offerings including the Oracle Cloud. These pre-integrated products are designed to integrate multiple Oracle technology components to work together to deliver improved performance, availability, security and operational efficiency relative to our competitors’ products, to be upgraded effectively and efficiently and to simplify maintenance cycles by providing a single solution for software patching. They are tested before they are shipped to customers and delivered ready-to-run, enabling customers to shorten the time to production. Oracle’s Engineered Systems include:
Oracle Exadata Database Machine, a family of integrated software and hardware products that combines our database, storage and operating system software with our server, storage and networking hardware and is designed to provide a high performance database system for online transaction processing and data warehousing applications;
Oracle Exalogic Elastic Cloud, an engineered system that combines Oracle Fusion Middleware software with our server, storage and networking hardware to run Java and non-Java applications and provide customers with an applications platform for cloud computing;
Oracle Exalytics In-Memory Machine, a single server that is designed to be configured for in-memory analytics for business intelligence workloads;
Oracle SuperCluster, a general purpose engineered system that combines the optimized database performance of Oracle Exadata storage and the accelerated middleware and application processing of the Oracle Exalogic Elastic Cloud on a SPARC/Solaris platform;
Oracle Private Cloud Appliance, an engineered system delivering converged infrastructure for virtualized environments that is designed to be simple to use, rapidly deployable and capable of running almost any application built upon Linux, Microsoft Windows or Oracle Solaris operating systems;
Oracle Database Appliance, an integrated, fault resilient system of database, operating system and virtualization software, servers, storage and networking hardware in a single box that is designed to deliver high availability database services for a wide range of homegrown and packaged online transaction processing (OLTP) and data warehousing applications;
Oracle Big Data Appliance, a scalable, engineered system designed for acquiring, organizing and loading unstructured data into a Hadoop file system or Oracle NoSQL Database and optionally integrating that data with Oracle Databases. The key components of a big data platform are integrated into the Oracle Big Data Appliance to reduce deployment, integration and management risks in comparison to custom-built solutions; and
Oracle Zero Data Loss Recovery Appliance, an engineered system that is integrated with Oracle Database and is designed to eliminate data loss exposure for databases without impacting production environments.
Servers
We offer a wide range of server systems using our SPARC microprocessor. Our SPARC serversmicroprocessor, which are designed to be differentiated by their reliability, security and scalability;scalability. Our SPARC-based T5 mid-range server and by the customer environments that they target (general purpose or specialized systems). Our midsize and largeM6 high-end servers, for example, are designed to offer greaterbetter performance and lower total cost of ownership than mainframe systems for business critical applications and for customers having more computationally intensive needs. Measurably increasing computing performance and reliability, these servers are ideal platforms for building cloud computing IT environments. We also offer servers using microprocessors from Intel Corporation (Intel). By offering customers a range of microprocessors, we intend to offer our customers maximum flexibility in choosing the types of hardware systems that they believe will be most appropriate and valuable for their particular IT environments.
Our SPARC servers run the Oracle Solaris operating system and
are designed for the most demanding mission critical enterprise environments at any scale.environments. SPARC servers are also a core component of the SPARCOracle SuperCluster, one of our Oracle Engineered Systems.
We also offer
Our Intel-based enterprise x86 servers. These x86 servers are primarily based on microprocessor platforms from Intel Corporation (Intel) and are also compatible with Oracle Solaris, Oracle Linux, Microsoft Windows and other operating systems. Our x86 systemsservers are also a core component of many of our Oracle Engineered Systems including Oracle Exadata Database Machine, Oracle Exalogic Elastic Cloud, Oracle Exalytics In-Memory Machine and the Oracle Big Data Appliance.
Our Netra line of products are aimed at the unique needs of original equipment manufacturers (OEMs) and network equipment providers (NEPs). Rack-optimized systems and our blade product offerings combine high-density hardware architecture and system management software that OEMs find particularly useful in building their own solution architectures.
Storage
Our storage products are designed to securely manage, protect, archive and restore customers’ mission critical data assets and consist of tape, disk, flash and hardware-related software including file systems software, back-up and archive software and storage management software and networking for mainframe and open systems environments. Our storage products are designed to improve data availability by providing fast data access and dynamic data protection for back-up and restoration and secure archiving for compliance. Our storage products are designed to work together, to workco-engineered with Oracle software and designed to provide performance benefits for our customers in Oracle Database and Oracle Applications environments, as well as to work with multi-vendor application and systems environments to maximize performance and efficiency while minimizing management overhead and reducinglowering the total cost of ownership.
Our SunOracle ZFS Storage Appliance is designed to improve Network Attached Storage (NAS) offering is designed to provide improved performance and manageability and reducedlower total cost of ownership by combining third-generation softwareour advanced storage operating system with high-performance controllers, DRAM and flash-based caches and disks. OurThe foundation of our Oracle Pillar AxiomFS1 flash storage system, targeted at flash Storage Area Network (SAN) system leveragesenvironments, is a patented quality-of-service architecture designed to meet business critical service level agreements underfor dynamic, multi-application loadsworkloads and enable customers to consolidate storage applications into a single data center storage solution.
Our tape storage product line includes StorageTEKOracle StorageTek libraries, drives, virtualization systems, media and device software. Theseassociated software packages that provide data lifecycle management, deep analytics and file access through the familiar “drag-and-drop” paradigm. In addition to serving in tape’s traditional role as enterprise data backup, these products are intended to provide robust, scalable solutions for both long-term preservation and near-term protection of customer data at a lower total cost of ownership.ownership for long-term data archiving and preservation in vertical industries such as communications, energy, healthcare and internet, among others.
Networking and Data Center Fabric Products
Our networking and data center fabric products, including Oracle Virtual Networking, and Oracle InfiniBand and Ethernet products, are used with our server and storage products and are integrated into our management tools to help enterprise customers improve infrastructure performance, reduce cost and complexity and simplify storage and server connectivity.
Industry Specific Hardware Offerings
We offer hardware products and services designed for specific industries. Our point-of-sale hardware offerings include point-of-sale terminals and related hardware that are designed for managing businesses within the food and beverage, hotel and retail industries, among others. Our hardware products and services for communications networks include network signaling, policy control and subscriber data management solutions, and session border control technology, among others.
Oracle Solaris and Oracle Linux Operating Systems, Virtualization and Other Hardware-Related Software
The Oracle Solaris operating system is designed to provide a reliable, secure and scalable operating system environment through significant corekernel feature development, networking, security, and file system technologies as well as close integration with hardware features. This design provides us with an ability to combine Oracle Solaris with our own hardware components to achieve certain performance and efficiency advantages in comparison to our competitors. The Oracle Solaris operating system is based on the UNIX operating system, but is unique among UNIX systems in that it is available on our SPARC servers and x86 servers that are substantially based upon microprocessors from Intel.servers. We also support Oracle Solaris deployed on other companies’ hardware products.
Oracle provides a broad virtualization solution from the desktop to the data center. Oracle Solaris 11 provides comprehensive, built-in virtualization capabilities for the operating system, network and storage resources. In addition to its built-in virtualization capabilities, Oracle Solaris 11 is engineered for server virtualization on both x86 and SPARC based systems.
The Oracle Linux operating system with Oracle’s Unbreakable Enterprise Kernel is a Linux operating system for enterprise workloads including databases, middleware and applications. Oracle’s Unbreakable Enterprise Kernel is designed to work well with Oracle products and enables users to patch core operating systems without downtime.
Oracle provides a broad portfolio of virtualization solutions from the desktop to the data center. Oracle VM is server virtualization software for both Oracle SPARC and x86 servers and supports both Oracle and non-Oracle applications. Oracle VM software is designed to enable different applications to share a single physical system for higher utilization and efficiency and simplify software deployment by enabling pre-configured software images to be created and rapidly deployed without installation or configuration errors. In addition, Oracle Solaris 11 provides comprehensive, built-in virtualization capabilities for both SPARC and x86 servers, networking and storage resources.
In addition to Oracle Solaris and Oracle Linux operating systems and Oracle’s virtualization software, we also develop a range of other hardware-related software, including development tools, compilers, management tools for servers and storage, diagnostic tools virtualization, and file systems.
Management Software
Oracle invests in a range of management technologies and products in order to meet the needs of customers building and efficiently operating complex IT environments, including both end users’ and service providers’ cloud environments. Oracle Enterprise Manager is a comprehensive management solution for all Oracle infrastructure, platform and applications technologies and provides an integrated view of the entire IT lifecycle including deployment, monitoring, and lifecycle management. Oracle Enterprise Manager can be applied to traditional on-premises, cloud, and hybrid cloud environments in a seamless manner via a single interface, which accelerates customer deployment of and transition to the cloud with Oracle products. Oracle also enhances and integrates with certain key open technologies including OpenStack, which is broadly supported by Oracle products for customers that require seamless integration with this method of cloud management and provisioning. The combination of Oracle’s comprehensive solutions and investments in open standards allows Oracle customers to manage Oracle products efficiently across a range of IT offerings from traditional on-premises environments to the most advanced cloud architectures.
Hardware Systems Support
Our hardware systems support offerings provide customers with software updates for the software components that are essential to the functionality of our server and storagehardware products, such as Oracle Solaris and certain other software products, and can include product repairs, maintenance services and technical support services. We continue to evolve hardware systems support processes that are intended to proactively identify and solve quality issues and to increase the amount of new and renewed hardware systems support contracts sold in connection with the sales of our hardware systems products. Hardware systems support contracts are generally priced as a percentage of the net hardware systems products fees. Our hardware systems support revenues represented 7% of our total revenues in each of fiscal 2012 and 2011 and 3% in fiscal 2010.
Services Business
We deliver an integratedoffer services solutionsolutions to help customers and partners maximize the performance of their investments in Oracle technology. Ourapplication, platform and infrastructure technologies. We believe our services are differentiated based on our focus on Oracle technology,technologies, extensive experience and broad setsets of intellectual property and best practices. Our services business represented 9%, 10% and 11% of our total revenues in fiscal 2015, 2014 and 2013, respectively. Our services business, which is comprised of the remainder of our operating segments, and offers the following:
consulting services managed cloud services and education services. Our services business represented 13% of our total revenues in each of fiscal 2012 and 2011 and 14% of our total revenues in fiscal 2010.
Consulting
Oracle Consulting isthat are designed to help our customers and global system integrator partners more successfully architect and deploy our products. Our consulting services include business andproducts, including IT strategy alignment, enterprise architecture planning and design, initial product implementation and integration, and ongoing product enhancements and upgrades. Together, these services are designed to help our customers achieve their business goals, reduce the risk associated with their IT initiatives and maximize their return on investment. Oracle Consulting engages customers directly and provides specialized expertise to our global systems integrator partners. We utilize a global, blended delivery model to optimize value for our customers and partners, consisting of on-premiseon-premises consultants from local geographies, industry specialists and consultants from our global delivery and solution centers.centers;
Managed Cloud Services
Oracle managed cloud services provide comprehensive software and hardware management and maintenance services—including deployment, management, monitoring, patching, security and upgrade services—for customers hosted at our Oracle data center facilities, select partner data centers, or physically on-premise atadvanced customer facilities. Additionally, we provide support services, both on-premisewhich are provided on-premises and remote,remotely to Oracleour customers to enable increased performance and higher availability of their Oracle products and services. We believe that our managed cloudservices; and
education services offerings provide our customers with greater value and choice through increased business performance, reduced risk, a predictable cost and more flexibility in terms of service in order to maximize the performance of theirfor Oracle software and hardware products and services.
Education
We provideservices, including training and certification programs that are offered to customers, partners and employees as a part of our mission of accelerating the adoption and use of our software and hardware products and to create opportunities to grow our product revenues. Our training is provided through a variety of formats, including instructor-ledinstructor led classes at our education centers, live virtual training, self-paced online training, training via CD-ROM, private events and custom training. Our live virtual class offerings allow students anywhere in the world to receive real-time, interactive training online. In addition, we also offer a certification program certifying database administrators, developers, implementers, consultants and architects.
Marketing and Sales
We directly market and sell our products and services to businesses of many sizes and in many industries, government agencies and educational institutions. We also market and sell our products through indirect channels. No single customer accounted for 10% or more of our total revenues in fiscal 2012, 20112015, 2014 or 2010.2013.
In the United States, our sales and serviceservices employees are based in our headquarters and in field offices throughout the country. Outside the United States, our international subsidiaries sell, support and supportservice our products and offerings in their local countries as well as within other foreign countries where we do not operate through a direct sales subsidiary. Our geographic coverage allows us to draw on business and technical expertise from a global workforce, provides stability to our operations and revenue streams to offset geography-specificgeography specific economic trends and offers us an opportunity to take advantage of new markets for our products. Our international operations subject us to certain risks, which are more fully described in “Risk Factors” included in Item 1A.1A of this Annual Report. A summary of our domestic and international revenues and long-lived assets is set forth in Note 16 of Notes to Consolidated Financial Statements included elsewhere in this Annual Report.
We also market our products worldwide through indirect channels. The companies that comprise our indirect channel network are members of the Oracle Partner Network. The Oracle Partner Network is a global program that manages our business relationships with a large, broad-based network of companies, including independent software and hardware vendors, system integrators and resellers that deliver innovative solutions and services based upon our products.product offerings. By offering our partners access to our premier products,product offerings, educational information, technical services, marketing and sales support, the Oracle Partner Network program extends our market reach by providing our partners with the resources they need to be successful in delivering solutions to customers globally. The majority of our hardware systems products are sold through indirect channels including independent distributors and value added resellers.
Seasonality and Cyclicality
Our quarterly revenues have historically been affected by a variety of seasonal factors, including the structure of our sales force incentive compensation plans, which are common in the technology industry. Our total revenues and operating margins are typically highest in our fourth fiscal quarter and lowest in our first fiscal quarter. The operating margins of our businesses are generally affected by seasonal factors in a similar manner as our revenues (in particular, our new software licenses and cloud software subscriptions segment) as certain expenses within our cost structure are relatively fixed in the short term. See “Selected Quarterly Financial Data” in Item 7 of this Annual Report for a more complete description of the seasonality and cyclicality of our revenues, expenses and margins.
Competition
We face intense competition in all aspects of our business. The nature of the IT industry creates a competitive landscape that is constantly evolving as firms emerge, expand or are acquired, as technology evolves and as customer demands and competitive pressures otherwise change.
Our customers are demanding less complexity and lower total cost in the implementation, sourcing, integration and ongoing maintenance of their enterprise software and hardware systems. Our enterprise software and cloud and hardware offerings compete directly with some offerings from some of the largest and most competitive companies in the world, including Microsoft Corporation (Microsoft), International Business Machines Corporation (IBM), Intel, Hewlett-Packard Company (HP) and SAP AG and smaller companies like Salesforce.com,
salesforce.com, inc. and Workday, Inc., as well as many others. In addition, due to the low barriers to entry in many of our market segments, regularly introduce new technologies and new and growing competitors frequently emerge to challenge our offerings. Our competitors range from companies offering broad IT solutions across many of our lines of business to vendors providing point solutions, or offerings focused on a specific functionality, product area or industry. In addition, as we expand into new market segments, we will face increased competition as we will compete with existing competitors, as well as firms that may be partners in other areas of our business and other firms with whom we have not previously competed.competed like Amazon.com, Inc. Moreover, we or our competitors may take certain strategic actions—including acquisitions, partnerships and joint ventures, or repositioning of product lines—which invite even greater competition in one or more product categories.
Key competitive factors in each of the segments in which we currently compete and may compete in the future include: total cost of ownership, performance, scalability, reliability, security, functionality, efficiency, ease of management and quality of technical support. Our product and service sales (and the relative strength of our products and services versus those of our competitors) are also directly and indirectly affected by the following, among other things:
the adoption of SaaS, hosted or cloud based IT offerings including software as a service, platform as a service and infrastructure as a service offerings;
total cost of ownership;
ease of deployment, use and maintenance of our products and services offerings;
compatibility between Oracle products and services deployed within on-premises IT environments and public cloud IT environments, including our Oracle Cloud environments;
the adoption of commodity servers and microprocessors;
the broader “platform” competition between our industry standard Java technology platform and the .NET programming environment of Microsoft;
operating system competition among primarily, our Oracle Solaris and Linux operating system,systems, with alternatives including Microsoft’s Windows Server, and other UNIX (including HP-UX from HP and AIX from IBM) and Linux;Linux operating systems;
the adoption of open source alternatives to commercial software by enterprise software customers;
products, features and functionality developed internally by customers and their IT staff;
products, features or functionality customized and implemented for customers by consultants, systems integrators or other third parties; and
attractiveness of offerings from business processing outsourcers.
For more information about the competitive risks we face, refer to Item 1A. “Risk Factors.”Factors” included elsewhere in this Annual Report.
Manufacturing
To produce our hardware systems products, we rely on both our internal manufacturing operations as well as third party manufacturing partners. Our internal manufacturing operations consist primarily of finalmaterials procurement, assembly, testtesting and quality control of our Oracle Engineered Systems and certain of our enterprise and data center servers, storage systems and storage systems.networking products. For substantially all other manufacturing, we generally rely on third party manufacturing partners.partners to produce our hardware related components and hardware products and we may involve our internal manufacturing operations in the final assembly, testing and quality control processes for these components and products. We distribute most of our hardware systems products either from our facilities or partner facilities. Our manufacturing processes substantially are based on standardization of components across product types, centralization of assembly and distribution centers and a “build-to-order” methodology in which products generally are built only after customers have placed firm orders. Production of our hardware products requires that we purchase materials, supplies, product subassemblies and full assemblies from a number of vendors. For most of our hardware products, we have existing alternate sources of supply or such sources are readily available.
However, we do rely on sole sources for certain of our hardware products. As a result, we continue to evaluate potential risks of disruption to our supply chain operations. Refer to “Risk Factors” included in Item 1A.1A within this Annual Report for additional discussion of the challenges we encounter with respect to the sources and availability of supplies for our products and the related risks to our business.
Research and Development
We develop the substantial majority of our products internally. In addition, we have extended our product offerings and intellectual property through acquisitions of businesses and technologies. We also purchase or license intellectual property rights in certain circumstances. Internal development allows us to maintain technical control over the design and development of our products. We have a number of United States and foreign patents and pending applications that relate to various aspects of our products and technology. While we believe that our patents have value, no single patent is essential to us or to any of our principal business segments. Research and development expenditures were $4.5$5.5 billion, in each of fiscal 2012$5.2 billion and 2011 and $3.3$4.9 billion in fiscal 2010,2015, 2014 and 2013, respectively, or 12%, 13% and 12%14% of total revenues in fiscal 2012, 20112015 and 2010, respectively.13% of total revenues in each of fiscal 2014 and 2013. Rapid technological advances in hardware and software development, evolving standards in computer hardware and software technology, changing customer needs and frequent new product introductions and enhancements characterize the software and cloud and hardware markets in which we compete. We plan to continue to dedicate a significant amount of resources to research and development efforts to maintain and improve our current product and services offerings.
Employees
As of May 31, 2012,2015, we employed approximately 115,000132,000 full-time employees, including approximately 30,00035,000 in sales and marketing, approximately 9,00011,000 in software license updates and product support, approximately 6,000 in our cloud SaaS, PaaS and IaaS operations, approximately 1,000 in the manufacturing of our hardware systems products, approximately 6,0005,000 in hardware systems support, approximately 26,00023,000 in services, approximately 32,00038,000 in research and development and approximately 11,00013,000 in general and administrative positions. Of these employees, approximately 42,00049,000 were locatedemployed in the United States and approximately 73,00083,000 were employed internationally. None of our employees in the United States is represented by a labor union; however, in certain foreign subsidiaries labor unions or workers’ councils represent some of our employees.
Available Information
Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, are available, free of charge, on our Investor Relations web sitewebsite at www.oracle.com/investor as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.United States Securities and Exchange Commission (SEC). The information posted on or accessible through our web sitewebsite is not incorporated into this Annual Report.
Executive Officers of the Registrant
Our executive officers are listed below.
Name | Office(s) | |
| ||
| ||
Safra A. Catz | ||
Mark V. Hurd | ||
Lawrence J. Ellison | Executive Chairman of the Board of Directors and Chief Technology Officer | |
Jeffrey O. Henley | Executive Vice Chairman of the Board of Directors | |
Thomas Kurian | President, Product Development | |
John Fowler | Executive Vice President, Systems | |
| ||
Dorian E. Daley | ||
William Corey West |
Mr. Ellison, 67,Ms. Catz, 53, has been our Chief Executive Officer and a Director since he founded Oracle in June 1977. HeSeptember 2014. She served as Chairman of the Boardour President from May 1995 to January 2004.
Mr. Henley, 67, has served as Chairman of the Board since January 2004 and as a Director since June 1995. He served as Executive Vice President and Chief Financial Officer from March 1991 to July 2004.
Ms. Catz, 50, has been a President since January 2004,September 2014, our Chief Financial Officer most recently sincefrom April 2011 until September 2014 and has served as a Director since October 2001. She was previously our Chief Financial Officer from November 2005 until September 2008 and our Interim Chief Financial Officer from April 2005 until July 2005. Prior to being named our President, she held various other positions with us since joining Oracle in 1999. She also currently serves as a director of HSBC Holdings plc.
Mr. Hurd, 55,58, has been aour Chief Executive Officer since September 2014. He served as our President from September 2010 to September 2014 and served as a Director since September 2010. Prior to joining us, he served as Chairman of the Board of Directors of HP from September 2006 to August 2010 and as Chief Executive Officer, President and a member of the Board of Directors of HP from April 2005 to August 2010.
Mr. Fowler, 51,Ellison, 70, has been our Chairman of the Board and Chief Technology Officer since September 2014. He served as our Chief Executive Officer from June 1977, when he founded Oracle, until September 2014. He has served as a Director since June 1977. He previously served as our Chairman of the Board from May 1995 to January 2004.
Mr. Henley, 70, has served as our Vice Chairman of the Board since September 2014. He previously served as our Chairman of the Board from January 2004 to September 2014 and has served as a Director since June 1995. He served as our Executive Vice President Systems since February 2010. Prior to joining us, Mr. Fowler served as Sun Microsystems, Inc.’s Executive Vice President, Systems Groupand Chief Financial Officer from May 2006 to February 2010, as Executive Vice President, Network Systems Group from May 2004 to May 2006, as Chief Technology Officer, Software Group from July 2002 to May 2004 and Director, Corporate Development from July 2000March 1991 to July 2002.2004.
Mr. Kurian, 45,48, has been our President, Product Development since January 2015. He served as our Executive Vice President, Product Development sincefrom July 2009.2009 until January 2015. He served as our Senior Vice President of Development from February 2001 until July 2009. Mr. Kurian worked in Oracle Server Technologies as Vice President of Development from March 1999 until February 2001. He also held various other positions with us since joining Oracle in 1996.
Mr. Fowler, 54, has been Executive Vice President, Systems since February 2010. Prior to Oracle’s acquisition of Sun Microsystems, Inc., Mr. Fowler served as Sun’s Executive Vice President, Systems Group from May 2006 to February 2010, as Executive Vice President, Network Systems Group from May 2004 to May 2006 and as Chief Technology Officer, Software Group from July 2002 to May 2004.
Ms. Daley, 53,56, has been our Executive Vice President, General Counsel and Secretary since April 2015 and was our Senior Vice President, General Counsel and Secretary sincefrom October 2007.2007 to April 2015. She served as our Vice President, Legal, Associate General Counsel and Assistant Secretary from June 2004 to October 2007, as Associate General Counsel and Assistant Secretary from October 2001 to June 2004 and as Associate General Counsel from February 2001 to October 2001. She held various other positions with us since joining Oracle’s Legal Department in 1992.
Mr. West, 50,53, has been our Executive Vice President, Corporate Controller and Chief Accounting Officer since April 2015. He served as our Senior Vice President, Corporate Controller and Chief Accounting Officer sincefrom February 2008 to April 2015 and wasserved as our Vice President, Corporate Controller and Chief Accounting Officer from April 2007 to February 2008. His previous experience includes 14 years with Arthur Andersen LLP, most recently as a partner.
We operate in rapidly changing economic and technological environments that present numerous risks, many of which are driven by factors that we cannot control or predict. The following discussion, as well as our “Critical Accounting Policies and Estimates” discussion in Management’s Discussion and Analysis of Financial Condition and Results of Operations (Item 7), highlights some of these risks. The risks described below are not exhaustive and you should carefully consider these risks and uncertainties before investing in our securities.
Economic, political and market conditions can adversely affect our business, results of operations and financial condition, including our revenue growth and profitability, which in turn could adversely affect our stock price. Our business is influenced by a range of factors that are beyond our control and that we have no comparative advantage in forecasting. These include:
general economic and business conditions;
the overall demand for enterprise software, cloud offerings, hardware systems and services;
governmental budgetary constraints or shifts in government spending priorities; and
general political developments; and
currency exchange rate fluctuations.developments.
Macroeconomic developments like the debt crisiscontinued slow pace of economic recovery in certain countries inEurope and parts of the European Union and slowing economies in parts ofUnited States, Asia and South America could negatively affect our business, operating results, or financial condition and outlook, which, in turn, could adversely affect our stock price. AAny general weakening of, and related declining corporate confidence in, the global economy or the curtailment inof government or corporate spending could cause current or potential customers to reduce or eliminate their information technology (IT) budgets or be unable to fund software, hardware systems or services purchases,and spending, which could cause customers to delay, decrease or cancel purchases of our products and services or cause customers not to pay us or to delay paying us for previously purchased products and services.
In addition, political unrest in regionsplaces like Ukraine, Syria and Iraq and the Middle East,related potential impact on global stability, terrorist attacks around the globe and the potential for other hostilities in various parts of the world, potential public health crises and natural disasters continue to contribute to a climate of economic and political uncertainty that could adversely affect our results of operations and financial condition, including our revenue growth and profitability. These factors generally have the strongest effect on our sales of new software licenses, hardware systems products, hardware systems support and related services and, to a lesser extent, also may affect our renewal rates for software license updates and product support.support and our subscription-based cloud offerings.
We may experience foreign currency gains and losses. Changes in currency exchange rates can adversely affect customer demand and our revenue and profitability. We conduct a significant number of transactions and hold cash in currencies other than the U.S. Dollar. Changes in the values of major foreign currencies, particularly the Euro, Japanese Yen and British Pound, relative to the U.S. Dollar can significantly affect our total assets, revenues, operating results and cash flows, which are reported in U.S. Dollars. In particular, the economic uncertainties relating to European sovereign and other debt obligations may cause the value of the Euro to fluctuate relative to the U.S. Dollar. Fluctuations in foreign currency rates, most notably the recent strengthening of the U.S. Dollar against the Euro, adversely affects our revenue growth in terms of the amounts that we report in U.S. Dollars after converting our Euro-based results into U.S. Dollars and in terms of actual demand for our products and services as these products become relatively more expensive for Euro-based enterprises to purchase. In addition, currency variations can adversely affect margins on sales of our products in countries outside of the United States. Generally, our revenues and operating results are adversely affected when the dollar strengthens relative to other currencies and are positively affected when the dollar weakens. In addition, our reported assets generally are adversely affected when the dollar strengthens relative to other currencies as a significant portion of our consolidated cash and bank deposits, among other assets, are held in foreign currencies. The U.S. dollar strengthened relative to other currencies, including the Euro, in fiscal 2015, which is reflected in our results.
Certain of our international subsidiaries operate in economies that have been designated as highly inflationary. We have incurred foreign currency losses associated with the devaluation of currencies in these highly inflationary economies relative to the U.S. Dollar and we may continue to incur such losses in these countries or other emerging market countries where we do business.
In addition, we incur foreign currency transaction gains and losses, primarily related to sublicense fees and other intercompany agreements among us and our subsidiaries that we expect to cash settle in the near term, which are charged against earnings in the period incurred. We have a program which primarily utilizes foreign currency forward contracts designed to offset the risks associated with certain foreign currency exposures. We may suspend the program from time to time. As a part of this program, we enter into foreign currency forward contracts so that increases or decreases in our foreign currency exposures are offset at least in part by gains or losses on the foreign currency forward contracts in an effort to mitigate the risks and volatility associated with our foreign currency transaction gains or losses. A large portion of our consolidated operations are international, and we expect that we will continue to realize gains or losses with respect to our foreign currency exposures, net of gains or losses from our foreign currency forward contracts. For example, we will experience foreign currency gains and losses in certain instances if it is not possible or cost effective to hedge our foreign currency exposures, if our hedging efforts are ineffective, or should we suspend our foreign currency forward contract program. Our ultimate realized loss or gain with respect to currency fluctuations will generally depend on the size and type of cross-currency exposures that we enter into, the currency exchange rates associated with these exposures and changes in those rates, whether we have entered into foreign currency forward contracts to offset these exposures and other factors. All of these factors could materially impact our results of operations, financial position and cash flows.
We may fail to achieve our financial forecasts due to inaccurate sales forecasts or other factors. Our revenues, and particularly our new software licenselicenses revenues and hardware systems products revenues, are difficult to forecast, and, asforecast. As a result, our quarterly operating results can fluctuate substantially. Our limited experience with managing our hardware business and forecasting its future financial results creates additional challenges with our forecasting processes.
We use a “pipeline” system, a common industry practice, to forecast sales and trends in our business. Our sales personnel monitor the status of all proposals and estimate when a customer will make a purchase decision and the dollar amount of the sale. These estimates are aggregated periodically to generate a sales pipeline. Our pipeline estimates can prove to be unreliable both in a particular quarter and over a longer period of time, in part because the “conversion rate” or “closure rate” of the pipeline into contracts can be very difficult to estimate. A contractionreduction in the conversion rate, or in the pipeline itself, could cause us to plan or budget incorrectly and adversely affect our business or results of operations. In particular, a slowdown in IT spending or economic conditions generally can unexpectedly reduce the conversion rate in particular periods as purchasing decisions are delayed, reduced in amount or cancelled. The conversion rate can also be affected by the tendency of some of our customers to wait until the end of a fiscal period in the hope of obtaining more favorable terms, which can also impede our ability to negotiate, execute and deliver upon these contracts in a timely manner. In addition, for
newly acquired companies, we have limited ability to predict how their pipelines will convert into sales or revenues for a number of quarters following the acquisition. Conversion rates post-acquisition may be quite different from the acquired companies’ historical conversion rates. Differences in conversion rates can also be affected by changes in our business practices that we implement within our newly acquired companies thatcompanies. These changes may negatively affect customer behavior.
A substantial portion of our new software license revenue contractslicenses and hardware systems products contracts is completed in the latter part of a quarter and a significant percentage of these are largelarger orders. Because a significant portion of our cost structure is largely fixed in the short-term, sales and revenue shortfalls tend to have a disproportionately negative impact on our profitability. The number of large new software licenselicenses transactions and, to a lesser extent, hardware systems products transactions also increases the risk of fluctuations in our quarterly results because a delay in even a small number of these transactions could cause our quarterly sales, revenues and profitability to fall significantly short of our predictions.
Our Oracle Cloud strategy, including our Oracle Software as a Service (SaaS), Platform as a Service (PaaS), Infrastructure as a Service (IaaS) and Data as a Service (DaaS) offerings, may adversely affect our revenues and profitability. We offer customers a full range of consumption models including the deployment of our products via our cloud based SaaS, PaaS, IaaS and DaaS offerings. These business models continue to evolve, and we may not be able to compete effectively, generate significant revenues or maintain the profitability of our cloud offerings. Additionally, the increasing prevalence of cloud and SaaS delivery models offered by us and our competitors may unfavorably impact the pricing of our on-premises enterprise software offerings and our cloud offerings, and has a dampening impact on overall demand for our on-premises software product and service
offerings, which could reduce our revenues and profitability, at least in the near-term. If we do not successfully execute our cloud computing strategy or anticipate the cloud computing needs of our customers, our reputation as a cloud services provider could be harmed and our revenues and profitability could decline.
Our cloud offerings are generally purchased by customers on a subscription basis and revenues from these offerings are generally recognized ratably over the term of the subscriptions. The deferred revenue that results from sales of our cloud offerings may prevent any deterioration in sales activity associated with our cloud offerings from becoming immediately observable in our consolidated statement of operations. This is in contrast to revenues associated with our new software licenses arrangements whereby new software licenses revenues are generally recognized in full at the time of delivery of the related software licenses. We incur certain expenses associated with the infrastructures and marketing of our cloud offerings in advance of our ability to recognize the revenues associated with these offerings. As customer demand for our cloud offerings increases, we experience volatility in our reported revenues and operating results due to the differences in timing of revenue recognition between our new software licenses arrangements and cloud offering arrangements.
We have also acquired a number of cloud computing companies, and the integration of these companies into our Oracle Cloud strategy may not be as efficient or scalable as anticipated, which could adversely affect our ability to fully realize the benefits anticipated from these acquisitions.
Our success depends upon our ability to develop new products and services, integrate acquired products and services and enhance our existing products and services. Rapid technological advances and evolving standards in computer hardware and software development and communications infrastructure, changing and increasingly sophisticated customer needs and frequent new product introductions and enhancements characterize the enterprise software and hardware systems marketsindustries in which we compete. If we are unable to develop new or sufficiently differentiated products and services, or enhance and improve our products and support services in a timely manner or to position and/orand price our products and services to meet demand, customers may not buy newpurchase or subscribe to our software, licenseshardware or hardware systems products or purchasecloud offerings or renew software license updates and productsupport, hardware support or hardware systems supportcloud subscriptions contracts. Renewals of these support contracts are important to the growth of our business. In addition, IT standards from both consortia and formal standards-setting forums as well as de facto marketplace standards are rapidly evolving. Wewe cannot provide any assurance that the standards on which we choose to develop new products will allow us to compete effectively for business opportunities in emerging areas.
We have released Oracle Fusion Applications, the next generationcontinued to refresh and release new offerings of our applications software offerings, which are designed to unify the best-of-business functional capabilities from all ofand cloud and hardware products and services, including our applications on an open-standards-based technology foundation accessible by customers through the cloud or on-premise. We have also recently designedDatabase Multitenant, Database In-Memory, SaaS, PaaS, IaaS, DaaS and built our Oracle Engineered Systems product offerings including Oracle Exadata Database Machine, a fast database warehousing machine that runs online transaction processing applications; Oracle Exalogic Elastic Cloud, an integrated “cloud” machine which has server hardware and middleware software that have been engineered together; Oracle Exalytics In-Memory Machine, an engineered system featuring in-memory software and hardware and an optimizedofferings. Our business intelligence platform; and SPARC SuperCluster, an engineered system which combines optimized database performance with accelerated middleware processing capabilities; among others. If may be adversely affected if:
we do not continue to develop and release these or other new or enhanced products and services within the anticipated time frames, if frames;
there is a delay in market acceptance of a new, enhanced or acquired product line or service, if service;
there are changes in information technology trends for whichthat we do not adequately anticipate or reactaddress with our product development efforts toward, if efforts;
we do not timely optimize complementary product lines and servicesservices; or if
we fail to adequately integrate, support or enhance acquired product lines or services.
If our security measures for our software, hardware, services or Oracle Cloud offerings are compromised and as a result, our data, our customers’ data or our IT systems are accessed improperly, made unavailable, or improperly modified, our products and services may be perceived as vulnerable, our brand and reputation could be damaged, the IT services we provide to our customers could be disrupted, and customers may stop using our products and services, all of which could reduce our revenue and earnings, increase our expenses and expose us to legal claims and regulatory actions. We are in the information technology business, and our products and services, including our Oracle Cloud offerings, store, retrieve, manipulate and manage our customers’ information and data, external data, as well as our own data. We have a reputation for secure and reliable product offerings and related services and we have invested a great deal of time and resources in protecting the integrity and security of our products, services and the internal and external data that we manage.
At times, we encounter attempts by third parties to identify and exploit product and service vulnerabilities, penetrate or bypass our security measures, and gain unauthorized access to our or our customers’, partners’ and suppliers’ software, hardware and cloud offerings, networks and systems, any of which could lead to the compromise of personal information or the confidential information or data of Oracle or our customers. Computer hackers and others may be able to develop and deploy IT related viruses, worms, and other malicious software programs that could attack our products and services, exploit potential security vulnerabilities of our products and services, create system disruptions and cause shutdowns or denials of service. This is also true for third party data, products or services incorporated into our own. Data may also be accessed or modified improperly as a result of customer, partner, employee or supplier error or malfeasance and third parties may attempt to fraudulently induce customers, partners, employees or suppliers into disclosing sensitive information such as user names, passwords or other information in order to gain access to our data, our customers’, suppliers’ or partners’ data or the IT systems of Oracle, its customers, suppliers or partners.
High-profile security breaches at other companies have increased in recent years, and security industry experts and government officials have warned about the risks of hackers and cyber-attacks targeting information technology products and businesses. Although this is an industry-wide problem that affects other software and hardware companies, it affects Oracle in particular because computer hackers tend to focus their efforts on the most prominent IT companies, and they may focus on Oracle because of our reputation for, and marketing efforts associated with, having secure products and services. These risks will increase as we continue to grow our cloud offerings and store and process increasingly large amounts of data, including personal information and our customers’ confidential information and data and other external data, and host or manage parts of our customers’ businesses in cloud-based IT environments, especially in customer sectors involving particularly sensitive data such as health sciences, financial services and the government. We also have an active acquisition program and have acquired a number of companies, products, services and technologies over the years. While we make significant efforts to address any IT security issues with respect to our acquired companies, we may still inherit such risks when we integrate these companies within Oracle.
If a cyber-attack or other security incident described above were to allow unauthorized access to or modification of our customers’ or suppliers’ data, other external data or our own data or our IT systems or if the services we provide to our customers were disrupted, or if our products or services are perceived as having security vulnerabilities, we could suffer significant damage to our brand and reputation. Customers could lose confidence in the security and reliability of our products and services, including our cloud offerings, and perceive them to be not secure. This in turn could lead to fewer customers using our products and services and result in reduced revenue and earnings. The costs we would incur to address and fix these security incidents would increase our expenses. These types of security incidents could also lead to lawsuits, regulatory investigations and claims and increased legal liability, including in some cases contractual costs related to customer notification and fraud monitoring.
Our business practices with respect to the collection, use and management of personal information could give rise to liabilities or reputational harm as a result of governmental regulation, legal requirements or industry standards relating to consumer privacy and data protection. As regulatory focus on privacy issues continues to increase and worldwide laws and regulations concerning the handling of personal information expand and become more complex, potential risks related to data collection and use within our business will intensify. U.S. and foreign governments have enacted or are considering enacting legislation or regulations, or may in the near future interpret existing legislation or regulations, in a manner that could significantly impact the ability of Oracle and our customers and data partners to collect, augment, analyze, use, transfer and share personal and other information that is integral to certain services Oracle provides and data services. This could be true particularly in those jurisdictions where privacy laws or regulators take a broader view of how personal information is defined, therefore subjecting the handling of such data to heightened restrictions that may be obstructive to the operations of Oracle and its customers and data providers. This impact may be acute in countries that have passed or are considering passing legislation that requires data to remain localized “in country”, as this imposes financial costs on any service provider that is required to store data in jurisdictions not of its choosing and nonstandard operational processes that are difficult and costly to integrate with global processes. Regulators globally are also imposing greater monetary fines for privacy violations, and the European
Union (EU) is considering legislation that would impose fines for privacy violations based on a percentage of global revenues. Changes in laws or regulations associated with the enhanced protection of certain types of sensitive data, such as healthcare data or other personal information, could greatly increase our cost of providing our products and services or even prevent us from offering certain of our services in jurisdictions that we operate. Additionally, public perception and standards related to the privacy of personal information can shift rapidly, in ways that may affect Oracle’s reputation or influence regulators to enact regulations and laws that may limit Oracle’s ability to provide certain products. Any failure, or perceived failure, by Oracle to comply with U.S. federal, state, or foreign laws and regulations, including laws and regulations regulating privacy, data security, or consumer protection, or other policies, public perception, standards, self-regulatory requirements or legal obligations, could result in lost or restricted business, proceedings, actions or fines brought against us or levied by governmental entities or others, or could adversely affected.affect our business and harm our reputation.
We might experience significant coding, manufacturing or configuration errors in our software, hardware and cloud offerings. Despite testing prior to their release and throughout the lifecycle of a product or service, software, hardware and cloud offerings sometimes contain coding or manufacturing errors that can impact their function, performance and security, and result in other negative consequences. The detection and correction of any errors in released software, hardware or cloud offerings can be time consuming and costly. Errors in our software, hardware or cloud offerings could affect their ability to properly function or operate with other software, hardware or cloud offerings, could delay the development or release of new products or services or new versions of products or services, could result in creating security vulnerabilities in our products or services, and could adversely affect market acceptance of our products or services. This includes third party software products or services incorporated into our own. If we experience errors or delays in releasing our software, hardware or cloud offerings or new versions thereof, our sales could be affected and revenues could decline. In addition, we run Oracle’s business operations as well as cloud and other services that we offer to our customers on our products and networks. Therefore, any flaws could affect our ability to conduct our business operations and the operations of our customers. Enterprise customers rely on our software and hardware products and services to run their businesses and errors in our software, hardware or cloud offerings could expose us to product liability, performance and warranty claims as well as significant harm to our brand and reputation, which could impact our future sales.
If we are unable to compete effectively, with existing or new hardware systems or software competitors, the results of operations and prospects for our business could be harmed through fewer customer orders, reduced pricing, lower revenuesharmed. We face intense competition in all aspects of our business. The nature of the IT industry creates a competitive landscape that is constantly evolving as firms emerge, expand or lower profits. are acquired, and as technology evolves. Many vendors develop and market databases, middleware products, application development tools, business applications, collaboration products and business intelligence products, among others, that compete with our software and cloud offerings. These vendors include on-premises software companies and companies that offer cloud based SaaS, PaaS, IaaS and DaaS offerings and business process outsourcing (BPO) as competitive alternatives to buying software and hardware. Our competitors that offer business applications and middleware products may influence a customer’s purchasing decision for the underlying database in an effort to persuade potential customers not to acquire our products. We could lose customers if our competitors introduce new competitive products, add new functionality, acquire competitive products, reduce prices or form strategic alliances with other companies. We may also face increasing competition from open source software initiatives in which competitors may provide software and intellectual property for free. Existing or new competitors could gain sales opportunities or customers at our expense.
Our hardware systems business will competecompetes with, among others, (i) systems manufacturers and resellers of systems based on our own microprocessors and operating systems and those of our competitors, (ii) microprocessor/chip manufacturers, and (iii) providers of storage products.products and (iv) certain industry-specific hardware manufacturers including those serving communications, hospitality and retail industries. Our hardware systems business may also causecauses us to compete with certain companies whothat historically have been our partners. TheseSome of these competitors may have more experience than we do in managing a hardware business. A large portion of our hardware products are based on our SPARC microprocessor and Oracle Solaris operating system platform, which has a smaller installed base than certain of our competitors’ platforms and which may make it difficult for us to win new customers that have already made significant investments in our competitors’
platforms. Certain of these competitors also
compete very aggressively on price. A loss in our competitive position could result in lower revenues or profitability, which could adversely impact our ability to realize the revenue and profitability forecasts for our hardware systems business.
Many vendors developOur international sales and market databases, middleware products, application development tools, business applications, collaboration productsoperations subject us to additional risks that can adversely affect our operating results. We derive a substantial portion of our revenues from, and business intelligence products, amongst others, that compete with our software offerings. In addition, several companies offer software-as-a-service (SaaS) or cloud computing and business process outsourcing (BPO) as competitive alternatives to buyinghave significant operations, outside of the United States. Our international operations include software and hardware systems development, manufacturing, assembly, sales, customer support, consulting and customer interestother services and shared administrative service centers.
Compliance with international and U.S. laws and regulations that apply to our international operations increases our cost of doing business in cloud or SaaS solutions is increasing. Someforeign jurisdictions. These laws and regulations include U.S. laws and local laws which include data privacy requirements, labor relations laws, tax laws, anti-competition regulations, prohibitions on payments to governmental officials, import and trade restrictions and export requirements. Violations of these competitors have greater financiallaws and regulations could result in fines, criminal sanctions against us, our officers or technicalour employees, and prohibitions on the conduct of our business. Any such violations could result in prohibitions on our ability to offer our products and services in one or more countries, could delay or prevent potential acquisitions and could also materially damage our reputation, our brand, our international expansion efforts, our ability to attract and retain employees, our business and our operating results. Compliance with these laws requires a significant amount of management attention and effort, which may divert management’s attention from running our business operations and could harm our ability to grow our business, or may increase our expenses as we engage specialized or other additional resources than we do.to assist us with our compliance efforts. Our competitors that offer business applicationssuccess depends, in part, on our ability to anticipate these risks and middleware products may influence a customer’s purchasing decision formanage these difficulties. We monitor our operations and investigate allegations of improprieties relating to transactions and the underlying database in an effort to persuade potential customers not to acquire our products. We could lose customers if our competitors introduce new competitive products, add new functionality, acquire competitive products, reduce prices or form strategic alliances with other companies. Vendors that offer SaaS, cloud or BPO solutions may persuade our customers not to purchase our products. We may also face increasing competition from open source software initiativesway in which competitors maysuch transactions are recorded. Where circumstances warrant, we provide softwareinformation and intellectual property for free. Existingreport our findings to government authorities, but no assurance can be given that action will not be taken by such authorities.
We are also subject to a variety of other risks and challenges in managing an organization operating in various countries, including those related to:
general economic conditions in each country or new competitors could gain sales opportunitiesregion;
fluctuations in currency exchange rates and related impacts to customer demand and our operating results;
difficulties in transferring funds from or customers at our expense.
Our hardware systems offerings are complex products. If we cannot successfully manage the required processesconverting currencies in certain countries such as Venezuela that have led to meet customer requirements and demand on a timely basis, the resultsdevaluation of our hardware systems business will suffer. Designing, developing, manufacturing and introducing new hardware systems products are complicated processes. The development process is uncertain and requires a high level of innovation from both systems hardware and software product designers and engineers and the suppliers of the components usednet assets, in these products. The development process is also lengthy and costly. Once a new hardware systems product is developed,particular our cash assets, in that country’s currency;
regulatory changes, including government austerity measures in certain countries that we face several challenges in the manufacturing process. We mustmay not be able to forecast customer demandsufficiently plan for or avoid that may unexpectedly impair bank deposits or other cash assets that we hold in these countries or that impose additional taxes that we may be required to pay in these countries;
political unrest, terrorism and manufacture new hardware systems productsthe potential for other hostilities, including those in sufficient volumesUkraine, Syria, Iraq and Yemen;
natural disasters;
longer payment cycles and difficulties in collecting accounts receivable;
overlapping tax regimes;
our ability to meet this demand and do sorepatriate funds held by our foreign subsidiaries to the United States at favorable tax rates;
public health risks, particularly in a cost effective manner. Our “build-to-order” manufacturing model,areas in which we have significant operations; and
reduced protection for intellectual property rights in some countries.
The variety of risks and challenges listed above could also disrupt or otherwise negatively impact the supply chain operations for our hardware systems products generally are not built until after customers place orders, may from time to time experience delays in deliveringsegment and the sales of our hardware systems products to customers in a timely manner. These delays could cause our customers to purchase hardware products and services from our competitors. We must also manage new hardware product introductionsin affected countries or regions.
As the majority shareholder of Oracle Financial Services Software Limited (OFSS), a publicly traded company in India, and transitionsOracle Corporation Japan (NOKK), a publicly traded company in Japan, we are faced with several additional risks, including being subject to minimize the impact of customer delayed purchases of existing hardware systems products in anticipation of new hardware systems product releases. Because the designlocal securities regulations and manufacturing processes for components are also very complicated, it is possiblebeing unable to exert full control that we could experience designwould otherwise have if OFSS or manufacturing flaws. These design or manufacturing flaws could delay or prevent the production of the components for which we have previously committed to pay or need to fulfill orders from customers. These types of component flaws could also prevent the production of our hardware products or cause our hardware products to be returned, recalled or rejected resulting in lost revenues, increases in warranty costs or costs related to remediation efforts, damage to our reputation, penalties and litigation.NOKK were wholly owned subsidiaries.
Acquisitions present many risks and we may not realize the financial and strategic goals that were contemplated at the time of a transaction. In recent years, we have invested billions of dollars to acquire a number of companies, products, services and technologies. AnA selective and active acquisition program is an important element of our overall corporate strategy and we expect to continue to make acquisitions in the future. Risks we may face in connection with our acquisition program include:
our ongoing business may be disrupted and our management’s attention may be diverted by acquisition, transition or integration activities;
we may have difficulties (i) managing an acquired company’s technologies or lines of business; (ii) entering new markets where we have no or limited direct prior experience or where competitors may have stronger market positions; or (iii) retaining key personnel from the acquired companies;
an acquisition may not further our business strategy as we expected, we may not integrate an acquired company or technology as successfully as we expected or we may overpay for, or otherwise not realize the expected return on, our investments, which could adversely affect our business or operating results;results and potentially cause impairment to assets that we recorded as a part of an acquisition including intangible assets and goodwill;
we may have difficulties (i) managing an acquired company’s technologies or lines of business or (ii) entering new markets where we have no or limited direct prior experience or where competitors may have stronger market positions;
our operating results or financial condition may be adversely impacted by claims or liabilities that we assume from an acquired company or technology or that are otherwise related to an acquisition, including, among others, claims from government agencies, terminated employees, current or former customers, former stockholders or other third parties; pre-existing contractual relationships of an acquired company that we would not have otherwise entered into, the termination or modification of which may be costly or disruptive to our business; unfavorable revenue recognition or other accounting treatment as a result of an acquired company’s practices; and intellectual property claims or disputes;
we may fail to identify or assess the magnitude of certain liabilities, shortcomings or other circumstances prior to acquiring a company or technology, which could result in unexpected litigation or regulatory exposure, unfavorable accounting treatment, unexpected increases in taxes due, a loss of anticipated tax benefits or other adverse effects on our business, operating results or financial condition;
we may not realize the anticipated increase in our revenues from an acquisition for a number of reasons, including if a larger than predicted number of customers decline to renew software license updates and productor hardware support contracts hardware systems support contracts and cloud softwareor cloud-based subscription contracts, if we are unable to sell the acquired products or service offerings to our customer base or if contract models of an acquired company do not allow us to recognize revenues on a timely basis;
we may have difficulty incorporating acquired technologies, or products, services and their related supply chain operations with our existing product lines of business and supply chain infrastructure and maintaining uniform standards, architecture, controls, procedures and policies;
we may have multiple product lines or services offerings as a result of our acquisitions that are offered, priced and supported differently, which could cause customer confusion and delays;
we may have higher than anticipated costs in continuing support and development of acquired products or services, in general and administrative functions that support new business models, or in compliance with associated regulations that are more complicated than we had anticipated;
we may be unable to obtain timely approvals from, or may otherwise have certain limitations, restrictions, penalties or other sanctions imposed on us by, worker councils or similar bodies under applicable employment laws as a result of an acquisition, which could adversely affect our integration plans in certain jurisdictions;jurisdictions and potentially increase our integration and restructuring expenses;
we may be unable to obtain required approvals from governmental authorities under competition and antitrust laws on a timely basis, if at all, which could, among other things, delay or prevent us from completing a transaction, otherwise restrict our ability to realize the expected financial or strategic goals of an acquisition or have other adverse effects on our current business and operations;
our use of cash to pay for acquisitions may limit other potential uses of our cash, including stock repurchases, dividend payments and retirement of outstanding indebtedness;
we may significantly increase our interest expense, leverage and debt service requirements if we incur additional debt to pay for an acquisition and we may have to delay or not proceed with a substantial acquisition if we cannot obtain the necessary funding to complete the acquisition in a timely manner or on favorable terms;
to the extent that we issue a significant amount of equity securities in connection with future acquisitions, existing stockholders may be diluted and earnings per share may decrease; and
we may experience additional or unexpected changes in how we are required to account for our acquisitions pursuant to U.S. generally accepted accounting principles, including arrangements that we assume from an acquisition.
The occurrence of any of these risks could have a material adverse effect on our business, results of operations, financial condition or cash flows, particularly in the case of a larger acquisition or several concurrent acquisitions.
Our periodic workforce restructurings, including reorganizations of our sales force, can be disruptive. We have in the past restructured or made other adjustments to our workforce, including our direct sales force on which we rely heavily, in response to management changes, product changes, performance issues, acquisitions and other internal and external considerations. In the past, these types of sales force restructurings have resulted in increased restructuring costs, increased sales and marketing costs and temporary reduced productivity while the sales teams adjusted to their new roles and responsibilities. In addition, we may not achieve or sustain the expected growth or cost savings benefits of these restructurings, or do so within the expected timeframe. These effects could recur in connection with future acquisitions and other restructurings and our revenues and other results of operations could be negatively affected.
Our hardware systems revenues and profitability could decline if we do not manage the risks associated with our hardware systems business. Our hardware systems business may adversely affect our overall profitability if we do not effectively manage the associated risks. We may not achieve our estimated revenue, profit or other financial projections with respect to our hardware systems business in a timely manner or at all due to a number of factors, including:
our relative inexperience in managing a hardware systems businessas we develop and related processesintroduce new versions or the unplanned departuresnext generations of some important employees could adversely impact our ability to successfully run our hardware systems business,products, customers may defer or delay purchases of existing hardware systems products and wait for these new releases, all of which could adversely impact our ability to realize the forecasts foraffect our hardware systems business and its results of operations;revenues in the short term;
our focushardware systems business has higher expenses as a percentage of revenues, and thus has been less profitable, than our software and cloud business;
we have focused on our more profitable Oracle Engineered Systems, products likesuch as our Oracle Exadata Database Machine, Oracle Exalogic Elastic Cloud, and Oracle Exalytics In-Memory Machine and Oracle SuperCluster products, which are in the relatively early stages of adoption by our customers, and ourthe de-emphasis onof our lower profit margin commodity hardware systems products thatcould adversely affect our hardware systems revenues because the lower profit systems have historically constituted a larger portion of our hardware systems revenues;
we may forgo sales opportunities, customersface a greater risk of potential write-downs and revenues as a resultimpairments of inventory, higher warranty expenses than in our reducing the resale of third party productssoftware and cloud and services for which Sun Microsystems, Inc. (Sun) historically acted as a reseller;businesses, and amortization and potential impairment of intangible assets associated with our hardware systems business. Any of these items could result in material charges and adversely affect our operating results;
we may not be able to increase sales of hardware systems support contracts or such increase may take longer than we anticipate, which could result in lower revenues and profitability, or slower than expected growth of such revenues and profitability;
our hardware systems business has higher expenses as a percentage of revenues, and thus has been less profitable, than our software business. We have reported lower overall operating margins as a percentage of revenues in the past and we may report lower operating margins as a percentage of revenues in the future; and
we face a greater risk of potential write-downs and impairments of inventory, higher warranty expensesmay acquire hardware companies that are strategically important to us but (i) operate in hardware businesses with historically lower operating margins than we had historically encountered in our existing software and services businesses and higher amortization from, and potential impairment of, intangible assets associated with our hardware systems business. Any of these items could result in material charges and adversely affect our operating results.own; (ii) have different legacy business
practices and go-to-market strategies that we may alter as a part of our integration efforts, which may significantly impact our estimated revenues and profits from the acquired company; (iii) leverage different platforms or competing technologies that we may encounter difficulties in integrating; or (iv) utilize unique manufacturing processes that affect our ability to scale these acquired products within our own manufacturing operations. |
Our strategy of transitioning to a mixed direct and indirect sales model for our hardware systems products may not succeed and could result in lower hardware revenues or profits. Disruptions to our software indirect sales channel could affect our future operating results. Although we will continue to sell our hardware systems products through indirect channels, including independent distributors and value added resellers, we have enhanced our direct sales coverage for our hardwareofferings are complex products, and intend that our direct sales force will sell a larger portion of our hardware products in the future than they do now. These direct sales efforts, however, may not be successful. Our relationships with some of our channel partners may deteriorate because we are reducing our reliance on some of these partners for sales of our hardware products, are modifying our approach and timing to the manufacturing of our products and have altered certain of Sun’s legacy business practices with these channel partners, which could result in reduced demand from the channel partners or certain customer segments serviced by these channel partners. Some hardware revenues from channel partners may not be replaced by revenues generated from our own sales personnel or may not be replaced as quickly as we expect. In addition, we may not be able to hire qualified hardware salespeople, sales consultants and other personnel for our direct sales model at the rate or in the numbers we need to generate the hardware revenues and profit margins we have projected for future periods. Even if we can meet our hiring needs, these salespeople may not be able to achieve our sales forecasts for our hardware business. If we experience any of these risks, our hardware revenues and/or profits may decline.
Our software indirect channel network is comprised primarily of resellers, system integrators/implementers, consultants, education providers, internet service providers, network integrators and independent software vendors. Our relationships with these channel participants are important elements of our software marketing and sales efforts. Our financial results could be adversely affected if our contracts with channel participants were terminated, if our relationships with channel participants were to deteriorate, if any of our competitors enter into
strategic relationships with or acquire a significant channel participant or ifcannot successfully manage this complexity, the financial condition of our channel participants were to weaken. There can be no assurance that we will be successful in maintaining, expanding or developing our relationships with channel participants. If we are not successful, we may lose sales opportunities, customers and revenues.
Our international sales and operations subject us to additional risks that can adversely affect our operating results. We derive a substantial portion of our revenues from, and have significant operations, outside of the United States. Our international operations include software and hardware systems development, manufacturing, assembly, sales, customer support, consulting, managed cloud services and shared administrative service centers.
Compliance with international and U.S. laws and regulations that apply to our international operations increases our cost of doing business in foreign jurisdictions. These laws and regulations include U.S. laws and local laws which include data privacy requirements, labor relations laws, tax laws, anti-competition regulations, prohibitions on payments to governmental officials, import and trade restrictions and export requirements. Violations of these laws and regulations could result in fines, criminal sanctions against us, our officers or our employees, and prohibitions on the conduct of our business. Any such violations could result in prohibitions on our ability to offer our products and services in one or more countries, could delay or prevent potential acquisitions and could also materially damage our reputation, our brand, our international expansion efforts, our ability to attract and retain employees, our business and our operating results. Our success depends, in part, on our ability to anticipate these risks and manage these difficulties. We monitor our international operations and investigate allegations of improprieties relating to transactions and the way in which such transactions are recorded. Where circumstances warrant, we provide information and report our findings to government authorities, but no assurance can be given that action will not be taken by such authorities.
We are also subject to a variety of other risks and challenges in managing an organization operating in various countries, including those related to:
general economic conditions in each country or region;
fluctuations in currency exchange rates and related impacts to our operating results;
natural disasters;
regulatory changes;
political unrest, terrorism and the potential for other hostilities;
longer payment cycles and difficulties in collecting accounts receivable;
overlapping tax regimes;
our ability to repatriate funds held by our foreign subsidiaries to the United States at favorable tax rates;
difficulties in transferring funds from or converting currencies in certain countries;
public health risks, particularly in areas in which we have significant operations; and
reduced protection for intellectual property rights in some countries.
As a result of our hardware systems business, the volume and complexity of laws and regulations that we are subject to have increased. The variety of risks and challenges listed above could also disrupt or otherwise negatively impact the supply chain operations for our hardware systems products segment and the sales of our products and services in affected countries or regions.
As the majority shareholder of Oracle Financial Services Software Limited, a publicly traded Indian software company focused on the banking industry, we are faced with several additional risks, including being subject to local securities regulations and being unable to exert full control.
The future operating results of our hardware systems business will depend onsuffer. Designing, developing, manufacturing and introducing new hardware systems products are complicated processes. The development process for our abilityhardware systems products is uncertain and requires a high level of innovation. After the development phase, we must be able to manage our component inventoryforecast customer demand and manufacture new hardware systems products in sufficient volumes to meet this demand and do so in a cost effective manner. Our “build-to-order” manufacturing model, in which our hardware systems products generally are not built until after customers place orders, may from time to time experience delays in delivering our hardware systems products to customers in a timely manner. These delays could cause our customers to purchase hardware products and services from our competitors. We must also manage new hardware product introductions and transitions to minimize the demandsimpact of customer delayed purchases of existing hardware systems products in anticipation of new hardware systems product releases. It is also possible that we could experience design or manufacturing flaws which could delay or prevent the production of the components for which we have previously committed to pay or need to fulfill orders from customers and could also prevent the production of our hardware systems customersproducts or cause our hardware products to be returned, recalled or rejected resulting in lost revenues, increases in warranty costs or costs related to remediation efforts, damage to our reputation, penalties and to avoid component inventory write-downs. litigation.
We depend on suppliers to design, develop, manufacture and deliver on a timely basis
the necessary technologies and components for our hardware products. While many of the components purchased are standard, some components (standard or otherwise) require long lead times to manufactureproducts, and deliver. Furthermore, there are some technologies and components that can only be purchased from a single vendor due to price, quality, technology, availability or other business constraints. As a result, our supply chain operations could be disrupted or negatively impacted by natural disasters, political unrest, port stoppages or other transportation disruptions or slowdowns or other factors affecting the countries or regions where these single source component vendors are located.located or where the products are being shipped. We may be unable to purchase these items from the respective single vendors on acceptable terms or may experience significant delays or quality issues in the delivery of necessary technologies, parts or components from a particular vendor. If we had to find a new supplier for these technologies, parts and components, hardware systems product shipments could be delayed, which would adversely affect our hardware systems revenues. We could also experience fluctuations in component prices which, if unanticipated, could negatively impact our hardware systems business cost structure. Additionally, we could experience changes in shipping and logistics of our hardware products, which could result in fluctuations in prices and negatively impact our hardware systems margins. These factors may make it difficult for us to plan and procure appropriate component inventory levels in a timely fashion to meet customer demand for our hardware products. Therefore, we may experience component inventory shortages which may result in production delays or customers choosing to purchase fewer hardware products from us or systems products from our competitors. We negotiate supply commitments with vendors early in the manufacturing process to ensure we have sufficient technologies and components for our hardware products to meet anticipated customer demand. We must also manage our levels of older component inventories used in our hardware products to minimize inventory write-offs or write-downs. If we have excess inventory, it may be necessary to write-down the inventory, which would adversely affect our operating results. If one or more of the risks described above occurs, our hardware systems business and related operating results could be materially and adversely affected.
We expect to continue to depend on third party manufacturers to build certain hardware systems products and third party logistics providers to deliver our products. As such, we are susceptible to third party manufacturing and logistics delays, thatwhich could prevent us from shipping customer orders on time, if at all, and may result in the loss of sales and customers. We outsource the design, manufacturing, assembly and delivery of certain of our hardware products to a variety of companies, many of which are located outside the United States. Our reliance on these third parties reduces our control over the design, manufacturing and delivery process, exposing us to risks, including reduced control over quality assurance, product costs, product supply and delivery delays as well as the political and economic uncertainties and natural disasters of the international locations where certain of these third party manufacturers have facilities and operations. Some countries may raise national security concerns or
impose market access restrictions based on location of manufacture or sourcing. Any manufacturing disruption or logistics delays by these third parties could impair our ability to fulfill orders for these hardware systems products for extended periods of time. If we are unable to manage our relationships with these third parties effectively, or if these third parties experience delays, disruptions, capacity constraints, regulatory issues or quality control problems in their operations, or fail to meet our future requirements for timely delivery, our ability to ship and/orand deliver certain of our hardware systems products to our customers could be impaired and our hardware systems business could be harmed.
We have simplified our supply chain processes by reducing the number of third party manufacturing partners and the number of locations where these third party manufacturers build our hardware systems products. We therefore have become more dependent on a fewer number of these manufacturing partners and locations. If these partners experience production problems or delays or cannot meet our demand for products, we may not be able to find alternate manufacturing sources in a timely or cost effective manner, if at all. If we are required to change third party manufacturers, our ability to meet our scheduled hardware systems products deliveries to our customers could be adversely affected, which could cause the loss of sales and existing or potential customers, delayed revenue recognition or an increase in our hardware systems products expenses, all of which could adversely affect the margins of our hardware business.
These challenges and risks also exist when we acquire companies with hardware products and related supply chain operations. In some cases, we may be dependent, at least initially, on these acquired companies’ supply chain operations that we are less familiar with and thus we may be slower to adjust or react to these challenges and risks.
We may experience foreign currency gainsOur software indirect sales channel could affect our future operating results. Our software indirect channel network is comprised primarily of resellers, system integrators/implementers, consultants, education providers, internet service providers, network integrators and losses. We conductindependent software vendors. Our relationships with these channel participants are important elements of our software marketing and sales efforts. Our financial results could be adversely affected if our contracts with channel participants were terminated, if our relationships with channel participants were to deteriorate, if any of our competitors enter into strategic relationships with or acquire a significant number of transactions in currencies other thanchannel participant, if the U.S. Dollar. Changes in the value of major foreign currencies, particularly the Euro, Japanese Yen and British Pound relative to the U.S. Dollar can significantly affect our revenues and operating results. Generally, our revenues and operating results are adversely affected when the dollar strengthens relative to other currencies and are positively affected when the dollar weakens.
In addition, we incur foreign currency transaction gains and losses, primarily related to sublicense fees and other intercompany agreements among us and our subsidiaries that we expect to cash settle in the near term, which are
charged against earnings in the period incurred. We have a program which primarily utilizes foreign currency forward contracts to offset the risks associated with these foreign currency exposures that we may suspend from time to time. As a part of this program, we enter into foreign currency forward contracts so that increasesfinancial condition 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 transaction gains or losses. A large portionoperations of our consolidated operations are internationalchannel participants were to weaken or if the level of demand for our channel participants’ products and we expectservices were to decrease. There can be no assurance that we will continue to realize gainsbe successful in maintaining, expanding or lossesdeveloping our relationships with respect to our foreign currency exposures, net of gains or losses from our foreign currency forward contracts. For example,channel participants. If we will experience foreign currency gainsare not successful, we may lose sales opportunities, customers and losses in certain instances if it is not possible or cost effective to hedge our foreign currency exposures or should we suspend our foreign currency forward contract program. Our ultimate realized loss or gain with respect to currency fluctuations will generally depend on the size and type of cross-currency exposures that we enter into, the currency exchange rates associated with these exposures and changes in those rates, whether we have entered into foreign currency forward contracts to offset these exposures and other factors. All of these factors could materially impact our results of operations, financial position and cash flows, the timing of which is variable and generally outside of our control.revenues.
We may not be able to protect our intellectual property rights. We rely on copyright, trademark, patent and trade secret laws, confidentiality procedures, controls and contractual commitments to protect our intellectual property rights. Despite our efforts, these protections may be limited. Unauthorized third parties may try to copy or reverse engineer portions of our products or otherwise obtain and use our intellectual property. Any patents owned by us may be invalidated, circumvented or challenged. Any of our pending or future patent applications, whether or not being currently challenged, may not be issued with the scope of the claims we seek, if at all. In addition, the laws of some countries do not provide the same level of protection of our intellectual property rights as do the laws and courts of the United States. If we cannot protect our intellectual property rights against unauthorized copying or use, or other misappropriation, we may not remain competitive.
Third parties have claimed and, in the future, may claim infringement or misuse of intellectual property rights and/or breach of license agreement provisions. We periodically receive notices from, or have lawsuits filed against us by, others claiming infringement or other misuse of their intellectual property rights and/or breach of our agreements with them. These third parties include entities that do not have the capabilities to design, manufacture, or distribute products or services or that acquire intellectual property like patents for the sole purpose of monetizing their acquired intellectual property through asserting claims of infringement and misuse. We expect the number of such claims will increase as:
we continue to acquire companies and expand into new businesses;
the number of products and competitors in our industry segments grows;
the use and support of third party code (including open source code) becomes more prevalent in the industry;
the volume of issued patents continues to increase; and
the proliferation of non-practicing entities asserting intellectual property infringement claims increases.
Responding to any such claim, regardless of its validity, could:
be time consuming, costly and result in litigation;
divert management’s time and attention from developing our business;
require us to pay monetary damages or enter into royalty and licensing agreements that we would not normally find acceptable;
require us to stop selling or to redesign certain of our products;
require us to release source code to third parties, possibly under open source license terms;
require us to satisfy indemnification obligations to our customers; or
otherwise adversely affect our business, results of operations, financial condition or cash flows.
We may lose key employees or may be unable to hire enough qualified employees. We rely on the continued service of our senior management, including our Executive Chairman of the Board of Directors, Chief ExecutiveTechnology Officer and founder, our Chief Executive Officers, other members of our executive team and other key employees and the hiring of new qualified employees. In the technology industry, there is substantial and continuous competition for highly skilled business, product development, technical and other personnel. In addition, acquisitions could cause us to lose key personnel of the acquired companies or at Oracle. We may also experience increased compensation costs that are not offset by either improved productivity or higher sales. We may not be successful in recruiting new personnel and in retaining and motivating existing personnel. With rare exceptions, we do not have long-term employment or non-competition agreements with our employees. Members of our senior management team have left Oracle over the years for a variety of reasons, and we cannot assure you that there will not be additional departures, which may be disruptive to our operations.
We continually focus on improving our cost structure by hiring personnel in countries where advanced technical expertise isand other expertise are available at lower costs. When we make adjustments to our workforce, we may incur expenses associated with workforce reductions that delay the benefit of a more efficient workforce structure. We may also experience increased competition for employees in these countries as the trend toward globalization continues, which may affect our employee retention efforts and increase our expenses in an effort to offer a competitive compensation program. Our general compensation program includes stock options and restricted stock units (RSUs), which are an important tooltools in attracting and retaining employees in our industry. If our stock price performs poorly, it may adversely affect our ability to retain or attract employees. In addition, because we expense all stock-based compensation, we have changed and may in the future change our stock-based and other compensation practices. SomeFor example, in fiscal 2015, we introduced RSU grants for certain of theour employees and performance related stock unit grants for certain of our executives. We continue to evaluate our compensation practices and other changes we consider from time to time include a reduction in the number of employees granted options,equity awards, a reduction in the number of stock options or RSUs granted per employee and a change to alternative forms of stock-based compensation.compensation, all of which may have an impact on our ability to retain employees and also impact the amount of stock-based compensation expense that we record. Any changes in our compensation practices or changes made by competitors could affect our ability to retain and motivate existing personnel and recruit new personnel.
Our sales to government clients subject us to business volatility and risks, including government budgeting cycles and appropriations, early termination, audits, investigations, sanctions and penalties. We derive revenues from contracts with the U.S. government, state and local governments, and foreign governments and their respective agencies, which may terminate most of these contracts at any time, without cause. There is increased pressure for governments and their agencies, both domestically and internationally, to reduce spending. OurFurther, our U.S. federal government contracts are subject to the approval of appropriations being made by the U.S. Congress to fund the expenditures under these contracts. Similarly, our contracts at the state and local levels in the U.S. and our contracts with foreign governments and their agencies are generally subject to government
funding authorizations. Additionally, government contracts are generally subject to audits and investigations which could result in various civil and criminal penalties and administrative sanctions, including termination of contracts, refund of a portion of fees received, forfeiture of profits, suspension of payments, fines and suspensions or debarment from future government business.
We may need to change our pricing models to compete successfully. The intense competition we face in the sales of our products and services and general economic and business conditions can put pressure on us to change our prices. If our competitors offer deep discounts on certain products or services or develop products that the marketplace considers more valuable, we may need to lower prices or offer other favorable terms in order to compete successfully. Any such changes may reduce margins and could adversely affect operating results. Additionally, the increasing prevalence of cloud and SaaS delivery models offered by us and our competitors may unfavorably impact the pricing of our on-premises enterprise software offerings and our cloud offerings, as well as overall demand for our on-premises software product and service offerings, which could reduce our revenues and profitability. Our software license updates and product support fees and hardware systems support fees are generally priced as a percentage of our net new software licenselicenses fees and net new hardware systems products fees, respectively. Our competitors may offer lower pricing on their support offerings, which could put pressure on us to further discount our new license prices.product or support pricing.
Any broad-based change to our prices and pricing policies could cause our revenues to decline or be delayed as our sales force implements and our customers adjust to the new pricing policies. Some of our competitors may bundle products for promotional purposes or as a long-term pricing strategy or provide guarantees of prices and product implementations. These practices could, over time, significantly constrain the prices that we can charge for certain of our products. If we do not adapt our pricing models to reflect changes in customer use of our products or changes in customer demand, our revenues could decrease. Additionally, increased distribution of applications through cloud and SaaS providers, may reduce the average price for our products or adversely affect other sales of our products, reducing our revenues unless we can offset price reductions with volume increases. The increase in open source software distribution may also cause us to change our pricing models.
Our cloud computing strategy, including our Oracle Cloud and Oracle managed cloud services offerings, may not be successful. We offer customers a broad portfolio of software and hardware products and services to enable a roadmap for customers to adopt cloud computing. Oracle Cloud includes our cloud software subscription offerings such as Oracle Fusion Human Capital Management Cloud Service, Oracle Fusion Customer Relationship Management Cloud Service, Oracle RightNow Customer Experience and Oracle Taleo Talent Management Cloud Service, among others, all of which provide our customers with certain of our software applications functionality within a cloud-based IT environment that we manage and offer via a subscription-based model. In addition, Oracle Cloud also includes software platforms within a cloud-based IT environment that we manage and offer to customers via a subscription-based model including Oracle Database Cloud Service and Oracle Java Cloud Service. Oracle managed cloud services include software and hardware management and maintenance services hosted at our data center facilities, select partner data centers or physically on-premise at customer facilities. These business models continue to evolve and we may not be able to compete effectively, generate significant revenues or maintain their profitability. We incur expenses associated with the infrastructures and marketing of our managed cloud services and cloud software subscription offerings in advance of our ability to recognize the revenues associated with these offerings. Demand for our cloud software subscription offerings may unfavorably impact demand for certain of our other products and services including new software licenses and software license updates and product support services.
If our data protection or other security measures are compromised and as a result our data, our customers’ data or our IT systems are accessed improperly, made unavailable, or improperly modified, our products and services may be perceived as vulnerable, our brand and reputation could be damaged, the IT services we provide to our customers could be disrupted, and customers may stop using our products and services, all of which could reduce our revenue and earnings, increase our expenses and expose us to legal claims and regulatory actions. We are in the information technology business, and our products and services store, retrieve, manipulate and manage our customers’ information and data as well as our own. We have a reputation for secure and reliable software and hardware products and services and have invested a great deal of time and resources in protecting the integrity and security of our products, services and internal and external data that we manage.
Nevertheless, computer hackers will attempt to penetrate or bypass our data protection and other security measures and gain unauthorized access to our networks, systems and data or compromise the confidential information or data of our customers. Computer hackers may be able to develop and deploy IT related viruses, worms, and other malicious software programs that could attack our products and services, exploit potential security vulnerabilities of our products and services, create system disruptions and cause shutdowns or denials of service. Data may also be accessed or modified improperly as a result of employee or supplier error or malfeasance and third parties may attempt to fraudulently induce employees or customers into disclosing sensitive information such as user names, passwords or other information in order to gain access to our data, our customers’ data or our IT systems.
Although this is an industry-wide problem that affects other software and hardware companies, it affects Oracle in particular because computer hackers tend to focus their efforts on the most popular or well-known IT companies, and they may focus on Oracle because of our reputation for, and marketing efforts associated with, having secure products and services. These risks for us will increase as we continue to grow our cloud-based offerings and services and store and process increasingly large amounts of our customers’ confidential information and data and host or manage parts of our customers’ businesses in cloud-based IT environments, especially in customer sectors involving particularly sensitive data such as health sciences, financial services and the government. We also have an active acquisition program and have acquired a number of companies, products, services and technologies over the years. While we make significant efforts to address any IT security issues with respect to our acquisitions, we may still inherit such risks when we integrate these acquisitions within Oracle.
If a cyberattack or other security incident described above were to allow unauthorized access to or modification of our customers’ data or our own data or our IT systems or if the services we provide to our customers were disrupted, or if our products or services are perceived as having security vulnerabilities, we could suffer damage to our brand and reputation. Customers could lose confidence in the security and reliability of our products and
services and perceive them to be not secure. This in turn could lead to fewer customers using our products and services and result in reduced revenue and earnings. The costs we would incur to address and fix these security incidents would increase our expenses. These types of security incidents could also lead to lawsuits, regulatory investigations and claims and increased legal liability, including in some cases contractual costs related to customer notification and fraud monitoring.
Further, as regulatory focus on privacy issues continues to increase and worldwide laws and regulations concerning the protection of personal information expand and become more complex, these potential risks to our business will intensify. Changes in laws or regulations associated with the protection of certain types of data, such as healthcare data or other personally identifiable information, could greatly increase our cost of providing our products and services.
Our periodic workforce restructurings can be disruptive. We have in the past restructured or made other adjustments to our workforce, including our direct sales force on which we rely heavily, in response to management changes, product changes, performance issues, acquisitions and other internal and external considerations. In the past, sales force and other restructurings have generally resulted in a temporary lack of focus and reduced productivity. These effects could recur in connection with future acquisitions and other restructurings and our revenues could be negatively affected.
We might experience significant errors in our software and hardware products and services. Despite testing prior to their release, software and hardware products sometimes contain errors, especially when first introduced or when new versions are released. The detection and correction of any errors can be time consuming and costly. Errors in our software or hardware products could affect the ability of our products to work with other software or hardware products, could delay the development or release of new products or new versions of products and could adversely affect market acceptance of our products. If we experience errors or delays in releasing our new software or hardware products or new versions of our software or hardware products, we could lose revenues. In addition, we run our own business operations, cloud software subscription offerings, Oracle managed cloud services and other outsourcing services, support and consulting services, on our products and networks and any flaws, if exploited, could affect our ability to conduct our business operations. End users, who rely on our software products and services for applications that are critical to their businesses, may have a greater sensitivity to product errors than customers for software products generally. Errors in our software and hardware products or services could expose us to product liability, performance and/or warranty claims as well as harm our reputation, which could impact our future sales of products and services.
We may not receive significant revenues from our current research and development efforts for several years, if at all. Developing software, cloud and hardware productsofferings is expensive and the investment in productthe development of these offerings often involves a long return on investment cycle. We have made and expectAn important element of our corporate strategy is to continue to make significant investments in research and development and related product opportunities.and service opportunities both through internal investments and the acquisition of intellectual property from companies that we have acquired. Accelerated product and service introductions and short productsoftware and hardware life cycles require high levels of expenditures for research and development that could adversely affect our operating results if not offset by revenue increases. We believe that we must continue to dedicate a significant amount of resources to our research and development efforts to maintain our competitive position. However, we do not expect to receive significant revenues from these investments for several years, if at all.
Business disruptions could adversely affect our operating results. A significant portion of our research and development activities and certain other critical business operations are concentrated in a few geographic areas. We are a highly automated business and a disruption or failure of our systems could cause delays in completing sales and providing services, including some of our cloud software subscription and managed cloud services offerings. A major earthquake, fire or other catastrophic event that results in the destruction or disruption of any of our critical business or IT systems could severely affect our ability to conduct normal business operations and, as a result, our future operating results could be materially and adversely affected.
Adverse litigation results could affect our business. We are subject to various legal proceedings. Litigation can be lengthy, expensive and disruptive to our operations, and can divert our management’s attention away from running our core business. The results of our litigation also cannot be predicted with certainty. An adverse decision could result in monetary damages or injunctive relief that could affect our business, operating results or financial condition. Additional information regarding certain of the lawsuits we are involved in is discussed under Note 18 of Notes to Consolidated Financial Statements included elsewhere in this Annual Report.
We may have exposure to additional tax liabilities. As a multinational corporation, we are subject to income taxes as well as non-income based taxes, in both the United States and various foreign jurisdictions. Significant judgment is required in determining our worldwide provision for income taxes and other tax liabilities. We are regularly under audit by tax authorities and those authorities often do not agree with positions taken by us on our tax returns.
Changes in tax laws or tax rulings may have a significantly adverse impact on our effective tax rate. For example, certain U.S. government proposals for fundamental U.S. internationalthe United States, many countries in the EU, and other countries where we do business, are actively considering changes in relevant tax, reform,accounting and other laws, regulations and interpretations, including changes to tax laws applicable to corporate multinationals, which, if enacted, could have a significant adverse impact on our effective tax rate. Further, in the ordinary course of a global business, there are many intercompany transactions and calculations where the ultimate tax determination is uncertain. Our intercompany transfer pricing has been and is currently being reviewed by the U.S. Internal Revenue Service (IRS) and by foreign tax jurisdictions and will likely be subject to additional audits in the future. WeAlthough, we have negotiated certain unilateral Advance Pricing Agreements with the IRS and certain selected bilateral Advance Pricing Agreements that cover manysome of our intercompany transfer pricing issues and preclude the relevant tax authorities from making a transfer pricing adjustment within the scope of these agreements. However,agreements, these agreements do not cover substantial elements of our transfer pricing. In recent periods, transfer pricing audits in many foreign jurisdictions have become increasingly contentious. Similarly, certain jurisdictions are increasingly raising concerns about certain withholding tax matters. In addition, our provision for income taxes could be adversely affected by earnings being lower than anticipated in jurisdictions which we consider to be indefinitely reinvested outside the United States that have lower statutory tax rates and earnings being higher than anticipated in jurisdictions that have higher statutory tax rates.
We are also subject to non-income based taxes, such as payroll, sales, use, value-added, net worth, property and goods and services taxes, in both the United States and various foreign jurisdictions. We are regularly under audit by tax authorities with respect to these non-income based taxes and may have exposure to additional non-income based tax liabilities. Our acquisition activities have increased our non-income based tax exposures, particularly with our entry into the hardware systems business, which increased the volume and complexity of laws and regulations that we are subject to and with which we must comply.
Although we believe that our income and non-income based tax estimates are reasonable, there is no assurance that the final determination of tax audits or tax disputes will not be different from what is reflected in our historical income tax provisions and accruals.
Charges to earnings resulting from acquisitions may adversely affect our operating results. Under business combination accounting standards pursuant to ASC 805,Business Combinations, we recognize the identifiable assets acquired, the liabilities assumed and any non-controlling interests in acquired companies generally at their acquisition date fair values and, in each case, separately from goodwill. Goodwill as of the acquisition date is measured as the excess amount of consideration transferred, which is also generally measured at fair value, and the net of the acquisition date amounts of the identifiable assets acquired and the liabilities assumed. Our estimates of fair value are based upon assumptions believed to be reasonable but which are inherently uncertain. After we complete an acquisition, the following factors could result in material charges and adversely affect our operating results and may adversely affect our cash flows:
costs incurred to combine the operations of companies we acquire, such as transitional employee expenses and employee retention, redeployment or relocation expenses;
impairment of goodwill, in particular within our consulting reporting unit, or impairment of intangible assets;assets, both of which we have added to significantly in recent years and may continue to increase in the future;
amortization of intangible assets acquired;
a reduction in the useful lives of intangible assets acquired;
identification of, or changes to, assumed contingent liabilities, both income tax and non-income tax related, after our final determination of the amounts for these contingencies or the conclusion of the measurement period (generally up to one year from the acquisition date), whichever comes first;
charges to our operating results to maintain certain duplicative pre-merger activities for an extended period of time or to maintain these activities for a period of time that is longer than we had anticipated, charges to eliminate certain duplicative pre-merger activities, and charges to restructure our operations or to reduce our cost structure;
charges to our operating results resulting fromdue to expenses incurred to effect the acquisition; and
charges to our operating results due to the expensing of certain stock awards assumed in an acquisition.
Substantially all of these costs will be accounted for as expenses that will decrease our net income and earnings per share for the periods in which those costs are incurred. For example, we recognized a goodwill impairment loss in the fourth quarter of fiscal 2015 relating to our hardware systems reporting unit. Charges to our operating results in any given period could differ substantially from other periods based on the timing and size of our future acquisitions and the extent of integration activities. A more detailed discussion of our accounting for business combinations and other items is presented in the “Critical Accounting Policies and Estimates” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations (Item 7).
There are risks associated with our outstanding and future indebtedness. As of May 31, 2012,2015, we had an aggregate of $16.5$42.0 billion of outstanding indebtedness that will mature between the remainder of calendar 2012year 2016 and calendar 2040year 2055 and we may incur additional indebtedness in the future. Our ability to pay interest and repay the principal for our indebtedness is dependent upon our ability to manage our business operations, generate sufficient cash flows to service such debt and the other factors discussed in this section. There can be no assurance that we will be able to manage any of these risks successfully.
We may also need to refinance a portion of our outstanding debt as it matures. There is a risk that we may not be able to refinance existing debt or that the terms of any refinancing may not be as favorable as the terms of our existing debt. Furthermore, if prevailing interest rates or other factors at the time of refinancing result in higher interest rates upon refinancing, then the interest expense relating to that refinanced indebtedness would increase. Should we incur future increases in interest expense, our ability to utilize certain of our foreign tax credits to reduce our U.S. federal income tax could be limited, which could unfavorably affect our provision for income taxes and effective tax rate. In addition, changes by any rating agency to our outlook or credit rating could negatively affect the value of both our debt and equity securities and increase the interest amounts we pay on outstanding or future debt. These risks could adversely affect our financial condition and results of operations.
Environmental and other related laws and regulations subject us to a number of risks and could result in significant liabilities and costs. Some of our cloud and hardware systems operations are subject to state, federal and international laws governing protection of the environment, proper handling and disposal of materials used to manufacture ourfor these products, human health and safety, and regulating the use of certain chemical substances.substances and the labor practices of suppliers. We endeavor to comply with these environmental and other laws, yet compliance with suchthese environmental and other laws could increase our product design, development, procurement, manufacturing, delivery and manufacturingadministration costs, limit our ability to manage excess and obsolete non-compliant inventory, change our sales activities, or otherwise impact future financial results of our cloud and hardware systems business.businesses. Any violation of these laws can subject us to significant liability, including fines, penalties and possible prohibition of sales of our products and services into one or more states or countries and result in a material adverse effect on the financial condition or results of operations of our cloud and hardware systems business. businesses.
The U.S. Securities and Exchange Commission has adopted disclosure requirements for companies that use certain “conflict minerals” (commonly referred to as tantalum, tin, tungsten and gold) in their products. Our supply chain is multi-tiered, global and highly complex. As a provider of hardware systems end products, we are several steps removed from the mining and smelting or refining of any conflict minerals in our supply chain. Accordingly, our ability to determine with certainty the origin and chain of custody of conflict minerals is limited. Our relationships with customers and suppliers could suffer if we are unable to describe our products as “conflict-free.” We may also face increased costs in complying with conflict minerals disclosure requirements.
A significant portion of our hardware systems revenues come from international sales. Environmental legislation, within the European Union (EU), includingsuch as the EU Directive on Restriction of Hazardous Substances (RoHS) and, the EU Waste Electrical and Electronic Equipment Directive (WEEE Directive), as well as and China’s regulation on Management Methods for Controlling Pollution Caused by Electronic Information Products, may increase our cost of doing business internationally and impact our hardware systems revenues from the EU, China and other countries and Chinawith similar environmental legislation as we endeavor to comply with and implement these requirements. In addition, similar environmental legislation has been or may be enacted in other jurisdictions, theThe cumulative impact of whichinternational environmental legislation could be significant.
Our stock price could become more volatile and your investment could lose value. All of the factors discussed in this section could affect our stock price. The timing of announcements in the public market regarding new products, product enhancements or technological advances by our competitors or us and any announcements by us of acquisitions, major transactions, or management changes could also affect our stock price. Changes in the amounts and frequency of share repurchases or dividends could adversely affect our stock price. Our stock price is subject to speculation in the press and the analyst community, changes in recommendations or earnings estimates by financial analysts, changes in investors’ or analysts’ valuation measures for our stock, our credit ratings and market trends unrelated to our performance. A significant drop in our stock price could also expose us to the risk of securities class actions lawsuits, which could result in substantial costs and divert management’s attention and resources, which could adversely affect our business.
Item 1B. Unresolved Staff Comments
None.
Our properties consist of owned and leased office facilities for sales, support, research and development, consulting, manufacturing and administrative personnel. Our headquarters facility consists of approximately 2.12.0 million square feet in Redwood City, California, substantially all of which we own. We lease our principal internal manufacturing facility for our hardware systems products in Hillsboro, Oregon. We also own or lease other office facilities for current use consisting of approximately 24.925.6 million square feet in various other locations in the United States and abroad. We believe our facilities are in good condition and suitable for the conduct of our business. Approximately 5.12.5 million square feet, or 19%9%, of total owned and leased space is sublet or is being actively marketed for sublease or disposition.
The material set forth in Note 18 of Notes to Consolidated Financial Statements in Item 15 of this Annual Report on Form 10-K is incorporated herein by reference.
Item 4. Mine Safety Disclosures
None.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
Our common stock is traded on the New York Stock Exchange under the symbol “ORCL”. Prior to July 15, 2013, our common stock traded on the NASDAQ Global Select Market under the symbol “ORCL” and has been traded on the NASDAQ since our initial public offering in 1986.. According to the records of our transfer agent, we had 15,26911,383 stockholders of record as of May 31, 2012.2015. The following table sets forth the low and high sale priceprices per share of our common stock, based on the last daily sale, in each of our last eight fiscal quarters.
Fiscal 2012 | Fiscal 2011 | Fiscal 2015 | Fiscal 2014 | |||||||||||||||||||||||||||||
Low Sale Price | High Sale Price | Low Sale Price | High Sale Price | Low Sale Price | High Sale Price | Low Sale Price | High Sale Price | |||||||||||||||||||||||||
Fourth Quarter | $ | 25.61 | $ | 30.24 | $ | 30.20 | $ | 36.37 | $ | 41.47 | $ | 44.73 | $ | 37.50 | $ | 42.20 | ||||||||||||||||
Third Quarter | $ | 25.51 | $ | 31.90 | $ | 27.65 | $ | 33.68 | $ | 39.95 | $ | 46.23 | $ | 33.23 | $ | 39.11 | ||||||||||||||||
Second Quarter | $ | 26.00 | $ | 33.69 | $ | 22.48 | $ | 29.53 | $ | 37.56 | $ | 42.41 | $ | 32.02 | $ | 35.29 | ||||||||||||||||
First Quarter | $ | 24.78 | $ | 34.09 | $ | 21.46 | $ | 24.64 | $ | 39.61 | $ | 42.81 | $ | 29.96 | $ | 34.40 |
We declared and paid cash dividends totaling $0.24$0.51 and $0.21$0.48 per outstanding common share over the course of fiscal 20122015 and 2011,fiscal 2014, respectively.
In June 2012,2015, our Board of Directors declared a quarterly cash dividend of $0.06$0.15 per share of our outstanding common stock payable on August 3, 2012July 29, 2015 to stockholders of record as of the close of business on July 13, 2012.8, 2015. We currently expect to continue paying comparable cash dividends on a quarterly basis; however, future declarations of dividends and the establishment of future record and payment dates are subject to the final determination of our Board of Directors.
For equity compensation plan information, please refer to Item 12 in Part III of this Annual Report.
Stock Repurchase Programs
Our Board of Directors has approved a program for us to repurchase shares of our common stock. On December 20, 2011,September 18, 2014, we announced that our Board of Directors approved an expansion of our stock repurchase program by an additional $5.0 billion. On June 18, 2012, we announced that our Board of Directors approved a further expansion by an additional $10.0$13.0 billion. Approximately $3.1$9.2 billion remained available for stock repurchases as of May 31, 20122015 pursuant to our stock repurchase program prior to the additional amount authorized in June 2012.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.
The following table summarizes the stock repurchase activity for the three months ended May 31, 20122015 and the approximate dollar value of shares that may yet be purchased pursuant to our stock repurchase program:
(in millions, except per share amounts) | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Programs | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Programs | ||||||||||||
March 1, 2012—March 31, 2012 | 18.6 | $ | 29.49 | 18.6 | $ | 5,055.1 | ||||||||||
April 1, 2012—April 30, 2012 | 32.3 | $ | 28.97 | 32.3 | $ | 4,119.5 | ||||||||||
May 1, 2012—May 31, 2012 | 36.8 | $ | 27.19 | 36.8 | $ | 3,119.5 | ||||||||||
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Total | 87.7 | $ | 28.34 | 87.7 | ||||||||||||
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(in millions, except per share amounts) | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Program | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program | ||||||||||||
March 1, 2015—March 31, 2015 | 16.2 | $ | 43.20 | 16.2 | $ | 10,542.3 | ||||||||||
April 1, 2015—April 30, 2015 | 15.4 | $ | 43.40 | 15.4 | $ | 9,875.7 | ||||||||||
May 1, 2015—May 31, 2015 | 14.4 | $ | 43.99 | 14.4 | $ | 9,240.8 | ||||||||||
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Total | 46.0 | $ | 43.51 | 46.0 | ||||||||||||
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Stock Performance Graph and Cumulative Total Return
The graph below compares the cumulative total stockholder return on our common stock with the cumulative total return of the S&P 500 Index and the S&P Information Technology Index for each of the last five fiscal years ended May 31, 2012,2015, assuming an investment of $100 at the beginning of such period and the reinvestment of any dividends. The comparisons in the graphs below are based upon historical data and are not indicative of, nor intended to forecast, future performance of our common stock.
*$100 INVESTED ON MAY 31, 20072010 IN STOCK OR
INDEX-INCLUDING REINVESTMENT OF DIVIDENDS
5/07 | 5/08 | 5/09 | 5/10 | 5/11 | 5/12 | 5/10 | 5/11 | 5/12 | 5/13 | 5/14 | 5/15 | |||||||||||||||||||||||||||||||||||||
Oracle Corporation | 100.00 | 117.85 | 101.35 | 117.78 | 179.90 | 140.29 | 100.00 | 152.74 | 119.11 | 153.47 | 193.53 | 202.77 | ||||||||||||||||||||||||||||||||||||
S&P 500 Index | 100.00 | 93.31 | 62.92 | 76.12 | 95.87 | 95.48 | 100.00 | 125.95 | 125.43 | 159.64 | 192.28 | 214.99 | ||||||||||||||||||||||||||||||||||||
S&P Information Technology Index | 100.00 | 102.55 | 73.06 | 93.86 | 113.70 | 122.30 | 100.00 | 121.13 | 130.30 | 150.00 | 185.84 | 220.80 |
Item 6. Selected Financial Data
The following table sets forth selected financial data as of and for the last five fiscal years. This selected financial data should be read in conjunction with the consolidated financial statements and related notes included in Item 15 of this Annual Report. Over the last five fiscal years, we have acquired a number of companies, including Sun Microsystems, Inc. in fiscal 2010 and BEAMICROS Systems, Inc. in fiscal 2008,2015, among others. The results of our acquired companies have been included in our consolidated financial statements since their respective dates of acquisition and have contributed to our growth in revenues, income, earnings per share and total assets.
As of and for the Year Ended May 31, | As of and for the Year Ended May 31, | |||||||||||||||||||||||||||||||||||||||
(in millions, except per share amounts) | 2012 | 2011 | 2010 | 2009 | 2008 | 2015(1) | 2014 | 2013 | 2012 | 2011 | ||||||||||||||||||||||||||||||
Consolidated Statements of Operations Data: | ||||||||||||||||||||||||||||||||||||||||
Total revenues | $ | 37,121 | $ | 35,622 | $ | 26,820 | $ | 23,252 | $ | 22,430 | $ | 38,226 | $ | 38,275 | $ | 37,180 | $ | 37,121 | $ | 35,622 | ||||||||||||||||||||
Operating income | $ | 13,706 | $ | 12,033 | $ | 9,062 | $ | 8,321 | $ | 7,844 | $ | 13,871 | $ | 14,759 | $ | 14,684 | $ | 13,706 | $ | 12,033 | ||||||||||||||||||||
Net income | $ | 9,981 | $ | 8,547 | $ | 6,135 | $ | 5,593 | $ | 5,521 | $ | 9,938 | $ | 10,955 | $ | 10,925 | $ | 9,981 | $ | 8,547 | ||||||||||||||||||||
Earnings per share—basic | $ | 1.99 | $ | 1.69 | $ | 1.22 | $ | 1.10 | $ | 1.08 | ||||||||||||||||||||||||||||||
Earnings per share—diluted | $ | 1.96 | $ | 1.67 | $ | 1.21 | $ | 1.09 | $ | 1.06 | $ | 2.21 | $ | 2.38 | $ | 2.26 | $ | 1.96 | $ | 1.67 | ||||||||||||||||||||
Basic weighted average common shares outstanding | 5,015 | 5,048 | 5,014 | 5,070 | 5,133 | |||||||||||||||||||||||||||||||||||
Diluted weighted average common shares outstanding | 5,095 | 5,128 | 5,073 | 5,130 | 5,229 | 4,503 | 4,604 | 4,844 | 5,095 | 5,128 | ||||||||||||||||||||||||||||||
Cash dividends declared per common share | $ | 0.24 | $ | 0.21 | $ | 0.20 | $ | 0.05 | $ | — | $ | 0.51 | $ | 0.48 | $ | 0.30 | $ | 0.24 | $ | 0.21 | ||||||||||||||||||||
Consolidated Balance Sheets Data: | ||||||||||||||||||||||||||||||||||||||||
Working capital(1) | $ | 24,635 | $ | 24,982 | $ | 12,313 | $ | 9,432 | $ | 8,074 | ||||||||||||||||||||||||||||||
Working capital(2) | $ | 47,892 | $ | 33,739 | $ | 28,813 | $ | 24,630 | $ | 24,975 | ||||||||||||||||||||||||||||||
Total assets | $ | 78,327 | $ | 73,535 | $ | 61,578 | $ | 47,416 | $ | 47,268 | $ | 110,903 | $ | 90,266 | $ | 81,745 | $ | 78,274 | $ | 73,476 | ||||||||||||||||||||
Notes payable and other borrowings(2) | $ | 16,474 | $ | 15,922 | $ | 14,655 | $ | 10,238 | $ | 11,236 | ||||||||||||||||||||||||||||||
Notes payable and other borrowings(3) | $ | 41,958 | $ | 24,097 | $ | 18,427 | $ | 16,421 | $ | 15,863 |
(1) | Our results of operations for fiscal 2015 compared to fiscal 2014 were significantly impacted by movements in international currencies relative to the U.S. Dollar, which decreased our fiscal 2015 total revenues by 4 percentage points, total operating expenses by 3 percentage points and total operating income by 6 percentage points in comparison to fiscal 2014. |
(2) | Total working capital sequentially increased in most periods primarily due to the favorable impact to our net current assets resulting from our net income generated during these periods and the issuances of |
Our notes payable and other borrowings, which represented the summation of our notes payable, current and other current borrowings, and notes payable and other non-current borrowings as reported per our consolidated balance sheets as of the dates listed in the table above, |
Item 7. 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 key operating business segments 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
We are the world’s largest provider of enterprise software and a leading provider of computer hardwareOracle Corporation provides products and services.services that address all aspects of corporate information technology (IT) environments—application, platform and infrastructure—and are available to customers either via cloud computing or on-premises deployment models. Our software, hardware systems, and services businesses develop, manufacture, market, host and supportproducts include database and middleware software, applicationsapplication software, cloud infrastructure software, and hardware systems (Oracle Engineered Systems, servers, storage, networking and industry specific products), along with the latter consisting primarily of computer serversupport and storage products. Our businesses provide products and services that are built upon industry standards, are engineered to work together or independently within existing customer information technology (IT) environments and run securely on a wide range of customer IT environments, including cloud computing environments.
Cloud computing environments provide on demand access to a shared pool of computing resources in a scalable, self-service manner, delivering advantages in speed, agility and efficiency. Cloud computing has evolved from technologies and services that Oracle has provided for many years, including clustering, server virtualization, Service-Oriented Architecture (SOA), shared services, large-scale management automation, and more recently, engineered systems. Our secure, reliable and scalable product offerings are designed to improve business efficiencies at a low total cost of ownership.related services. We seek to be an industry leader in each of the product offering categories in which we compete and to expand into new and emerging markets.
We believe our ability to offer our customers choice and flexibility in the manner in which they deploy our products and services—while maintaining enterprise-grade reliability, security and interoperability based upon industry-standards—is important to our corporate strategy. Oracle Fusion Applications, for example, offerover 400,000 worldwide customers a choice of deployment models to runbest suit their needs including (1) the deployment of our standards-based software applications in on-premiseproducts via our Oracle Cloud offerings, (2) the acquisition of Oracle products and services for an on-premises IT environment or (3) a mix of these two models.
For customers opting for a cloud computing model, Oracle offers a wide range of 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 offerings are designed to be: rapidly deployable to enable customers shorter time to innovation; easily maintainable to reduce integration and testing work; and cost effective by requiring lower upfront customer investment. Our Oracle Cloud offerings integrate the software, hardware and services on the customers’ behalf in IT environments that we deploy, support and manage for the customer. We are a leader in the core technologies of cloud IT environments, including database and middleware software as well as enterprise applications, virtualization, clustering, large-scale systems management and related infrastructure. Our products and services are the building blocks of our Oracle Cloud services, our partners’ cloud services and our customers’ cloud IT environments.
In addition to offering a broad spectrum of cloud products and services, Oracle for decades has developed and sold its products and services to our customers worldwide for use in their global data centers and on-premises IT environments. Oracle Cloud, a familyAn important element of our cloud-based software subscription offerings, provides accesscorporate strategy is to select Oracle software applicationscontinue our investments in, and software platforms on a subscription basis in a secure, standards-based cloud computing environment. Oracle Cloud includes software applications as a service, such as Oracle Fusion Human Capital Management Cloud Service and Oracle Fusion Customer Relationship Management Cloud Service, and software platform services such as Oracle Database Cloud Service and Oracle Java Cloud Service, among others.
We believe our internal growth and continued innovation with respect to, our products and services that we offer through our software and cloud, hardware and services businesses are the foundation of our long-term strategic plans.businesses. In each of fiscal 20122015, 2014 and 2011,2013, we invested $4.5$5.5 billion, $5.2 billion and in fiscal 2010 we invested $3.3$4.9 billion, respectively, in research and development to enhance our existing portfolio of products and services and to develop new products and services. We have a deep understanding as to how all components within IT environments—application, platform and infrastructure—interact and function with one another. We focus our development efforts on improving the performance, operation and integration of these differing technologies to make them more cost-effective and easier to deploy, manage and maintain for our customers and to improve their computing performance relative to our competitors. After purchasing Oracle products and services, customers can continue to take advantage of Oracle’s research and development investments and deep IT expertise by purchasing and renewing Oracle support offerings, which may include product enhancements that we periodically deliver to our Oracle E-Business Suite, Siebel, PeopleSoft and JD Edwards application software products, among others, or renewing their SaaS, PaaS and IaaS contracts with us.
Oracle customers are increasingly electing to run their IT environments using our suite of Oracle Cloud offerings. As customers deploy with the Oracle Cloud, many are adopting a hybrid IT model whereby certain of their IT resources are deployed and managed through the Oracle Cloud, while other of their IT resources are deployed and managed on-premises, and both sets of resources can be managed as one. We focus the engineering of our hardwareproducts and software productsservices to make them work together more effectivelybest connect these different deployment models to enable flexibility, ease, agility, compatibility, extensibility and deliver improved computing performance, reliability,seamlessness.
A selective and security to our customers. For example, Oracle Engineered Systems, which include our Oracle Exadata Database Machine, Oracle Exalogic Elastic Cloud, and SPARC SuperCluster products, amongst others, combine certain of our hardware and software offerings to provide engineered systems that increase computing performance and reduce storage requirements relative to our competitors’ products, creating time savings, efficiencies, and operational cost advantages for our customers.
We also believe that an active acquisition program is ananother important element of our corporate strategy as it strengthensstrategy. We believe our competitive position, enhancesacquisitions enhance the products and services that we can offer to customers, expandsexpand our customer base, providesprovide greater scale to accelerate innovation, growsgrow our revenues and earnings, and increasesincrease stockholder value.
In recent years, we have invested billions of dollars to acquire a number of companies, products, services and technologies that add to, are complementary to, or have otherwise enhanced our existing offerings. We expect to continue to acquire companies, products, services and technologies to further our corporate strategy.
We are organized intohave three businesses—businesses that deliver our application, platform and infrastructure technologies: software and cloud, hardware systems, and services—which areservices. These businesses can be further divided into certain operating segments. Priorsegments (Note 16 of Notes to Consolidated Financial Statements, included elsewhere in this Annual Report, provides additional information related to our acquisition of Sun Microsystems, Inc. (Sun) in January 2010, we did not have a hardware systems business or related operating segments.segments). Each of our businesses and operating segments has unique characteristics and faces different opportunities and challenges. Although we report our actual results in U.S. Dollars, we conduct a significant number of transactions in currencies other than U.S. Dollars. Therefore, we present constant currency information to provide a framework for assessing how our underlying businesses performed excluding the effecteffects of foreign currency rate fluctuations. An overview of our three businesses and related operating segments follows.
Software and Cloud Business
Our software and cloud business, which represented 70%77%, 68%76% and 77%75% of our total revenues in fiscal 2012, 20112015, 2014 and 2010,2013, respectively, is comprised of twothree operating segments: (1) new software licenses and cloud software subscriptions, (2) cloud infrastructure as a service and (3) software license updates and product support. On a constant currency basis, we expect that our software and cloud business’ total revenues generally will continue to increase due to continued demand for our software products and cloud software subscription offerings, our software license updates and product support offerings, including the high percentage of customers that renew their software license updates and product support contracts, and due to our acquisitions, which should allow us to grow our profits and continue to make investments in research and development.
New Software Licenses:Licenses and Cloud Software Subscriptions: We licenseOur new software licenses and cloud software subscriptions line of business markets, sells and delivers our databaseapplication and middlewareplatform technologies including our SaaS and PaaS offerings (our SaaS and PaaS offerings are collectively referred to as well as our applicationscloud software andsubscriptions), which provide subscription-based access to select Oraclecustomers a choice of software applications and software platforms throughthat are delivered via a cloud-based IT environment that we host, manage and support, and the licensing of our software products including Oracle Applications, Oracle Database, Oracle Fusion Middleware and Java, among others. Our application and platform technologies are substantially built on standards-based architectures that are designed to help customers reduce the cost and complexity of their IT infrastructure. Our commitment to industry standards results in software that works in customer environments with Oracle or non-Oracle hardware or software components and that can be adapted to meet specific industry or business needs. We focus the engineering of our products and services to best connect cloud and on-premises deployment models to enable flexibility, ease, agility, compatibility, extensibility and seamlessness. Our software offerings are substantially designed to operate on both single server and clustered server configurations for cloud or on-premises IT environments, and to support a choice of operating systems including Oracle Solaris, Oracle Linux, Microsoft Windows and third party UNIX products, among others. These approaches are designed to support customer choice and reduce customer risk. Our customers include businesses of many sizes, government agencies, educational institutions and resellers. We market and sell our software products and services to these customers with a sales force positioned to offer the combinations that best fit their needs. We enable customers to evolve and transform to substantially any IT environment at whatever pace is most appropriate for them.
The growth in our new software licenselicenses and our SaaS and PaaS revenues that we report is affected by the strength of general economic and business conditions, governmental budgetary constraints, the competitive position of our software products,offerings, our acquisitions and foreign currency fluctuations. The substantial majority of our new software license business is alsotransactions are characterized by long sales cycles. Thecycles and the timing of a few large software license transactions can substantially affect our quarterly new software licenselicenses revenues. Since our new software license revenues in a particular quarter can be difficult to predict as a result of the timing of a few large software license transactions, we believe that analysis of new software license revenues on a trailing 4-quarter period (as provided in our Quarterly Reports on Form 10-Q) provides additional visibility into the underlying performance of our new software license business. New software licenselicenses and cloud software subscriptions revenues represented 27%, 26% and 28% of our total revenues in fiscal 2012, 20112015 and 2010, respectively. The proportion of our new software license revenues relative to our total revenues was affected by our entry into the hardware systems business as a result of our acquisition of Sun28% in the third quartereach of fiscal 2010.2014 and 2013. Our cloud software subscriptions contracts, which consist of SaaS and PaaS arrangements, are generally one to three years in duration and we strive to renew these contracts when they are eligible for renewal. Our new software licenselicenses and cloud software subscriptions segment’s margins havemargin has historically trended upward over the course of the four quarters within a particular fiscal year due to the historical
upward trend of our new software licenselicenses revenues over those quarterly periods and because the majority of our costs for this segment are predominantly fixed in the short-term. However, our new software licenselicenses and cloud software subscriptions segment’s margins havemargin has been and will continue to be affected by the fair value adjustments relating to the cloud software subscriptionSaaS and PaaS obligations that we assumed in our business combinations (described further below) and by the amortization of intangible assets associated with companies and technologies that we have acquired.
WeFor certain of our acquired businesses, we recorded adjustments to reduce obligations under our assumedthe cloud software subscription offerings in business combinationsSaaS and PaaS obligations to their estimated fair values at the acquisition dates. As a result, as required by business combination accounting rules, we did not recognize cloud software subscriptionSaaS and PaaS revenues as a part of our new software licenses revenuesrelated to acquired contracts that would have been otherwise recorded as revenues by the acquired businesses as independent entities in the amountamounts of $22$12 million, $17 million and $45 million in fiscal 2012.2015, 2014 and 2013, respectively. To the extent underlying cloud software subscriptionSaaS and PaaS contracts are renewed with us following an acquisition, we will recognize the revenues for the full valuevalues of the cloud software subscriptionthese contracts over the contracttheir respective contractual periods.
Cloud Infrastructure as a Service: Our cloud infrastructure as a service offerings, which represented 2% of our total revenues in fiscal 2015 and 1% in each of fiscal 2014 and 2013, provide comprehensive software and hardware management and maintenance services for customer IT infrastructure for a fee for a stated term that is hosted at our Oracle data center facilities, select partner data centers or physically on-premises at customer facilities; deployment and management offerings for our software and hardware and related IT infrastructure including virtual machine instances that are subscription-based and designed for computing and reliable and secure object storage; and certain of our Oracle Engineered Systems and related support offerings that are deployed in our customers’ data centers for a monthly fee.
Software License Updates and Product Support: Customers that purchase software license updates and product support are granted rights to unspecified product upgrades and maintenance releases issuedand patches released during the term of the support period, as well as technical support assistance. Our software license updates and product support contracts are generally one year in duration. Substantially all of our software license customers renew their software license updates and product support contracts annually. The growth of software license updates and product support revenues is primarily influenced by three factors: (1) the percentage of our software support contract customer base that renews its software support contracts, (2) the amount of new software support contracts sold in connection
with the sale of new software licenses and (3) the amount of software support contracts assumed from companies we have acquired.
Software license updates and product support revenues, which represented 43%49%, 42%47% and 49%46% of our total revenues in fiscal 2012, 20112015, 2014 and 2010,2013, respectively, is our highest margin business unit. The proportion of ourOur software license updates and product support revenues relative to our total revenues was affected by our entry into the hardware systems business as a result of our acquisition of Sun in the third quarter of fiscal 2010. Marginsmargins during fiscal 20122015 were 87%90% and accounted for 72%81% of our total margins over the same period. Our software license updateupdates and product support margins have been affected by fair value adjustments relating to software support obligations assumed in business combinations (described further below) and by amortization of intangible assets. However, over the longer term, we believe that software license updates and product support revenues and margins will grow for the following reasons:
substantially all of our customers, including customers from acquired companies, renew their software support contracts when eligible for renewal;
substantially all of our customers purchase software license updates and product support contracts when they buy new software licenses, resulting in a further increase in our software support contract base. Even if new software licenselicenses revenues growth was flat, software license updates and product support revenues would continue to grow in comparison to the corresponding prior year periods assuming contract renewal and cancellation rates and foreign currency rates remained relatively constant since substantially all new software licenselicenses transactions result in the sale of software license updates and product support contracts, which add to our software support contract base; and
our acquisitions have increased our software support contract base, as well as the portfolio of products available to be licensed and supported.
We recorded adjustments to reduce software support obligations assumed in business combinations to their estimated fair values at the acquisition dates. As a result, as required by business combination accounting rules,
we did not recognize software license updates and product support revenues related to software support contracts that would have been otherwise recorded by the acquired businesses as independent entities in the amounts of $48$11 million, $80$3 million and $86$14 million in fiscal 2012, 20112015, 2014 and 2010,2013, respectively. To the extent underlying software support contracts are renewed with us following an acquisition, we will recognize the revenues for the full valuevalues of the software support contracts over the respective support periods, the majority of which are one year.
Hardware Systems Business
Our hardware systems business consistsis comprised of two operating segments: (1) hardware systems products and (2) hardware systems support. Our hardware business represented 17%, 19% and 9%14% of our total revenues in fiscal 2012, 20112015, 2014 and 2010, respectively.2013. We expect our hardware business to have lower operating margins as a percentage of revenues than our software and cloud 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. We expect to make investments in research and development to improve existing hardware products and services and to develop new hardware products and services.
Hardware Systems Products: We provide a completebroad selection of hardware systems and related services including Oracle Engineered Systems, servers, storage, networking, workstations and related devices, industry specific hardware, virtualization software, operating systems, and management software to support diverse IT environments, including public and private cloud computing environments. We engineer our hardware systems with virtualization and management capabilities to enable the rapid deployment and efficient management of cloud and on-premises IT infrastructures. Our hardware systems products consist primarilysupport many of computer server, storage and hardware-related software,the world’s largest cloud infrastructures, including ourthe Oracle Solaris operating system. Cloud.
Our hardware systems component products are designed to be “open,” oreasier to deploy, manage and maintain for our customers and to improve computing performance relative to our competitors’ offerings. We design our hardware products to seamlessly connect on-premises and cloud IT environments to further enable interoperability, interchangeability and extendibility and to work in customer environments that may include other Oracle or non-Oracle hardware or software components. We have also engineeredOur flexible and open approach provides Oracle customers with a broad range of choices in how they deploy our hardware systems products, to create performance and operational cost advantageswhich we believe is a priority for customers when our hardware and software products are combined as Oracle Engineered Systems.
Our Oracle Engineered Systems include Oracle Exadata Database Machine, Oracle Exalogic Elastic Cloud, Oracle Exalytics In-Memory Machine, SPARC SuperCluster, Oracle Database Applianceare core to our hardware offerings and the Oracle Big Data Appliance. By combiningare important elements of our server and storage hardware with our software, our open, integrated products better address customer on-premisedata center and cloud computing requirementsofferings including the Oracle Cloud. These pre-integrated products are designed to integrate multiple Oracle technology components to work together to deliver improved performance, availability, security and operational efficiency relative to our competitors’ products, to be upgraded effectively and efficiently and to simplify maintenance cycles by providing a single solution for performance, scalability, reliability, security, ease of managementsoftware patching. Oracle Engineered Systems are tested before they are shipped to customers and lower total cost of ownership.delivered ready-to-run, enabling customers to shorten the time to production.
We offer a wide range of server systems using our SPARC microprocessor. Our SPARC servers run the Oracle Solaris operating system and are designed to be differentiated by their reliability, security, scalability and customer environments that they target (general purpose or specialized systems).scalability. Our midsizemid-size and large servers are designed to offer greaterbetter performance and lower total cost of ownership than mainframe systems for business critical applications, and for customers having more computationally intensive needs.needs, and as platforms for building cloud computing IT environments. Our SPARC servers runare also a core component of the Oracle Solaris operating system and are designed for the most demanding mission critical enterprise environments at any scale.SuperCluster, one of our Oracle Engineered Systems.
We also offer enterprise x86 servers. These x86 servers are primarily based on microprocessor platformsmicroprocessors from Intel Corporation and are also compatible with Oracle Solaris, Oracle Linux, Microsoft Windows and other operating systems.
Our Netra line ofx86 servers are aimed atalso a core component of many of our Oracle Engineered Systems including Oracle Exadata Database Machine, Oracle Exalogic Elastic Cloud, Oracle Exalytics In-Memory Machine and the unique needs of original equipment manufacturers (OEMs) and network equipment providers. Rack-optimized systems and our blade product offerings combine high-density hardware architecture and system management software that OEMs find particularly useful in building their own solution architectures.Oracle Big Data Appliance.
Our storage products are designed to securely manage, protect, archive and restore customers’ mission critical data assets and consist of tape, disk, flash and hardware-related software including file systems software, back-up and archive software and storage management software and networking for mainframe and open systems environments.
Our networking and data center fabric products, including Oracle Virtual Networking, and Oracle InfiniBand and Ethernet technologies, are used with our server and storage products and are integrated into our management tools to help enterprise customers improve infrastructure performance, reduce cost and complexity and simplify storage and server connectivity.
We offer hardware products and services designed for specific industries. Our point-of-sale hardware offerings include point-of-sale terminals and related hardware that are designed for managing businesses within the food and beverage, hotel and retail industries, among others. Our hardware products and services for communications networks include network signaling, policy control and subscriber data management solutions, and session border control technology, among others.
The majority of our hardware systems products are sold through indirect channels, including independent distributors and value added resellers.
To produce our hardware products, we rely on both our internal manufacturing operations as well as third party manufacturing partners. Our internal manufacturing operations consist primarily of finalmaterials procurement, assembly, testtesting and quality control of our Oracle Engineered Systems and certain of our enterprise and data center servers and storage systems. For all other manufacturing, we generally rely on third party manufacturing partners.partners to produce our hardware related components and hardware products and we may involve our internal manufacturing operations in the final assembly, testing and quality control processes for these components and products. We distribute most of our hardware products either from our facilities or partner facilities. We strive to reduce costs by simplifying our manufacturing processes through increased standardization of components across product types and a “build-to-order” manufacturing process in which products generally are built only after customers have placed firm orders. In addition, we seek to enhance hardware systems support processes that are designed to proactively identify and solve quality issues and to increase the amount of new hardware systems support contracts sold in connection with the sales of new hardware products.
Our hardware systems products revenues, cost of hardware systems products and hardware systems operating margins that we report are affected by our strategy for and the competitive position of our hardware systems products, the strength of general economic and business conditions, governmental budgetary constraints, our strategy for and the competitive positioncertain of our hardware systems products, our acquisitions and foreign currency rate fluctuations. In addition, our operating margins for our hardware systems products segment have been and will be affected by the amortization of intangible assets.
We have limited experience in predicting ourOur quarterly hardware systems products revenues.revenues are difficult to predict. The timing of customer orders and delays in our ability to timely manufacture or deliver a few large hardware transactions, among other factors, could substantially affect the amount of hardware systems products revenues, expenses and operating margins that we report.
Hardware Systems Support:Our hardware systems support offerings provide customers with software updates for the software components that are essential to the functionality of our server and storagehardware products, such as Oracle Solaris and certain other software products, and can include product repairs, maintenance services and technical support services. Typically, our hardware systems support contract arrangements are priced as a percentage of the net hardware systems products fees, are invoiced to the customer at the beginning of the support period and are one year in duration. We continue to evolve hardware systems support processes that are intended to proactively identify and solve quality issues and to increase the amount of new and renewed hardware systems support contracts sold in connection with the sales of our hardware systems products. Our hardware systems support revenues that we report are influenced by a
number of factors, including the volume of purchases of hardware products, the mix of hardware products purchased, andwhether customers decide to purchase hardware systems support contracts at or in close proximity to the time of hardware product sale, the percentage of our hardware systems support contract customer base that renews its support contracts. Allcontracts and our acquisitions. Substantially all of these factors are heavily influenced by our customers’ decisions to either maintain or upgrade their existing hardware systems’ infrastructure to newly developed technologies that are available.
Our hardware systems support margins have been and will be affected by certain of our acquisitions and related accounting, including fair value adjustments relating to hardware systems support obligations assumed, and by the amortization of intangible assets. As required by business combination accounting rules, we recorded adjustments to reduce our hardware systems support revenues for contracts assumed from our acquisitions to their estimated fair values. These amounts would have been recorded as hardware systems support revenues by
the acquired businesses as independent entities in the amounts of $30$4 million, $148$11 million and $128$14 million for fiscal 2012, 20112015, 2014 and 2010,2013, respectively.
To the extent underlying hardware systems support contracts are renewed with us following an acquisition, we will recognize the revenues for the full values of the hardware systems support contracts over the respective support periods.
Services Business
Our services business, which represented 9%, 10% and 11% of our total revenues in fiscal 2015, fiscal 2014 and fiscal 2013, respectively, is comprised of the remainder of our operating segments and offers consulting services, managed cloud services and education services.segments. Our services business which represented 13% of our total revenues in each of fiscal 2012 and 2011 and 14% of our total revenues in fiscal 2010, has lower margins than our software and cloud and hardware businesses. The proportion of our services revenues relative to our total revenues was affected by our entry into the hardware systems business as a result of our acquisition of Sun in the third quarter of fiscal 2010. Our services revenues are impacted by our strategy for and the competitive position of our services, certain of our acquisitions, general economic conditions, governmental budgetary constraints, personnel reductions in our customers’ IT departments, tighter controls over discretionary spending and the growth in our software and hardware systems products revenues. Our services business’ offerings include:
Our
consulting line of business primarily provides services that are designed to help our customers in business and global system integrator partners more successfully architect and deploy our products, including IT strategy alignment, enterprise architecture planning and design, initial product implementation and integration, and ongoing product enhancements and upgrades. The amountWe utilize a global, blended delivery model to optimize value for our customers and partners, consisting of consulting revenues recognized tends to lag the amount ofon-premises consultants from local geographies, industry specialists and consultants from our softwareglobal delivery and hardware systems products revenues by several quarters since consulting services, if purchased, are typically segmentable from the products with which they relate and are performed after the customer’s purchase of the products. Our services revenues as they relate to consulting services are dependent upon general economic conditions and the level of our product revenues, in particular the new software license sales of our application products. To the extent we are able to grow our products revenues, in particular our software application product revenues, we would also generally expect to be able to eventually grow our consulting revenues.solution centers;
Oracle managed cloud services provide comprehensive software and hardware management and maintenance services—including deployment, management, monitoring, patching, security and upgrade services—for customers hosted at our Oracle data center facilities, select partner data centers, or physically on-premise at
advanced customer facilities. Additionally, we provide support services, both on-premisewhich are provided on-premises and remote,remotely to Oracleour customers to enable increased performance and higher availability of their Oracle products and services. We believe that our managed cloudservices; and
education services offerings provide our customers with greater value and choice through increased business performance, reduced risk, a predictable cost and more flexibility in terms of service in order to maximize the performance of theirfor Oracle software and hardware products and services.
Education services, provideincluding training and certification programs that are offered to customers, partners and employees asthrough a partvariety of formats, including instructor-led classes at our mission to further the adoptioneducation centers, live virtual training, self-paced online training, private events and usage of our software and hardware products by our customers and create opportunities to grow our products revenues.custom training.
Acquisitions
AnA selective and active acquisition program is another important element of our corporate strategy. In recent years, we have invested billions of dollars to acquire a number of complementary companies, products, services and technologies including Taleo Corporation (Taleo) and RightNow Technologies, Inc (RightNow)MICROS Systems, Inc. (MICROS) in fiscal 2012,
2015, Responsys, Inc. (Responsys) and Art Technology Group,Tekelec Global, Inc. (ATG) and Phase Forward Incorporated (Phase Forward)(Tekelec) in fiscal 2011,2014, and Acme Packet, Inc. (Acme Packet) in fiscal 2013, among others. We believe our acquisition program strengthens our competitive position, enhances the products and services that we can offer to customers, expands our customer base, provides greater scale to accelerate innovation, grows our revenues and earnings and increases stockholder value. We expect to continue to acquire companies, products, services and technologies in furtherance of our corporate strategy. Note 2 of Notes to Consolidated Financial Statements included elsewhere in this Annual Report provides additional information related to our recent acquisitions.
We believe 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 flow and return on invested capital targets 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 (FASB) Accounting Standards Codification (Codification)(ASC) and we consider the various staff accounting bulletins and other applicable guidance issued by the SEC.United States Securities and Exchange Commission (SEC). GAAP, as set forth within the Codification,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 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 the following:
Revenue Recognition
Business Combinations
Goodwill and Intangible Assets—Impairment Assessments
Accounting for Income Taxes
Legal and Other Contingencies
Stock-Based Compensation
Allowances for Doubtful Accounts
In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application. There are also areas in which management’s judgment in selecting among available alternatives would not produce a materially different result. Our senior management has reviewed the belowour critical accounting policies and related disclosures with the Finance and Audit Committee of the Board of Directors.
Revenue Recognition
Our sources of revenues include: (1) software which includesand cloud revenues, including new software licenselicenses revenues earned from granting licenses to use our software products and industry specific software; cloud SaaS and PaaS revenues generated from fees for granting customers access to a broad range of our software and related support offerings on a subscription basis in a secure, standards-based cloud computing environment; cloud IaaS revenues generated from cloudfees for deployment and management offerings for our software and hardware and related IT infrastructure generally on a subscription offerings,basis; and software license updates and product support revenues;revenues (described further below); (2) hardware systems revenues, which includesinclude the sale of hardware systems products including Oracle Engineered Systems, computer servers, and storage products, networking and data center fabric products, and industry specific hardware; and hardware systems support revenues; and (3) services, which includesinclude software and hardware related services including consulting, managed cloud servicesadvanced customer support and education revenues. RevenueRevenues generally isare recognized net of any taxes collected from customers and subsequently remitted to governmental authorities.
Revenue Recognition for Software Products and Software Related Services (Software Elements)
New software licenselicenses revenues primarily represent fees earned from granting customers licenses to use our database, middleware and applicationsapplication software and exclude cloud SaaS and PaaS revenues and revenues derived from software license updates, which are included in software license updates and product support revenues. The basis for our new software licenselicenses revenue recognition is substantially governed by the accounting guidance contained in ASC 985-605,Software-Revenue RecognitionRecognition., we We exercise judgment and use estimates in connection with the determination of the amount of software and software related services revenues to be recognized in each accounting period.
For software license arrangements that do not require significant modification or customization of the underlying software, we recognize new software licenselicenses 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 sale because the foregoing conditions are not met, are recognized when those conditions are subsequently met.
Substantially all of our software license arrangements do not include acceptance provisions. However, if acceptance provisions exist as part of public policy, for example, in agreements with government entities where
acceptance periods are required by law, or within previously executed terms and conditions that are referenced in the current agreement and are short-term in nature, we generally recognize revenues upon delivery provided the acceptance terms are perfunctory and all other revenue recognition criteria have been met. If acceptance provisions are not perfunctory (for example, acceptance provisions that are long-term in nature or are not included as standard terms of an arrangement), revenues are recognized upon the earlier of receipt of written customer acceptance or expiration of the acceptance period.
The vast majority of our software license arrangements include software license updates and product support contracts, which are entered into at the customer’s option and are recognized ratably over the term of the arrangement, typically one year. Software license updates provide customers with rights to unspecified software product upgrades, maintenance releases and patches released during the term of the support period. Product support includes internet access to technical content, as well as internet and telephone access to technical support personnel. Software license updates and product support contracts are generally priced as a percentage of the net new software licenselicenses fees. Substantially all of our customers renew their software license updates and product support contracts annually.
Revenue Recognition for Multiple-Element Arrangements—Software Products and Software Related Services (Software Arrangements)
We often enter into arrangements with customers that purchase both software related products and software related services from us at the same time, or within close proximity of one another (referred to as software related multiple-element arrangements). Such software related multiple-element arrangements include the sale of our software products, software license updates and product support contracts and other software related services whereby software license delivery is followed by the subsequent or contemporaneous delivery of the other elements. For those software related multiple-element arrangements, we have applied the residual method to determine the amount of new software license revenues to be recognized pursuant to ASC 985-605. Under the residual method, if fair value exists for undelivered elements in a multiple-element arrangement, such fair value of the undelivered elements is deferred with the remaining portion of the arrangement consideration generally recognized upon delivery of the software license or services arrangement.license. We allocate the fair value of each element of a software related multiple-element arrangement based upon its fair value as determined by our vendor specific objective evidence (VSOE—described further below), with any remaining amount allocated to the software license.
Revenue Recognition for Cloud SaaS, PaaS and IaaS Offerings, Hardware Systems Products, Hardware Systems Support and Related Services and Cloud Software Subscription Offerings (Nonsoftware Elements)
Revenues from the sale of hardware systems products represent amounts earned primarily from the sale of computer servers and storage products. Our revenue recognition policy for these nonsoftware deliverables and
other nonsoftware deliverables including cloud SaaS, PaaS and IaaS offerings, hardware systems products, support and related services and cloud software subscription offerings is based upon the accounting guidance contained in ASC 605,605-25,Revenue Recognition,Multiple-Element Arrangements, and we exercise judgment and use estimates in connection with the determination of the amount of cloud SaaS, PaaS and IaaS revenues, hardware systems products hardware systemsrevenues, support and related services revenues and cloud software subscription revenues to be recognized in each accounting period.
Revenues from the sales of our nonsoftware elements are recognized when: (1) persuasive evidence of an arrangement exists; (2) we deliver the products and passage of the title to the buyer occurs; (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. When applicable, we reduce revenues for estimated returns or certain other incentive programs where we have the ability to sufficiently estimate the effects of these items. Where an arrangement is subject to acceptance criteria and the acceptance provisions are not perfunctory (for example, acceptance provisions that are long-term in nature or are not included as standard terms of an arrangement), revenues are recognized upon the earlier of receipt of written customer acceptance or expiration of the acceptance period.
Our cloud SaaS and PaaS offerings generally provide customers access to certain of our software within a cloud-based IT environment that we manage, host and support and offer to customers on a subscription basis. Revenues for our cloud SaaS and PaaS offerings are generally recognized ratably over the contract term commencing with the date the service is made available to customers and all other revenue recognition criteria have been satisfied.
Our cloud IaaS offerings provide deployment and management offerings for our software and hardware and related IT infrastructure including comprehensive software and hardware management and maintenance services arrangements for customer IT infrastructure for a stated term that is hosted at our data center facilities, select partner data centers or physically on-premises at customer facilities generally for a term-based fee; and virtual machine instances that are subscription-based and designed for computing and reliable and secure object storage. Revenues for these cloud IaaS offerings are generally recognized ratably over the contract term commencing with the date the service is made available to customers and all other revenue recognition criteria have been satisfied.
Revenues from the sale of hardware systems products represent amounts earned primarily from the sale of our Oracle Engineered Systems, computer servers, storage, networking and industry specific hardware.
Our hardware systems support offerings generally provide customers with software updates for the software components that are essential to the functionality of our server and storagehardware products and can also include product repairs, maintenance services and technical support services. Hardware systems support contracts are generally priced as a percentage of the net hardware systems products fees. Hardware systems support contracts are entered into at the customer’s option and are recognized ratably over the contractual term of the arrangements, which are typically one year.
Our cloud software subscription offerings generally provide customers access to certain of our software within a cloud-based IT environment that we manage and offer to customers on a subscription basis. Revenues for our cloud software subscription offerings are recognized ratably over the contract term commencing with the date our service is made available to customers and all other revenue recognition criteria have been satisfied.
Revenue Recognition for Multiple-Element Arrangements—Arrangements—Cloud SaaS, PaaS and IaaS Offerings, Hardware Systems Products, and Hardware Systems Support and Related Services (Nonsoftware Arrangements)
We enter into arrangements with customers that purchase both nonsoftware related products and services from us at the same time, or within close proximity of one another (referred to as nonsoftware multiple-element arrangements). Each element within a nonsoftware 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. 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 delivery period.contractual period of the arrangement or in the case of our cloud offerings, we generally recognize revenues over the contractual term of the cloud software 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 nonsoftware 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: 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 systems product includes software, we determine whether the tangible hardware systems product and the software work together to deliver the product’s essential functionality and, if
so, the entire product is treated as a nonsoftware deliverable. The total arrangement consideration is allocated to each separate unit of accounting for each of the nonsoftware deliverables using the relative selling prices of each unit based on the aforementioned 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 nonsoftware multiple-element arrangements using the price charged for a deliverable when sold separately and for software license updates and product support and hardware systems support, based on the renewal rates offered to customers. 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 including, but not limited to, pricing practices including discounting, margin objectives, competition, contractually stated prices, the geographies in which we offer our products and services, the type of customer (i.e., distributor, value added reseller, government agency and direct end user, among others) and the stage of the product lifecycle. The determination of ESP is made through consultation with and approval by our management, taking into consideration our pricing model and go-to-market strategy. As our, or our competitors’, pricing and go-to-market strategies evolve, we may modify our pricing practices in the future, which could result in changes to our determination of VSOE, TPE and ESP. As a result, our future revenue recognition for multiple-element arrangements could differ materially from our results in the current period. Selling prices are analyzed on an annual basis or more frequently if we experience significant changes in our selling prices.
Revenue Recognition Policies Applicable to both Software and Nonsoftware Elements
Revenue Recognition for Multiple-Element Arrangements—Arrangements—Arrangements with Software and Nonsoftware Elements
We also enter into multiple-element arrangements that may include a combination of our various software related and nonsoftware related products and services offerings including hardware systems products, hardware systems support, new software licenses, software license updates and product support, cloud software subscription,SaaS, PaaS and IaaS offerings, hardware systems products, hardware systems support, consulting, managed cloudadvanced 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 to the nonsoftware 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. After the arrangement consideration has been allocated to the elements, we account for each respective element in the arrangement as described above.
Other Revenue Recognition Policies Applicable to Software and Nonsoftware Elements
Many of our software 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 new software licenselicenses 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 software license fee. Revenues for consulting services are generally recognized as the services are performed. If there is a significant uncertainty about the project completion or receipt of payment for the consulting services, revenues are deferred until the uncertainty is sufficiently resolved. We estimate the proportional performance on contracts with fixed or “not to exceed” fees on a monthly basis utilizing hours incurred to date as a percentage of total estimated hours to complete the project. If we do not have a sufficient basis to measure progress towards completion, revenues are recognized when we receive final acceptance from the customer that the services have been completed. When total cost estimates exceed revenues, we accrue for the estimated losses immediately using cost estimates that are based upon an average fully
burdened daily rate applicable to the consulting organization delivering the services. The complexity of the estimation process and factors relating to the assumptions, risks and uncertainties inherent with the application of the proportional performance method of accounting affects the amounts of revenues and related expenses reported in our consolidated financial statements. A number of internal and external factors can affect our estimates, including labor rates, utilization and efficiency variances and specification and testing requirement changes.
Our managed cloudadvanced customer support services are offered as standalone arrangements or as a part of arrangements to customers buying newother software licenses or hardware systemsand non-software products and services. Oracle managed cloud services are designed to provide comprehensive software and hardware management and maintenance services for customers hosted at our Oracle data center facilities, select partner data centers or physically on-premise at customer facilities. Additionally, we provideWe offer these advanced support
services, both on-premiseon-premises and remote, to Oracle customers to enable increased performance and higher availability of their products and services. Depending upon the nature of the arrangement, revenues from managed cloudthese services are recognized as the services are performed or ratably over the term of the service period, which is generally one year or less.
Education revenues are also a part of our services business and include instructor-led, media-based and internet-based training in the use of our software and hardware products. Education revenues are recognized as the classes or other education offerings are delivered.
If an arrangement contains multiple elements and does not qualify for separate accounting for the product and service transactions, then new software licenselicenses revenues and/or hardware systems products revenues, including the costs of hardware systems products, are generally recognized together with the services based on contract accounting using either the percentage-of-completion or completed-contract method. Contract accounting is applied to any bundled software and cloud, hardware systems and services arrangements: (1) that include milestones or customer specific acceptance criteria that may affect collection of the software license or hardware systems product fees; (2) where consulting services include significant modification or customization of the software or hardware systems product or are of a specialized nature and generally performed only by Oracle; (3) where significant consulting services are provided for in the software license contract or hardware systems product contract without additional charge or are substantially discounted; or (4) where the software license or hardware systems product payment is tied to the performance of consulting services. For the purposes of revenue classification of the elements that are accounted for as a single unit of accounting, we allocate revenues to software and nonsoftware elements based on a rational and consistent methodology utilizing our best estimate of the relative selling price of such elements.
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 cancellation. We consider multiple factors, including the history with the customer in similar transactions, the “essential use” of the software or hardware systems 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 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.
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. Payments that are due within six months are generally deemed to be fixed or determinable based on our successful collection history on such arrangements, 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 new software licenselicenses revenues and hardware systems 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.
In addition, we enter into arrangements with leasing companies for the sale of our hardware systems products. These leasing companies, in turn, lease our products to end-users. The leasing companies generally have no recourse to us in the event of default by the end-user and we recognize revenue upon delivery, if all the other revenue recognition criteria have been met.
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). Software license agreements or sales of hardware systems that occur within a three-month time period from the date we have purchased goods or services from that same customer are reviewed for appropriate accounting treatment and disclosure. When we acquire goods or services from a customer, 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 new software license revenues or hardware systems product 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 the accounting for our acquisitions. It requires us to recognize separately from goodwill the assets acquired and the liabilities assumed at theirthe acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred andover 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 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.
Accounting for business combinations requires our management to make significant estimates and assumptions, especially at the acquisition date, including our estimates for intangible assets, contractual obligations assumed, restructuring liabilities, pre-acquisition contingencies and contingent consideration, where applicable. Although we believe the assumptions and estimates we have made in the past have been reasonable and appropriate, they are based in part on historical experience and information obtained from the management of the acquired companies and are inherently uncertain.
Examples of critical estimates in valuing certain of the intangible assets we have acquired include but are not limited to:
future expected cash flows from software license sales, cloud SaaS, PaaS and IaaS contracts, hardware systems product sales, support agreements, consulting contracts, other customer contracts, acquired developed technologies and patents;
expected costs to develop the in-process research and development into commercially viable products and estimated cash flows from the projects when completed;
the acquired company’s brand and competitive position, as well as assumptions about the period of time the acquired brand will continue to be used in the combined company’s product portfolio; and
discount rates.
Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results.
We estimate the fair values of our cloud SaaS and PaaS (collectively, cloud software subscription,subscriptions), software license updates and product support, and hardware systems support obligations assumed. The estimated fair values of these performance obligations are determined utilizing 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 estimated costs to fulfill the obligations are based on the historical direct costs related to providing the services including the correction of any errors in the products acquired. The sum of these costs and operating profit approximates, in theory, the amount that we would be required to pay a third party to assume the performance obligations. We do not include any costs associated with selling efforts or research and development or the related fulfillment margins on these costs. Profit associated with any selling efforts is excluded because the
acquired entities would have concluded those selling efforts on the performance obligations prior to the acquisition date. We also do not include the estimated research and development costs in our fair value determinations, as these costs are not deemed to represent a legal obligation at the time of acquisition. As a result, we did not recognize new software licensescloud SaaS and PaaS revenues related to cloud software subscriptionSaaS and PaaS contracts in the amountamounts of $22$12 million, $17 million and $45 million that would have been otherwise recorded by the acquired businesses as independent entities in fiscal 2012.2015, 2014 and 2013, respectively. We did not recognize software license updates and product support revenues related to support contracts in the amounts of $48$11 million, $80$3 million and $86$14 million that would have been otherwise recorded by the acquired businesses as independent entities in fiscal 2012, 20112015, 2014 and 2010,2013, respectively. In addition, we did not recognize hardware systems support revenues related to hardware systems support contracts that would have otherwise been recorded by the acquired businesses as independent entities in the amounts of $30$4 million, $148$11 million and $128$14 million for fiscal 2012, 20112015, 2014 and 2010,2013, respectively. Historically, substantially all of our customers, including customers from acquired companies, renew their software license updates and product support contracts when the contracts are eligible for renewal and we strive to renew cloud software subscriptionSaaS and PaaS, and hardware systems support contracts. To the extent cloud software subscription,SaaS and PaaS, software support or hardware systems support contracts are renewed, we will recognize the revenues for the full values of the contracts over the contracts’their respective contractual periods, which are generally one year in duration.
In connection with a business combination or other strategic initiative, we may estimate costs associated with restructuring plans committed to by our management. Restructuring costs are typically comprised of employee severance costs, costs of consolidating duplicate facilities and contract termination costs. Restructuring expenses are based upon plans that have been committed to by our management, but may be refined in subsequent periods. We account for costs to exit or restructure certain activities of an acquired company separately from the business combination. These costs are accounted for as one-time termination and exit costscombination pursuant to ASC 420,Exit or Disposal Cost ObligationsObligations.. A liability for a costcosts 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: (i) it is probable that an asset existed or a liability had been incurred at the acquisition date and (ii) 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 provided that we areif 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.
Goodwill and Intangible Assets—Assets—Impairment Assessments
We review goodwill for impairment annually and whenever events or changes in circumstances indicate its carrying value may not be recoverable in accordance with ASC 350,Intangibles—Goodwill and Other. Effective fiscal 2012,According to ASC 350, we optedcan opt to perform a qualitative assessment to test a reporting unit’s goodwill for impairment.
impairment or we can directly perform the two step impairment test. Based on our qualitative assessment, if we determine that the fair value of a reporting unit is more likely than not (i.e., a likelihood of more than 50 percent) to be less than its carrying amount, the two step impairment test prescribed by ASC 350 will be performed. In the first step, we compare the fair value of each reporting unit to its carrying value. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit, goodwill is not considered impaired and we are not required to perform further testing. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, then we must perform the second step of the impairment test in order to determine the implied fair value of the reporting unit’s goodwill. If the carrying value of a reporting unit’s goodwill exceeds its implied fair value, then we would record an impairment loss equal to the difference. Our reporting units are consistent with our operating segments identified in Note 16 of Notes to Consolidated Financial Statements included elsewhere in this Annual Report.
Determining the fair value of a reporting unit involves the use of significant estimates and assumptions. These estimates and assumptions include revenue growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount rates, future economic and market conditions and determination of appropriate market comparables. We base our fair value estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates. In addition, we make certain judgments and assumptions in allocating shared assets and liabilities to determine the carrying values for each of our reporting units.
Based upon our most recent annual goodwill impairment review which took place as of March 1, 2015, we recorded a goodwill impairment loss related to our hardware systems products reporting unit. We considered several approaches to determine the fair value of our hardware systems reporting unit and concluded the most appropriate to be the income approach. Based upon the completion of our annual forecasting process, the fair value of our hardware systems products reporting unit under the income approach was impacted by lower forecasted operating results, primarily caused by lower forecasted revenues and our continued investment in research and development activities. We compared the implied fair value of goodwill in our hardware systems products reporting unit to its carrying value, which resulted in a $186 million goodwill impairment loss, representing the aggregate amount of goodwill in our hardware systems products reporting unit. The aggregate hardware systems reporting unit goodwill that was impaired in fiscal 2015 resulted from our acquisitions of Pillar Data Systems, Inc., Xsigo Systems, Inc., GreenBytes, Inc. and MICROS Systems, Inc. Such impairment loss was recorded to acquisition related and other expenses in our fiscal 2015 consolidated statement of operations. We did not recognize any goodwill impairment losses in fiscal 2014 or 2013.
Our most recent annual goodwill impairment analysis,review for our other reporting units, which was performed during the fourth quarter of fiscal 2012,also took place on March 1, 2015, did not result in a goodwill impairment charge, nor did we record anyloss. Other than our consulting reporting unit, all of our other reporting units had fair values that substantially exceeded their carrying values. Our consulting reporting unit had $1.8 billion of goodwill on March 1, 2015, and experienced revenue and operating margin declines in fiscal 2015. As of our most recent annual goodwill impairment review, our consulting reporting unit’s fair value was 16% in fiscal 2011excess of its carrying value. We estimate that should our consulting reporting unit’s projected margins and related cash flows unfavorably deviate from our projections by 20% or 2010.more, our consulting reporting unit likely would incur a goodwill impairment loss.
We make judgments about the recoverability of purchased finite lived intangible assets whenever events or changes in circumstances indicate that an impairment may exist. 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. 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. We review indefinite lived intangible assets for impairment annually and whenever events or changes in circumstances indicate the carrying value may not be recoverable. Recoverability of indefinite lived 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.
Assumptions and estimates about future values and remaining useful lives of our intangible and other long-lived assets are complex and subjective. They can be affected by a variety of factors, including external factors such as industry and economic trends and internal factors such as changes in our business strategy and our internal
forecasts. Although we believe the historical assumptions and estimates we have made are reasonable and appropriate, different assumptions and estimates could materially impact our reported financial results. We did not recognize any intangible asset impairment charges in fiscal 2012, 20112015, 2014 or 2010.2013.
Accounting for Income Taxes
Significant judgment is required in determining our worldwide income tax provision. In the ordinary course of a global business, there are many transactions and calculations where the ultimate tax outcome is uncertain. Some of these uncertainties arise as a consequence of revenue sharing and cost reimbursement arrangements among related entities, the process of identifying items of revenues and expenses that qualify for preferential tax treatment and segregation of foreign and domestic earnings and expenses to avoid double taxation. Although we
believe that our estimates are reasonable, the final tax outcome of these matters could be different from that which is reflected in our historical income tax provisions and accruals. Such differences could have a material effect on our income tax provision and net income in the period in which such determination is made.
Our effective tax rate includes the impact of certain undistributed foreign earnings for which no U.S. taxes have been provided because such earnings are planned to be indefinitely reinvested outside the United States. Remittances of foreign earnings to the United States are planned based on projected cash flow, working capital and investment needs of our foreign and domestic operations. Based on these assumptions, we estimate the amount that will be distributed to the United States and provide U.S. federal taxes on these amounts. Material changes in our estimates as to how much of our foreign earnings will be distributed to the United States or tax legislation that limits or restricts the amount of undistributed foreign earnings that we consider indefinitely reinvested outside the United States could materially impact our income tax provision and effective tax rate.
We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. In order for us to realize our deferred tax assets, we must be able to generate sufficient taxable income in those jurisdictions where the deferred tax assets are located. We consider future growth, forecasted earnings, future taxable income, the mix of earnings in the jurisdictions in which we operate, historical earnings, taxable income in prior years, if carryback is permitted under the law and prudent and feasible tax planning strategies in determining the need for a valuation allowance. In the event we were to determine that we would not be able to realize all or part of our net deferred tax assets in the future, an adjustment to the deferred tax assets valuation allowance would be charged to earnings in the period in which we make such a determination, or goodwill would be adjusted at our final determination of the valuation allowance related to an acquisition within the measurement period. If we later determine that it is more likely than not that the net deferred tax assets would be realized, we would reverse the applicable portion of the previously provided valuation allowance as an adjustment to earnings at such time.
We calculate our current and deferred tax provision based on estimates and assumptions that could differ from the actual results reflected in income tax returns filed during the subsequent year. Adjustments based on filed returns are generally recorded in the period when the tax returns are filed and the global tax implications are known, which can materially impact our effective tax rate.
The amount of income tax we pay is subject to ongoing audits by federal, state and foreign tax authorities, which often result in proposed assessments. Our estimate of the potential outcome for any uncertain tax issue is highly judgmental. A description of our accounting policies associated with tax related contingencies assumed as a part of a business combination is provided under “Business Combinations” above. For those tax related contingencies that are not a part of a business combination, we account for these uncertain tax issues pursuant to ASC 740,Income Taxes, which contains a two-step approach to recognizing and measuring 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 onin 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. Although we believe we have adequately reserved for our uncertain tax positions, no assurance can be given with respect to the final outcome of these matters. We adjust reserves for our uncertain tax positions due to changing facts and circumstances, such as the closing of a tax audit, judicial rulings, and refinement of estimates or realization of earnings or deductions that differ from
our estimates. To the extent that the final outcome of these matters is different than the amounts recorded, such differences generally will impact our provision for income taxes in the period in which such a determination is made. Our provisions for income taxes include the impact of reserve provisions and changes to reserves that are considered appropriate and also include the related interest and penalties.
In addition, as a part of our accounting for business combinations, intangible assets are recognized at fair values and goodwill is measured as the excess of consideration transferred over the net estimated fair values of assets acquired. Impairment charges associated with goodwill are generally not tax deductible and will result in an increased effective income tax rate in the period that any impairment is recorded. Amortization expenses associated with acquired intangible assets are generally not tax deductible pursuant to our existing tax structure; however, deferred taxes have been recorded for non-deductible amortization expenses as a part of the accounting for business combinations. We have taken into account the allocation of these identified intangibles among different taxing jurisdictions, including those with nominal or zero percent tax rates, in establishing the related deferred tax liabilities.
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. A description of our accounting policies associated with contingencies assumed as a part of a business combination is provided under “Business Combinations” above. For legal and other contingencies that are not a part of a business combination, 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. Significant judgment is required in both the determination of probability and the determination as to whether the amount of an exposure is reasonably estimable. Because of uncertainties related to these matters, accruals are based only on the best information available at the time the accruals are made. As additional information becomes available, we reassess the potential liability related to our pending claims and litigation and may revise our estimates. Such revisions in the estimates of the potential liabilities could have a material impact on our results of operations and financial position.
Stock-Based Compensation
We account for share-based payments to employees, including grants of service-based employee stock options, service-based restricted stock-basedstock awards, performance-based restricted stock awards (PSUs) 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. Wevalues and the estimated number of shares we ultimately expect will vest. For our service-based 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, we recognize stock-based compensation expense on a straight-line basis over the service period for each separately vesting tranche, as the performance conditions to evaluate attainment of each tranche for each participant are independent of the performance conditions for the other tranches.
We are required to estimate the stock awards that we ultimately expect to vest and to reduce stock-based compensation expense for the effects of estimated forfeitures of awards over the expense recognition period. Although we estimate the rate of future forfeitures based upon historical experience, actual forfeitures in the future may differ. To the extent our actual forfeitures are different than our estimates, we record a true-up for the difference in the period that a grantee terminates or the awards vest and such true-ups could materially affect our operating results. Additionally, we also consider on a quarterly basis whether there have been any significant changes in facts and circumstances that would affect our expected forfeiture rate.
We estimate the fair values of employee stock options using a Black-Scholes-Merton valuation model. The fair value of an award is affected by our stock price on the date of grant as well as other assumptions including the estimated volatility of our stock price over the term of the awards and the estimated period of time that we expect employees to hold their stock options. The risk-free interest rate assumption we use is based upon United StatesU.S. treasury interest rates appropriate for the expected life of the awards. We use the implied volatility of our publicly traded
options in our stock in order to estimate future stock price trends as we believe that implied volatility is more representative of future stock price trends than historical volatility. In order to determine the estimated period of time that we expect employees to hold their stock options, we have used historical rates of employee groups by seniority of job classification. Our expected dividend rate is based upon an annualized dividend yield based on the per share dividend declared by our Board of Directors. The aforementioned inputs entered into the option valuation model we use to fair value our stock awards are subjective estimates and changes to these estimates will cause the fair values of our stock awards and related stock-based compensation expense that we record to vary.
We issue PSUs to certain key executives. We estimate the fair values of the PSUs based upon their intrinsic values as of the grant dates as the vesting conditions and related terms of the PSUs were communicated to each participating employee as of their respective grant dates and include attainment metrics that are defined, fixed and consistently determined based upon consistent U.S. GAAP metrics or internal metrics and that require the employee to render service. The performance conditions of the PSUs affect the number of PSUs that will ultimately vest and be issued to the grantee based upon a “target” that is subject to certain attainment maximums, with the possibility that none will vest if applicable performance conditions are not met. We update the amount of stock-based compensation expense, net of forfeitures, to record as of the end of each reporting period based on the expected attainment of performance targets, which is subject to change until a final determination is known. Changes to the target estimates are reflected in the amount of stock-based compensation expense that we recognize for each PSU tranche on a cumulative basis during the reporting period in which the target estimates are altered and may cause the amount of stock-based compensation expense that we record for such reporting period to vary.
We record deferred tax assets for stock-based compensation awards that result in deductions on 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 rate in the jurisdiction in which we will receive a tax deduction. Because the deferred tax assets we record are based upon the stock-based compensation expenses in a particular jurisdiction, the aforementioned inputs that affect the fair values of our stock awards may also indirectly affect our income tax expense. In addition, differences between the deferred tax assets recognized for financial reporting purposes and the actual tax deduction reported on our income tax returns are recorded in additional paid-in capital. If the tax deduction is less than the deferred tax asset, the calculated shortfall reduces our pool of excess tax benefits. If the pool of excess tax benefits is reduced to zero, then subsequent shortfalls would increase our income tax expense.
To the extent we change the terms of our employee stock-based compensation programs, experience market volatility in the pricing of our common stock that increases the implied volatility calculation of our publicly traded options in our stock, refine different assumptions in future periods such as forfeiture rates or PSU target performance attainment that differ from our current estimates, or assume stock awards from acquired companies that are different in nature than our stock award arrangements, among other potential impacts, the stock-based compensation expense that we record in future periods and the tax benefits that we realize may differ significantly from what we have recorded in previous reporting periods.
Allowances for Doubtful Accounts
We make judgments as to our ability to collect outstanding receivables and provide allowances for the portion of receivables when collection becomes doubtful. Provisions are made 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 and current economic trends. If the historical data that we use to calculate the allowances for doubtful accounts does not reflect the future ability to collect outstanding receivables, additional provisions for doubtful accounts may be needed and our future results of operations could be materially affected.
Results of Operations
Impact of Acquisitions
The comparability of our operating results in fiscal 20122015 compared to fiscal 2011 is2014 was impacted by our acquisitions, primarily the acquisitionour acquisitions of TaleoMICROS in the fourthsecond quarter of fiscal 2012, RightNow2015 and Responsys in the third quarter of fiscal 2012, ATG in the third quarter of fiscal 2011 and Phase Forward during the first quarter of fiscal 2011.2014.
The comparability of our operating results in fiscal 20112014 compared to fiscal 2010 is2013 was impacted by our acquisitions, primarily the acquisitionour acquisitions of SunResponsys in the third quarter of fiscal 2010 and, to a lesser extent, our acquisitions of ATG2014, Tekelec in the third quarter of fiscal 2011 and Phase Forward during the first quarter of fiscal 2011.2014 and Acme Packet in the fourth quarter of fiscal 2013.
In our discussion of changes in our results of operations from fiscal 20122015 compared to fiscal 20112014 and fiscal 20112014 compared to fiscal 2010,2013, we quantifymay qualitatively disclose the contributionsimpact of our acquired products to the growth in new software license revenues, software license updates and product support revenues, hardware systems products revenues (as applicable) and hardware systems support revenues (as applicable) forservices (for the one year period subsequent to the acquisition date. Wedate) to the growth in certain of our operating segments’ revenues where such qualitative discussions would be meaningful for an understanding of the factors that influenced the changes in our results of operations. When material, we may also are ableprovide quantitative disclosures related to quantify the total incremental expenses associated with our hardware systemssuch
acquired products and hardware systems support operating segments for fiscal 2011 in comparison to fiscal 2010.services. The incremental contributions of our acquisitions to certain of our other businesses and operating segments’ revenues, margins and expenses for each of the respective period comparisons generally are not provided in our discussions, as they either were not separately identifiable due to the integration of these businesses and operating segments into our existing operations, and/or were insignificant to our results of operations during the periods presented.
We caution readers that, while pre- and post-acquisition comparisons, as well as theany quantified amounts themselves, may provide indications of general trends, theany acquisition information that we provide has inherent limitations for the following reasons:
the quantificationsany qualitative and quantitative disclosures cannot specifically address or quantify the substantial effects attributable to changes in business strategies, including our sales force integration efforts. We believe that if our acquired companies had operated independently and sales forces had not been integrated, the relative mix of products sold would have been different; and
although substantially all of our software license customers, including customers from acquired companies, renew their software license updates and product support contracts when the contracts are eligible for renewal and we strive to renew cloud software subscriptionSaaS and PaaS contracts and hardware systems support contracts, the amounts shown as cloud SaaS and PaaS deferred revenues, software license updates and product support deferred revenues, new software licenses deferred revenues, and hardware systems support deferred revenues in our supplemental disclosure related to certain charges (presented below) are not necessarily indicative of revenue improvements we will achieve upon contract renewalrenewals to the extent customers do not renew.
Constant Currency Presentation
Our international operations have provided and will continue to provide a significant portion of our total revenues and expenses. As a result, 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 effecteffects of foreign currency fluctuations, we compare the percent change in the results from one period to another period in this Annual 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, 2011,2014, 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 May 31, 20122015 and May 31, 2011,2014, our financial statements would reflect reported revenues of $1.25$1.08 million in fiscal 20122015 (using 1.251.08 as the month-end average exchange rate for the period) and $1.41$1.36 million in fiscal 20112014 (using 1.411.36 as the month-end average exchange rate for the period). The constant currency presentation, however, would translate the fiscal 20122015 results using the fiscal 20112014 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
Year Ended May 31, | Year Ended May 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
2012 | Percent Change | 2011 | Percent Change | 2010 | Percent Change | Percent Change | ||||||||||||||||||||||||||||||||||||||||||||||||||
(Dollars in millions) | Actual | Constant | Actual | Constant | 2015 | Actual | Constant | 2014 | Actual | Constant | 2013 | |||||||||||||||||||||||||||||||||||||||||||||
Total Revenues by Geography: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Americas | $ | 19,236 | 5% | 5% | $ | 18,352 | 33% | 32% | $ | 13,819 | $ | 21,107 | 4% | 6% | $ | 20,323 | 3% | 4% | $ | 19,719 | ||||||||||||||||||||||||||||||||||||
EMEA(1) | 11,561 | 1% | 1% | 11,497 | 29% | 28% | 8,938 | 11,380 | -5% | 4% | 11,946 | 7% | 4% | 11,158 | ||||||||||||||||||||||||||||||||||||||||||
Asia Pacific(2) | 6,324 | 10% | 7% | 5,773 | 42% | 32% | 4,063 | 5,739 | -4% | 1% | 6,006 | -5% | 2% | 6,303 | ||||||||||||||||||||||||||||||||||||||||||
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Total revenues | 37,121 | 4% | 4% | 35,622 | 33% | 30% | 26,820 | 38,226 | 0% | 4% | 38,275 | 3% | 4% | 37,180 | ||||||||||||||||||||||||||||||||||||||||||
Total Operating Expenses | 23,415 | -1% | -1% | 23,589 | 33% | 31% | 17,758 | 24,355 | 4% | 7% | 23,516 | 5% | 6% | 22,496 | ||||||||||||||||||||||||||||||||||||||||||
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Total Operating Margin | $ | 13,706 | 14% | 14% | $ | 12,033 | 33% | 29% | $ | 9,062 | $ | 13,871 | -6% | 0% | $ | 14,759 | 1% | 1% | $ | 14,684 | ||||||||||||||||||||||||||||||||||||
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Total Operating Margin % | 37% | 34% | 34% | 36% | 39% | 39% | ||||||||||||||||||||||||||||||||||||||||||||||||||
% Revenues by Geography: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Americas | 52% | 52% | 52% | 55% | 53% | 53% | ||||||||||||||||||||||||||||||||||||||||||||||||||
EMEA | 31% | 32% | 33% | 30% | 31% | 30% | ||||||||||||||||||||||||||||||||||||||||||||||||||
Asia Pacific | 17% | 16% | 15% | 15% | 16% | 17% | ||||||||||||||||||||||||||||||||||||||||||||||||||
Total Revenues by Business: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Software | $ | 26,116 | 9% | 9% | $ | 24,031 | 17% | 15% | $ | 20,625 | ||||||||||||||||||||||||||||||||||||||||||||||
Software and Cloud | $ | 29,475 | 1% | 5% | $ | 29,199 | 5% | 5% | $ | 27,920 | ||||||||||||||||||||||||||||||||||||||||||||||
Hardware Systems | 6,302 | -9% | -10% | 6,944 | 203% | 195% | 2,290 | 5,205 | -3% | 2% | 5,372 | 0% | 2% | 5,346 | ||||||||||||||||||||||||||||||||||||||||||
Services | 4,703 | 1% | 1% | 4,647 | 19% | 17% | 3,905 | 3,546 | -4% | 0% | 3,704 | -5% | -4% | 3,914 | ||||||||||||||||||||||||||||||||||||||||||
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Total revenues | $ | 37,121 | 4% | 4% | $ | 35,622 | 33% | 30% | $ | 26,820 | $ | 38,226 | 0% | 4% | $ | 38,275 | 3% | 4% | $ | 37,180 | ||||||||||||||||||||||||||||||||||||
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% Revenues by Business: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Software | 70% | 68% | 77% | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Software and Cloud | 77% | 76% | 75% | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Hardware Systems | 17% | 19% | 9% | 14% | 14% | 14% | ||||||||||||||||||||||||||||||||||||||||||||||||||
Services | 13% | 13% | 14% | 9% | 10% | 11% |
(1) | Comprised of Europe, the Middle East and Africa |
(2) | Asia Pacific includes Japan |
Fiscal 20122015 Compared to Fiscal 20112014: : ExcludingOur results of operations for fiscal 2015 compared to fiscal 2014 were significantly impacted by movements in international currencies relative to the effect of foreign currency rate fluctuations, the increase inU.S. Dollar, which decreased our total revenues by 4 percentage points, total operating expenses by 3 percentage points and total operating income by 6 percentage points.
Excluding the effects of unfavorable currency variations of 4 percentage points, our total revenues increased in fiscal 20122015 due to revenue increases in our software and cloud and hardware systems businesses. The constant currency growth in our software and cloud revenues was primarily attributable to growth in our software business’license updates and product support revenues, partially offset by a reductiongrowth in our SaaS, PaaS and IaaS revenues, and revenue contributions from our recent acquisitions. The constant currency growth in our hardware systems business’ revenues.business was attributable to growth in our hardware systems support revenues, which were primarily attributable to revenue contributions from our recent acquisitions. Excluding the effecteffects of currency rate fluctuations, the Americas contributed 65%69%, EMEA contributed 8%28% and Asia Pacific contributed 27%3% to the growth in our total revenues during fiscal 2015.
Excluding the effects of favorable currency variations of 3 percentage points, our total operating expenses increased during fiscal 2015 due to expense increases across all of our lines of business, the largest of which were due to increased sales and marketing and research and development expenses resulting primarily from increased headcount, increased cloud SaaS and PaaS expenses to support the increase in our cloud SaaS and PaaS revenues, and increased acquisition related and other expenses.
Excluding the effects of unfavorable foreign currency rate fluctuations of 6 percentage points, our fiscal 2015 operating margin was flat in comparison to the prior year, while our operating margin as a percentage of revenues decreased during fiscal 2015 as our total operating expenses increased at a faster rate than our total revenues.
Fiscal 2014 Compared to Fiscal 2013: On a constant currency basis, our total revenues increased in fiscal 2014 due to increases in our software and cloud business revenues and our hardware systems business revenues, partially offset by a decrease in our services business revenues. The constant currency revenue growth in our
software and cloud business was substantially attributable to growth in our software license updates and product support revenues and, to a lesser extent, growth in our cloud SaaS and PaaS revenues due to incremental revenues from our acquisitions. The constant currency revenue growth in our hardware business was due to an increase in our hardware systems support revenues due substantially to incremental revenues from our acquisitions and due to increases in our hardware revenues attributable to our Oracle Engineered Systems. On a constant currency basis, the Americas contributed 61%, EMEA contributed 30% and Asia Pacific contributed 9% to our total revenues growth.
Excluding the effect of foreignTotal constant currency rate fluctuations, total operating expenses decreased slightly inincreased during fiscal 20122014 primarily due to a reductionan increase in our hardware systems business’sales and marketing and research and development expenses resulting from increased headcount, increased sales-based variable compensation expenses due to efficiencies gained throughrevenues growth, and increased cloud SaaS and PaaS expenses to support the increase in our cloud SaaS and PaaS revenues. These expense increases in fiscal 2014 were partially offset by lower constant currency expenses in fiscal 2014 from our hardware systems support integration effortsand services segments due to decreased headcount, lower restructuring expenses, and lower hardware systems products costs associated with lower hardware systems products revenues; due to decreases in certain variable compensation expenses; and due tointangible assets amortization. In fiscal 2013, we recognized a reduction in restructuring costs and$387 million acquisition related costs primarily associated with expenses incurred in fiscal 2011benefit related to changes in estimates for contingent consideration payable (refer to Note 2 of Notes to Consolidated Financial Statements included elsewhere in this Annual Report for additional information) and a $306 million benefit relating to certain litigation (refer to Note 18 of Notes to Consolidated Financial Statements included elsewhere in this Annual Report for additional information), both of which decreased our acquisition of Sun. These fiscal 2012 expense decreases were partially offset by fiscal 2012 expense increases in salariesrelated and benefits primarily related to additional sales and marketing headcount and an increase in general and administrativeother expenses that was due to a $120 million legal expense recovery in fiscal 2011.during this period.
Excluding the effects of foreign currency rate fluctuations, the increase in totalour operating margin andincreased during fiscal 2014 due to our revenues growth, while our operating margin as a percentage of revenues in fiscal 2012 was due to our increase in revenues while our expenses decreased.flat.
Fiscal 2011 Compared to Fiscal 2010: Our total revenues increased in fiscal 2011 due to $4.7 billion of incremental revenue contribution from our hardware systems business and significant increases in our software and services businesses’ revenues. Our total revenues growth across all of our businesses in fiscal 2011 was favorably affected by a full year of revenue contributions from Sun as compared to our fiscal 2010 operating results, for which Sun’s revenue contributions were limited to only a portion of the fiscal 2010 period. In addition, our software business revenues increased as a result of the growth in our new software license revenues and our software license updates and product support revenues. Excluding the effect of currency rate fluctuations, the Americas contributed 55%, EMEA contributed 29% and APAC contributed 16% to our total revenues growth.
Excluding the effect of foreign currency rate fluctuations, the increase in total operating expenses in fiscal 2011 was due to a full year of expense contributions from Sun to our fiscal 2011 operating results, including increased expenses pertaining to hardware systems products sold and related hardware systems support offerings, additional employee related expenses and an increase in intangible asset amortization. These increases were partially offset by a reduction in restructuring expenses relating to our Sun Restructuring Plan and certain other Oracle-based restructuring plans and were also favorably affected by the recovery of certain legal costs in fiscal 2011 as noted above.
On a constant currency basis, our operating margin increased during fiscal 2011 due to our total revenues growth. Our operating margin as a percentage of revenues remained flat in fiscal 2011 as our revenues and expenses grew at approximately the same rates.
Supplemental Disclosure Related to Certain Charges
To supplement our consolidated financial information, we believe the following information is helpful to an overall understanding of our past financial performance and prospects for the future. You should review the introduction under “Impact of Acquisitions” (above) for a discussion of the inherent limitations in comparing pre- and post-acquisition information.
Our operating results includeincluded the following business combination accounting adjustments and expenses related to acquisitions, as well as certain other significant expense and income items:
Year Ended May 31, | ||||||||||||
(in millions) | 2012 | 2011 | 2010 | |||||||||
New software licenses deferred revenues(1) | $ | 22 | $ | — | $ | — | ||||||
Software license updates and product support deferred revenues(1) | 48 | 80 | 86 | |||||||||
Hardware systems support deferred revenues(1) | 30 | 148 | 128 | |||||||||
Hardware systems products expenses(2) | — | — | 29 | |||||||||
Amortization of intangible assets(3) | 2,430 | 2,428 | 1,973 | |||||||||
Acquisition related and other(4)(6) | 56 | 208 | 154 | |||||||||
Restructuring(5) | 295 | 487 | 622 | |||||||||
Stock-based compensation(6) | 626 | 500 | 421 | |||||||||
Income tax effects(7) | (967 | ) | (1,003 | ) | (1,054 | ) | ||||||
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$ | 2,540 | $ | 2,848 | $ | 2,359 | |||||||
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(in millions) | 2015 | 2014 | 2013 | |||||||||
Cloud software as a service and platform as a service deferred revenues(1) | $ | 12 | $ | 17 | $ | 45 | ||||||
Software license updates and product support deferred revenues(1) | 11 | 3 | 14 | |||||||||
Hardware systems support deferred revenues(1) | 4 | 11 | 14 | |||||||||
Amortization of intangible assets(2) | 2,149 | 2,300 | 2,385 | |||||||||
Acquisition related and other(3)(5) | 211 | 41 | (604 | ) | ||||||||
Restructuring(4) | 207 | 183 | 352 | |||||||||
Stock-based compensation(5) | 928 | 795 | 722 | |||||||||
Income tax effects(6) | (971 | ) | (1,091 | ) | (896 | ) | ||||||
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$ | 2,551 | $ | 2,259 | $ | 2,032 | |||||||
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(1) | In connection with our acquisitions, we have estimated the fair values of the cloud |
Approximately $34 million of estimated cloud software subscription contract revenues assumed will not be recognized during fiscal 2013 that would have otherwise been recognized as revenues by the acquired businesses as independent entities due to the application of the aforementioned business combination accounting rules. Approximately $13 million and $2 million of estimated software license updates and product support revenues related to software support contracts assumed will not be recognized during fiscal 2013 and 2014, respectively, that would have otherwise been recognized by the acquired businesses as independent entities due to the application of the aforementioned business combination accounting rules. Approximately $11 million of estimated hardware systems support revenues related to hardware systems support contracts assumed will not be recognized during fiscal 2013 that would have otherwise been recognized by certain acquired companies as independent entities due to the application of the aforementioned business combination accounting rules. To the extent customers renew these contracts with us, we expect to recognize revenues for the full contracts’ values over the contract renewal periods.
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systems support contracts assumed will not be recognized during fiscal 2016 that would have otherwise been recognized by certain acquired companies as independent entities due to the application of the aforementioned business combination accounting rules. To the extent customers renew these |
Represents the amortization of intangible assets substantially all of which were acquired in connection with our acquisitions. As of May 31, |
Fiscal 2013 | $ | 2,313 | ||
Fiscal 2014 | 1,938 | |||
Fiscal 2015 | 1,488 | |||
Fiscal 2016 | 941 | |||
Fiscal 2017 | 384 | |||
Thereafter | 824 | |||
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Total intangible assets subject to amortization | 7,888 | |||
In-process research and development | 11 | |||
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Total intangible assets, net | $ | 7,899 | ||
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Fiscal 2016 | $ | 1,624 | ||
Fiscal 2017 | 995 | |||
Fiscal 2018 | 848 | |||
Fiscal 2019 | 742 | |||
Fiscal 2020 | 598 | |||
Thereafter | 1,599 | |||
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Total intangible assets, net | $ | 6,406 | ||
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Acquisition related and other expenses primarily consist of personnel related costs for transitional and certain other employees, stock-based compensation expenses, integration related professional services, certain business combination adjustments including certain adjustments after the measurement period has ended and certain other operating items, net. Included in acquisition related and other expenses for fiscal 2015 was a goodwill impairment loss of $186 million (refer to Note 7 of Notes to Consolidated Financial Statements included elsewhere in this Annual Report for additional information). Included in acquisition related and other expenses for fiscal 2015 and 2013 were benefits of $53 million and $306 million, respectively, related to certain litigation (refer to Note 18 of Notes to Consolidated Financial Statements included elsewhere in this Annual Report for additional information). Also included in acquisition related and other expenses for fiscal 2013 were changes in |
The significant majority of restructuring expenses during fiscal |
Stock-based compensation was included in the following operating expense line items of our consolidated statements of operations (in millions): |
Year Ended May 31, | Year Ended May 31, | |||||||||||||||||||||||
2012 | 2011 | 2010 | 2015 | 2014 | 2013 | |||||||||||||||||||
Sales and marketing | $ | 122 | $ | 87 | $ | 81 | $ | 180 | $ | 165 | $ | 137 | ||||||||||||
Cloud software as a service and platform as a service | 10 | 8 | 10 | |||||||||||||||||||||
Cloud infrastructure as a service | 5 | 4 | 8 | |||||||||||||||||||||
Software license updates and product support | 18 | 14 | 17 | 21 | 22 | 20 | ||||||||||||||||||
Hardware systems products | 1 | 2 | 3 | 6 | 5 | 3 | ||||||||||||||||||
Hardware systems support | 5 | 5 | 2 | 6 | 6 | 5 | ||||||||||||||||||
Services | 23 | 16 | 14 | 30 | 29 | 23 | ||||||||||||||||||
Research and development | 295 | 231 | 172 | 522 | 385 | 352 | ||||||||||||||||||
General and administrative | 162 | 145 | 132 | 148 | 171 | 164 | ||||||||||||||||||
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Subtotal | 626 | 500 | 421 | 928 | 795 | 722 | ||||||||||||||||||
Acquisition related and other | 33 | 10 | 15 | 5 | 10 | 33 | ||||||||||||||||||
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Total stock-based compensation | $ | 659 | $ | 510 | $ | 436 | $ | 933 | $ | 805 | $ | 755 | ||||||||||||
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Stock-based compensation included in acquisition related and other expenses resulted from unvested stock options and restricted stock-based awards assumed from acquisitions whose vesting was accelerated upon termination of the employees pursuant to the terms of those stock options and restricted stock-based awards.
Stock-based compensation included in acquisition related and other expenses resulted from unvested stock options and restricted stock-based awards assumed from acquisitions whose vesting was accelerated upon termination of the employees pursuant to the terms of those stock options and restricted stock-based awards. |
The income tax effects presented were calculated as if the above described charges were not included in our results of operations for each of the respective periods presented. Income tax effects for fiscal 2015, 2014 and 2013 were calculated based on the applicable jurisdictional tax rates applied to the items within the table above and resulted in |
Software and Cloud Business
Our software and cloud business consists of our new software licenses and cloud software subscriptions segment, our cloud infrastructure as a service segment and our software license updates and product support segment.
New Software Licenses:Licenses and Cloud Software Subscriptions: New software licenselicenses revenues substantially represent fees earned from granting customers licenses to use our database and middleware and our application software products. Cloud software subscriptions include revenues from our cloud SaaS and also include fees earned fromPaaS offerings, which grant customers access to a broad range of our software offerings on a subscription basis in a secure, standards-based, cloud computing environment that includes access, hosting, infrastructure management, the use of software subscription contracts.updates, and support. We continue to place significant emphasis, both domestically and internationally, on direct sales through our own sales force. We also continue to market our products through indirect channels. ExpensesCosts associated with our new software license revenueslicenses and cloud software subscriptions segment are included in sales and marketing expenses, whichcloud SaaS and PaaS expenses and amortization of intangible assets. These costs are largely personnel related and include commissions earned by our sales force for the sale of our software products,offerings, marketing program costs, the cost of providing our cloud SaaS and PaaS offerings and amortization of intangible assets.
Year Ended May 31, | Year Ended May 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
2012 | Percent Change | 2011 | Percent Change | 2010 | Percent Change | Percent Change | ||||||||||||||||||||||||||||||||||||||||||||||||||
(Dollars in millions) | Actual | Constant | Actual | Constant | 2015 | Actual | Constant | 2014 | Actual | Constant | 2013 | |||||||||||||||||||||||||||||||||||||||||||||
New Software License Revenues: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
New Software Licenses and Cloud Software Subscriptions Revenues: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Americas | $ | 5,107 | 10% | 11% | $ | 4,662 | 26% | 24% | $ | 3,704 | $ | 5,742 | 4% | 6% | $ | 5,544 | 1% | 3% | $ | 5,465 | ||||||||||||||||||||||||||||||||||||
EMEA | 2,884 | 1% | 4% | 2,861 | 16% | 13% | 2,463 | 2,715 | -16% | -8% | 3,249 | 10% | 6% | 2,959 | ||||||||||||||||||||||||||||||||||||||||||
Asia Pacific | 1,915 | 12% | 11% | 1,712 | 25% | 16% | 1,366 | 1,563 | -10% | -5% | 1,744 | -8% | -2% | 1,897 | ||||||||||||||||||||||||||||||||||||||||||
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Total revenues | 9,906 | 7% | 8% | 9,235 | 23% | 19% | 7,533 | 10,020 | -5% | 0% | 10,537 | 2% | 3% | 10,321 | ||||||||||||||||||||||||||||||||||||||||||
Expenses: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cloud software as a service and platform as a service(1) | 763 | 71% | 76% | 447 | 41% | 42% | 317 | |||||||||||||||||||||||||||||||||||||||||||||||||
Sales and marketing(1) | 5,899 | 8% | 8% | 5,455 | 17% | 16% | 4,654 | 6,474 | 2% | 6% | 6,350 | 7% | 8% | 5,935 | ||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | 120 | 43% | 43% | 84 | 5% | 5% | 79 | 179 | 8% | 8% | 166 | 17% | 17% | 142 | ||||||||||||||||||||||||||||||||||||||||||
Amortization of intangible assets(2) | 822 | 1% | 1% | 811 | 0% | 0% | 816 | 1,008 | 3% | 3% | 977 | -1% | -1% | 986 | ||||||||||||||||||||||||||||||||||||||||||
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Total expenses | 6,841 | 8% | 8% | 6,350 | 14% | 13% | 5,549 | 8,424 | 6% | 10% | 7,940 | 8% | 8% | 7,380 | ||||||||||||||||||||||||||||||||||||||||||
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Total Margin | $ | 3,065 | 6% | 10% | $ | 2,885 | 45% | 37% | $ | 1,984 | $ | 1,596 | -39% | -31% | $ | 2,597 | -12% | -11% | $ | 2,941 | ||||||||||||||||||||||||||||||||||||
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Total Margin % | 31% | 31% | 26% | 16% | 25% | 28% | ||||||||||||||||||||||||||||||||||||||||||||||||||
% Revenues by Geography: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Americas | 52% | 50% | 49% | 57% | 53% | 53% | ||||||||||||||||||||||||||||||||||||||||||||||||||
EMEA | 29% | 31% | 33% | 27% | 31% | 29% | ||||||||||||||||||||||||||||||||||||||||||||||||||
Asia Pacific | 19% | 19% | 18% | 16% | 16% | 18% | ||||||||||||||||||||||||||||||||||||||||||||||||||
Revenues by Product: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Database and middleware | $ | 6,971 | 5% | 6% | $ | 6,626 | 23% | 19% | $ | 5,406 | ||||||||||||||||||||||||||||||||||||||||||||||
Applications | 2,935 | 13% | 14% | 2,609 | 23% | 20% | 2,127 | |||||||||||||||||||||||||||||||||||||||||||||||||
Revenues by Software Offerings: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
New software licenses | $ | 8,535 | -9% | -4% | $ | 9,416 | 0% | 1% | $ | 9,411 | ||||||||||||||||||||||||||||||||||||||||||||||
Cloud software as a service and platform as a service | 1,485 | 32% | 35% | 1,121 | 23% | 24% | 910 | |||||||||||||||||||||||||||||||||||||||||||||||||
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Total new software license revenues | $ | 9,906 | 7% | 8% | $ | 9,235 | 23% | 19% | $ | 7,533 | ||||||||||||||||||||||||||||||||||||||||||||||
Total new software licenses and cloud software subscriptions revenues | $ | 10,020 | -5% | 0% | $ | 10,537 | 2% | 3% | $ | 10,321 | ||||||||||||||||||||||||||||||||||||||||||||||
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% Revenues by Product: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Database and middleware | 70% | 72% | 72% | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Applications | 30% | 28% | 28% | |||||||||||||||||||||||||||||||||||||||||||||||||||||
% Revenues by Software Offerings: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
New software licenses | 85% | 89% | 91% | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Cloud software as a service and platform as a service | 15% | 11% | 9% |
(1) | Excluding stock-based compensation |
(2) | Included as a component of ‘Amortization of Intangible Assets’ in our consolidated statements of operations |
Fiscal 20122015 Compared to Fiscal 2011:2014: Excluding the effecteffects of foreignunfavorable currency rate fluctuations of 5 percentage points, total new software licenselicenses and cloud software subscriptions revenues increased by 8% in fiscal 2012 due to growth across all major regions and product types and due to incremental revenues from our acquisitions. On a constant currency basis, the Americas contributed 63%, EMEA contributed 13% and Asia Pacific contributed 24% to our new software license revenues growthremained flat during fiscal 2012.
In constant currency, database2015 as growth in our cloud SaaS and middlewarePaaS revenues and applications revenues increased by 6% and 14%, respectively, in fiscal 2012 primarily due to growth resulting from improved customer demand for our products, our sales force’s execution and incremental revenues from our acquisitions. The growth rates of our new software license revenues for fiscal 2012 were affected by the high growth rates that we experienced in fiscal 2011 against which our fiscal 2012 revenues were compared. In reported currency, productscontributions from our recent acquisitions contributed $63 million to thewere offset by a decline in our new software licenses revenues. In constant currency, fiscal 2015 revenue growth in our databasethe Americas region was offset by revenue declines in the EMEA and middleware revenues and $254 million to the growth in our applications revenues during fiscal 2012.Asia Pacific regions.
As a result of our acquisitions, we recorded adjustments to reduce assumed cloud software subscriptionSaaS and PaaS obligations to their estimated fair values at the acquisition dates. Due to our application of business combination accounting rules, cloud software subscriptionSaaS and PaaS revenues in the amountamounts of $22$12 million, $17 million and $45 million that would have
been otherwise recorded by our acquired businesses as independent entities were not recognized in fiscal 2012.2015, 2014 and 2013, respectively. To the extent underlying cloud software subscriptionSaaS and PaaS contracts are renewed with us following an acquisition, we will recognize the revenues for the full valuevalues of the cloud software subscriptionSaaS and PaaS contracts over the contractrespective contractual periods.
In reported currency, new software licenselicenses revenues earned from transactions of $3 million or greater decreased by 15% in fiscal 2015 and represented 31% of our new software licenses revenues in fiscal 2015 in comparison to 33% in fiscal 2014.
Excluding the effects of favorable currency rate fluctuations of 4 percentage points, total new software licenses and cloud software subscriptions expenses increased in fiscal 2015 primarily due to higher employee related expenses from increased headcount, higher variable compensation expenses, and higher cloud SaaS and PaaS expenses incurred to support the related revenues increase.
Excluding the effects of unfavorable currency rate fluctuations, total new software licenses and cloud software subscriptions margin and margin as a percentage of revenues decreased in fiscal 2015 due to the growth in total expenses for this operating segment.
Fiscal 2014 Compared to Fiscal 2013: Excluding the effects of unfavorable currency rate fluctuations, total new software licenses and cloud software subscriptions revenues increased during fiscal 2014 primarily due to incremental revenues from our cloud SaaS and PaaS offerings resulting from our recent acquisitions. In constant currency, total new software licenses and cloud software subscriptions revenues growth in fiscal 2014 in the Americas and EMEA region was partially offset by a decline in revenues in the Asia Pacific region.
As described above, the amount of new software licenses and cloud software subscriptions revenues that we recognized in fiscal 2014 and fiscal 2013 were affected by business combination accounting rules. In reported currency, new software licenses revenues earned from transactions of $3 million or greater increased by 4%3% in fiscal 20122014 and represented 27%33% of our new software licenselicenses revenues in fiscal 20122014 in comparison to 28%32% in fiscal 2011.2013.
Excluding the effecteffects of favorable currency rate fluctuations, our total new software licenselicenses and cloud software subscriptions expenses increased in fiscal 20122014 primarily due to higher employee related expenses from increased headcount.headcount, higher variable compensation expenses due to revenues growth, and higher cloud SaaS and PaaS expenses incurred to support the related revenues increase.
Excluding the effecteffects of unfavorable foreign currency rate fluctuations, total new software licenselicenses and cloud software subscriptions margin increased due to the increase in revenues, and new software license margin as a percentage of revenues was flatdecreased in fiscal 2014 as our revenuestotal expenses increased at a faster rate than our total revenues for this operating segment.
Cloud Infrastructure as a Service: Our cloud infrastructure as a service segment provides comprehensive software and hardware management and maintenance services for customer IT infrastructure for a fee for a stated term that is hosted at our Oracle data center facilities, select partner data centers or physically on-premises at customer facilities; virtual machine instance services that are subscription-based in which we deploy, secure, provision, manage and maintain certain of our hardware products for our customers to provide them with a set of cloud-based core infrastructure capabilities like elastic compute and storage services to run workloads in the same ratecloud; and hardware and related support offerings for certain of our Oracle Engineered Systems that are deployed in our customers’ data centers for a monthly fee. Cloud infrastructure as a service expenses consist primarily of personnel related expenditures, technology infrastructure expenditures and facilities costs. For all periods presented, our operating expenses.cloud-infrastructure as a service segment’s revenues and expenses were substantially attributable to our comprehensive software and hardware management, maintenance and hosting services.
(Dollars in millions) Cloud Infastructure as a Service Revenues: Americas EMEA Asia Pacific Total revenues Expenses: Cloud infastructure as a service(1) Sales and marketing(1) Stock-based compensation Amortization of intangible assets(2) Total expenses Total Margin Total Margin % % Revenues by Geography: Americas EMEA Asia Pacific Year Ended May 31, Percent Change Percent Change 2015 Actual Constant 2014 Actual Constant 2013 $ 444 33% 35% $ 335 -6% -5% $ 355 129 37% 41% 94 32% 27% 72 35 28% 39% 27 -12% 3% 30 �� 608 33% 36% 456 0% 1% 457 339 12% 14% 304 3% 5% 296 90 46% 50% 61 0% 1% 61 5 27% 27% 4 -52% -52% 8 4 * * — * * — 438 19% 21% 369 1% 3% 365 $ 170 97% 103% $ 87 -6% -9% $ 92 28% 19% 20% 73% 73% 77% 21% 21% 16% 6% 6% 7%
(1) | Excluding stock-based compensation |
(2) | Included as a component of ‘Amortization of Intangible Assets’ in our consolidated statements of operations |
* | Not meaningful |
Fiscal 20112015 Compared to Fiscal 2010:2014: Excluding the effect of favorable foreign currency rate fluctuations, total new software license revenues increased by 19% in fiscal 2011 due to growth across all major regions and product types and incremental revenues from our acquisitions. On a constant currency basis, total cloud IaaS revenues increased during fiscal 2015 primarily due to growth in our comprehensive software and hardware management, maintenance and hosting services and due to revenue contributions from our recent acquisitions. Excluding the effects of currency rate fluctuations, the Americas contributed 63%70%, EMEA contributed 21%24% and Asia Pacific contributed 16% to our new software license revenues growth during fiscal 2011.
In constant currency, database and middleware revenues and applications revenues increased by 19% and 20%, respectively, in fiscal 2011 primarily due to similar reasons as those noted above. In reported currency, Sun contributed $398 million in growth to our database and middleware revenues through the third quarter of fiscal 2011 (the one year anniversary of our acquisition of Sun) and our other recent acquisitions contributed $40 million during fiscal 2011. In reported currency, our recent acquisitions contributed $191 million6% to the growthincrease in our applicationsIaaS revenues during fiscal 2011.2015.
In reportedOn a constant currency new software license revenues earned from transactions of $3 million or greater increased by 47% in fiscal 2011 and represented 28% of our new software license revenues in fiscal 2011 in comparison to 23% in fiscal 2010.
Excluding the effect of unfavorable foreign currency rate fluctuations,basis, total software sales and marketingcloud IaaS expenses increased in fiscal 20112015 primarily due to higherincreased employee related expenses associated with increased headcount and other operatingincreased infrastructure expenses resulting from a full year of expense contributions from Sun to support our fiscal 2011 operating results and higher variable compensation expenses resulting from higherincrease in IaaS revenues.
Excluding the effecteffects of favorable foreignunfavorable currency rate fluctuations, new software licenseexchange variances, total margin and margin as a percentage of revenues increased during fiscal 2015 as ourtotal revenues increased at a faster rate than our expenses.total expenses for this operating segment.
Fiscal 2014 Compared to Fiscal 2013: On a constant currency basis, total cloud IaaS revenues increased slightly in fiscal 2014 primarily due to incremental revenues from our on-premises Oracle Engineered Systems subscription offerings. In constant currency, total cloud IaaS revenues growth in the EMEA and Asia Pacific regions were partially offset by a decline in revenues in the Americas region.
On a constant currency basis, total cloud IaaS expenses increased during fiscal 2014 primarily due to increased employee related expenses associated with increased headcount, which reduced the total margin and margin as a percentage of revenues for this segment in comparison to fiscal 2013.
Software License Updates and Product Support: Software license updates grant customers rights to unspecified software product upgrades and maintenance releases issuedand patches released during the support period. Product support includes internet access to technical content as well as internet and telephone access to technical support personnel in our global support centers. Expenses associated with our software license updates and product support line of business include the cost of providing the support services, largely personnel related expenses, and the amortization of our intangible assets associated with software support contracts and customer relationships obtained from acquisitions.
Year Ended May 31, | Year Ended May 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
2012 | Percent Change | 2011 | Percent Change | 2010 | Percent Change | Percent Change | ||||||||||||||||||||||||||||||||||||||||||||||||||
(Dollars in millions) | Actual | Constant | Actual | Constant | 2015 | Actual | Constant | 2014 | Actual | Constant | 2013 | |||||||||||||||||||||||||||||||||||||||||||||
Software License Updates and Product Support Revenues: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Americas | $ | 8,672 | 9% | 9% | $ | 7,963 | 12% | 11% | $ | 7,100 | $ | 10,418 | 6% | 7% | $ | 9,858 | 6% | 7% | $ | 9,322 | ||||||||||||||||||||||||||||||||||||
EMEA | 5,194 | 8% | 8% | 4,802 | 12% | 13% | 4,304 | 5,920 | 0% | 9% | 5,906 | 10% | 7% | 5,363 | ||||||||||||||||||||||||||||||||||||||||||
Asia Pacific | 2,344 | 15% | 12% | 2,031 | 20% | 12% | 1,688 | 2,509 | 3% | 8% | 2,442 | -1% | 8% | 2,457 | ||||||||||||||||||||||||||||||||||||||||||
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Total revenues | 16,210 | 10% | 9% | 14,796 | 13% | 12% | 13,092 | 18,847 | 4% | 8% | 18,206 | 6% | 7% | 17,142 | ||||||||||||||||||||||||||||||||||||||||||
Expenses: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Software license updates and product support(1) | 1,208 | -3% | -3% | 1,250 | 20% | 18% | 1,046 | 1,178 | 3% | 8% | 1,140 | -1% | 0% | 1,155 | ||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | 18 | 27% | 27% | 14 | -20% | -20% | 17 | 21 | -7% | -7% | 22 | 10% | 10% | 20 | ||||||||||||||||||||||||||||||||||||||||||
Amortization of intangible assets(2) | 863 | 4% | 4% | 827 | -1% | -1% | 839 | 741 | -7% | -7% | 801 | -4% | -4% | 836 | ||||||||||||||||||||||||||||||||||||||||||
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Total expenses | 2,089 | 0% | 0% | 2,091 | 10% | 9% | 1,902 | 1,940 | -1% | 2% | 1,963 | -2% | -1% | 2,011 | ||||||||||||||||||||||||||||||||||||||||||
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Total Margin | $ | 14,121 | 11% | 11% | $ | 12,705 | 14% | 12% | $ | 11,190 | $ | 16,907 | 4% | 9% | $ | 16,243 | 7% | 8% | $ | 15,131 | ||||||||||||||||||||||||||||||||||||
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Total Margin % | 87% | 86% | 85% | 90% | 89% | 88% | ||||||||||||||||||||||||||||||||||||||||||||||||||
% Revenues by Geography: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Americas | 54% | 54% | 54% | 55% | 54% | 55% | ||||||||||||||||||||||||||||||||||||||||||||||||||
EMEA | 32% | 32% | 33% | 32% | 33% | 31% | ||||||||||||||||||||||||||||||||||||||||||||||||||
Asia Pacific | 14% | 14% | 13% | 13% | 13% | 14% |
(1) | Excluding stock-based compensation |
(2) | Included as a component of ‘Amortization of Intangible Assets’ in our consolidated statements of operations |
Fiscal 20122015 Compared to Fiscal 2011:2014: Excluding the effecteffects of unfavorable currency rate fluctuations,variations of 4 percentage points, software license updates and product support revenues increased by 8% in fiscal 20122015 as a result of new software licenses sold with substantially all of these customers electing to purchase software support contracts during the trailing 4-quarter period, the renewal of substantially all of the software support customer base eligible for renewal induring the current fiscal yeartrailing 4-quarter period and incremental revenues from our recent acquisitions. Excluding the effecteffects of currency rate fluctuations, the Americas contributed 53%50%, EMEA contributed 29%36% and Asia Pacific contributed 18%14% to the increase in software license updates and product support revenues.revenues during fiscal 2015.
In reported currency, software license updates and product support revenues in fiscal 2012 included incremental revenues of $83 million from our recently acquired companies. As a result of our acquisitions, we recorded adjustments to reduce assumed software support obligations to their estimated fair values at the acquisition dates. Due to our application of business combination accounting rules, software license updates and product support revenues related to software support contracts in the amounts of $48$11 million, $80$3 million and $86$14 million that would have been otherwise recorded by our acquired businesses as independent entities were not recognized in fiscal 2012, 20112015, 2014 and 2010,2013, respectively. Historically, substantially all of our software license customers, including customers from acquired companies, renew their software support contracts when such contracts are eligible for renewal. To the extent these underlying support contracts are renewed, we will recognize the revenues for the full valuevalues of these contracts over the support periods, the substantial majority of which are one year in duration.
Excluding the effecteffects of favorable foreign currency rate fluctuations, total software license updates and product support expenses were flat inincreased during fiscal 2012 as an increase in intangible asset amortization2015 due to higher employee related expenses and salaries expenses fromfacilities costs associated with increased headcount that was primarily attributable to our recent acquisitions, and also increased due to higher bad debt expenses. These fiscal 2015 expense increases were partially offset by reductionsfiscal 2015 expense decreases related to lower statutory obligation expenses in variable compensation expenses, bad debt expensesthe jurisdictions in which we operate and certain other operating expenses.
Excluding the effect ofIn constant currency, rate fluctuations, total software license updates and product support margin and margin as a percentage of total revenues for this segment increased during fiscal 2015 as our total revenues for this segment increased whileat a faster rate than our total expenses remained flat.for this segment, each during fiscal 2015 and in comparison to fiscal 2014.
Fiscal 20112014 Compared to Fiscal 2010:2013: Excluding the effecteffects of unfavorable currency rate fluctuations, software license updates and product support revenues increased in fiscal 20112014 for reasons similar reasons asto those noted above.
In reportedabove forour fiscal 2015 revenues increase. Excluding the effects of currency rate fluctuations, the Americas contributed 55%, EMEA contributed 30% and Asia Pacific contributed 15% to the increase in software license updates and product support revenues induring fiscal 2011 included incremental revenues of $240 million from Sun through the third quarter of fiscal 2011 (the one year anniversary of our acquisition) and $80 million from our other recently acquired companies. 2014.
As described above, the amounts of software license updates and product support revenues that we recognized in fiscal 20112014 and fiscal 20102013 were affected by business combination accounting rules.
On a constant currency basis, total software license updates and product support expenses increased due to an increase in salaries, variable compensation and benefits expenses that were primarily related to a full year’s contribution from Sun and certain other headcount increases.
Excluding the effecteffects of favorable foreign currency rate fluctuations, total software license updates and product support expenses during fiscal 2014 decreased slightly due to a modest decrease in headcount and a decrease in amortization of intangible assets. Total margin and total margin as a percentage of total revenues increased during fiscal 2014 as our total revenues for this segment increased at a faster rate thanwhile our total expenses.expenses slightly decreased, each during fiscal 2014 and in comparison to fiscal 2013.
Hardware Systems Business
Our hardware systems business consists of our hardware systems products segment and hardware systems support segment.
Hardware Systems Products: Hardware systems products revenues are primarily generated from the sales of our Oracle Engineered Systems, computer server, storage, networking, workstations and storagerelated devices and industry specific hardware products. We market and sell our hardware systems products through our direct sales force and indirect channels such as independent distributors and value added resellers. Operating expenses associated with our hardware systems products include the cost of hardware systems 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 expenses and the impact of periodic changes in inventory valuation, including the impact of inventory determined to be excess and obsolete. Operating expenses associated with our hardware systems products also include sales and marketing expenses, which are largely personnel related and include variable compensation earned by our sales force for the sales of our hardware products, and amortization of intangible assets.
Year Ended May 31, | Year Ended May 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
2012 | Percent Change | 2011 | Percent Change | 2010 | Percent Change | Percent Change | ||||||||||||||||||||||||||||||||||||||||||||||||||
(Dollars in millions) | Actual | Constant | Actual | Constant | 2015 | Actual | Constant | 2014 | Actual | Constant | 2013 | |||||||||||||||||||||||||||||||||||||||||||||
Hardware Systems Products Revenues: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Americas | $ | 1,880 | -16% | -16% | $ | 2,248 | 201% | 199% | $ | 747 | $ | 1,492 | -1% | 1% | $ | 1,507 | 1% | 2% | $ | 1,495 | ||||||||||||||||||||||||||||||||||||
EMEA | 1,140 | -15% | -16% | 1,337 | 176% | 165% | 485 | 797 | -5% | 7% | 834 | -1% | -3% | 842 | ||||||||||||||||||||||||||||||||||||||||||
Asia Pacific | 807 | 1% | -3% | 797 | 191% | 173% | 274 | 536 | -16% | -12% | 635 | -9% | -5% | 696 | ||||||||||||||||||||||||||||||||||||||||||
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Total revenues | 3,827 | -13% | -14% | 4,382 | 191% | 184% | 1,506 | 2,825 | -5% | 0% | 2,976 | -2% | -1% | 3,033 | ||||||||||||||||||||||||||||||||||||||||||
Expenses: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Hardware systems products(1) | 1,842 | -10% | -10% | 2,055 | 134% | 126% | 877 | 1,465 | -3% | 3% | 1,516 | 1% | 3% | 1,498 | ||||||||||||||||||||||||||||||||||||||||||
Sales and marketing(1) | 1,106 | 7% | 6% | 1,037 | 203% | 194% | 342 | 911 | -8% | -3% | 991 | 7% | 7% | 929 | ||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | 3 | -57% | -57% | 5 | 4% | 4% | 5 | 17 | 47% | 47% | 12 | 49% | 49% | 8 | ||||||||||||||||||||||||||||||||||||||||||
Amortization of intangible assets(2) | 393 | -8% | -8% | 426 | 164% | 164% | 162 | 223 | -19% | -19% | 274 | -16% | -16% | 327 | ||||||||||||||||||||||||||||||||||||||||||
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Total expenses | 3,344 | -5% | -5% | 3,523 | 154% | 146% | 1,386 | 2,616 | -6% | -1% | 2,793 | 1% | 2% | 2,762 | ||||||||||||||||||||||||||||||||||||||||||
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Total Margin | $ | 483 | -44% | -46% | $ | 859 | 634% | 732% | $ | 120 | $ | 209 | 14% | 19% | $ | 183 | -33% | -30% | $ | 271 | ||||||||||||||||||||||||||||||||||||
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Total Margin % | 13% | 20% | 8% | 7% | 6% | 9% | ||||||||||||||||||||||||||||||||||||||||||||||||||
% Revenues by Geography: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Americas | 49% | 51% | 50% | 53% | 51% | 49% | ||||||||||||||||||||||||||||||||||||||||||||||||||
EMEA | 30% | 31% | 32% | 28% | 28% | 28% | ||||||||||||||||||||||||||||||||||||||||||||||||||
Asia Pacific | 21% | 18% | 18% | 19% | 21% | 23% |
(1) | Excluding stock-based compensation |
(2) | Included as a component of ‘Amortization of Intangible Assets’ in our consolidated statements of operations |
Fiscal 20122015 Compared to Fiscal 2011:2014: Excluding the effects of unfavorable currency rate fluctuations of 5 percentage points, total hardware systems products revenues decreasedwere flat in fiscal 2012 due to reductions2015 in sales volumes of certain of our legacy product lines, including lower margin products, and duecomparison to the recent introduction of new SPARC processor-based servers that we believe slowed purchases of predecessor server products. These hardware revenue decreases were partially offset byprior year as revenues from our recently acquired companies, including MICROS, and increases in hardware revenues attributable to our Oracle Engineered Systems duringproducts were offset by reductions in the sales volumes of certain of our other hardware product offerings. On a constant currency basis, revenue increases in the Americas region and EMEA region were offset by declines in the Asia Pacific region.
Excluding the effects of favorable currency rate fluctuations of 5 percentage points, total hardware systems products expenses decreased in fiscal 2012.2015 primarily due to lower bad debt expenses and a reduction in amortization of intangible assets. These fiscal 2015 expense decreases were partially offset by higher fiscal 2015 employee related expenses due to increased headcount from our recent acquisitions and higher direct product costs that were primarily attributable to higher revenues from recently acquired companies.
In constant currency, total margin and margin as a percentage of revenues increased in fiscal 2015 due to the decrease in total expenses for this segment.
Fiscal 2014 Compared to Fiscal 2013: Excluding the effects of currency rate fluctuations, total hardware systems products operating expenses declinedrevenues modestly decreased in fiscal 20122014. The decrease in revenues during fiscal 2014, which was attributable to reductions in the sales volumes of certain of our product lines, was partially offset by incremental revenues from our acquired companies and increases in hardware revenues attributable to the sales of our Oracle Engineered Systems.
In constant currency, total hardware systems products expenses increased in fiscal 2014 primarily due to reductionsan increase in hardware systems products costs associated with lower revenues, lower intangible asset amortization, and decreases in bad debt expenses, which were partially offset by increased employee related expenses due primarily to additionalan increase in sales headcount.and marketing headcount, partially offset by a decrease in amortization of intangible assets.
Excluding the effecteffects of currency rate fluctuations, total hardware systems products margin and total margin as a percentage of revenues decreased in fiscal 2012 primarily2014 due to decreasesa decrease in hardware systems products revenues and increases in hardware sales and marketing expenses.
Fiscal 2011 Compared to Fiscal 2010: The increases in hardware systems products revenues, expenses and total margin for fiscal 2011 were primarily attributable to the impact of Sun’s contributions to our operating results for the full fiscal 2011 year as compared to fiscal 2010, which included Sun’s contribution to our operating results for only a portion of the fiscal year. In fiscal 2010, our hardware systems products expenses and total margin were unfavorably impacted by $29 million of fair value adjustments made pursuant to business combination accounting rules for inventories we assumed from Sun and sold to customers in the post-combination periods. Excluding the effect of currency rate fluctuations, total hardware systems products margin and margin as a percentage of total revenues increased as our total revenues increased at a faster rate thanand increase in our total expenses.expenses for this segment.
Hardware Systems Support:Our hardware systems support offerings provide customers with software updates for the software components that are essential to the functionality of our hardware systemsproducts, such as Oracle Solaris and certain other software products, and can include product repairs, maintenance services and technical support services. Expenses associated with our hardware systems support operating segment include the cost of materials used to repair customer products, the cost of providing support services, largely personnel related expenses, and the amortization of our intangible assets primarily associated with hardware systems support contracts and customer relationships obtained from our acquisitions.
Year Ended May 31, | Year Ended May 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
2012 | Percent Change | 2011 | Percent Change | 2010 | Percent Change | Percent Change | ||||||||||||||||||||||||||||||||||||||||||||||||||
(Dollars in millions) | Actual | Constant | Actual | Constant | 2015 | Actual | Constant | 2014 | Actual | Constant | 2013 | |||||||||||||||||||||||||||||||||||||||||||||
Hardware Systems Support Revenues: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Americas | $ | 1,157 | 5% | 5% | $ | 1,103 | 267% | 263% | $ | 301 | $ | 1,245 | 1% | 3% | $ | 1,229 | 11% | 12% | $ | 1,109 | ||||||||||||||||||||||||||||||||||||
EMEA | 870 | -13% | -14% | 1,004 | 195% | 186% | 340 | 722 | -2% | 6% | 738 | -2% | -4% | 752 | ||||||||||||||||||||||||||||||||||||||||||
Asia Pacific | 448 | -2% | -5% | 455 | 217% | 196% | 143 | 413 | -4% | 1% | 429 | -5% | 2% | 452 | ||||||||||||||||||||||||||||||||||||||||||
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Total revenues | 2,475 | -3% | -4% | 2,562 | 227% | 218% | 784 | 2,380 | -1% | 4% | 2,396 | 4% | 5% | 2,313 | ||||||||||||||||||||||||||||||||||||||||||
Expenses: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Hardware systems support(1) | 1,041 | -17% | -18% | 1,254 | 198% | 189% | 421 | 810 | -2% | 2% | 830 | -6% | -5% | 885 | ||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | 5 | 1% | 1% | 5 | 124% | 124% | 2 | 6 | 3% | 3% | 6 | 26% | 26% | 5 | ||||||||||||||||||||||||||||||||||||||||||
Amortization of intangible assets(2) | 305 | 2% | 2% | 298 | 202% | 202% | 98 | 158 | -32% | -32% | 231 | 8% | 8% | 213 | ||||||||||||||||||||||||||||||||||||||||||
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Total expenses | 1,351 | -13% | -14% | 1,557 | 199% | 191% | 521 | 974 | -9% | -6% | 1,067 | -3% | -3% | 1,103 | ||||||||||||||||||||||||||||||||||||||||||
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Total Margin | $ | 1,124 | 12% | 10% | $ | 1,005 | 283% | 274% | $ | 263 | $ | 1,406 | 6% | 11% | $ | 1,329 | 10% | 12% | $ | 1,210 | ||||||||||||||||||||||||||||||||||||
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Total Margin % | 45% | 39% | 34% | 59% | 55% | 52% | ||||||||||||||||||||||||||||||||||||||||||||||||||
% Revenues by Geography: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Americas | 47% | 43% | 38% | 52% | 51% | 48% | ||||||||||||||||||||||||||||||||||||||||||||||||||
EMEA | 35% | 39% | 43% | 30% | 31% | 32% | ||||||||||||||||||||||||||||||||||||||||||||||||||
Asia Pacific | 18% | 18% | 19% | 18% | 18% | 20% |
(1) | Excluding stock-based compensation |
(2) | Included as a component of ‘Amortization of Intangible Assets’ in our consolidated statements of operations |
Fiscal 20122015 Compared to Fiscal 2011:2014: Excluding the effecteffects of unfavorable currency rate fluctuations of 5 percentage points, hardware systems support revenues decreasedincreased in fiscal 20122015 primarily due to revenue decreases in theincremental revenues from our recently acquired companies, including MICROS. The Americas region contributed 42%, EMEA contributed 52% and Asia Pacific regions, partially offset by highercontributed 6%, to our constant currency growth in hardware systems support revenues in the Americas.during fiscal 2015.
As a result of our acquisitions, we recorded adjustments to reduce assumed hardware systems support obligations to their estimated fair values at the acquisition dates. Due to our application of business combination accounting rules, hardware systems support revenues related to hardware systems support contracts in the amounts of $30$4 million, $148$11 million and $128$14 million that would have been otherwise reported by our acquired businesses as independent entities were not recognized in fiscal 2012, 20112015, 2014 and 2010,2013, respectively. To the extent these underlying hardware systems support contracts are renewed, we will recognize the revenues for the full values of these contracts over the future support periods.
Excluding the effect ofIn constant currency, rate fluctuations, total hardware systems support expenses decreased in fiscal 20122015 primarily due to the reduction ofreduced service delivery costs during fiscal 2012due to operational initiatives and a decrease in amortization of intangible assets, partially offset by higher employee related expenses resulting from increased headcount from our integrationrecent acquisitions, higher external contractor expenses and higher bad debt expenses.
In constant currency, total hardware systems support margin and margin as a percentage of total revenues increased in fiscal 2015 due to the increase in total revenues and decrease in total expenses for this operating segment.
Fiscal 2014 Compared to Fiscal 2013: Excluding the impacts of unfavorable currency rate fluctuations, hardware systems support revenues increased in fiscal 2014 primarily due to incremental revenues from our acquisitions. In constant currency, hardware systems support revenues growth in the Americas and Asia Pacific region was partially offset by a decline in revenues in the EMEA region.
As described above, the amounts of hardware systems support revenues that we recognized in fiscal 2014 and fiscal 2013 were affected by business combination accounting rules.
In constant currency, total hardware systems support expenses decreased in fiscal 2014 primarily due to a reduction in employee related expenses attributable to operational initiatives associated with our acquisitionincluding decreased headcount and reduced service delivery costs, partially offset by an increase in amortization of Sun.intangible assets.
Excluding the effecteffects of currency rate fluctuations, total hardware systems support margin and margin as a percentage of total revenues increased as a result of our expense reductions.
Fiscal 2011 Compared to Fiscal 2010: The increases in hardware systems support revenues and expenses in fiscal 2011 were primarily attributable to the impact of Sun’s contributions to our operating results for the full fiscal 2011 period as compared to fiscal 2010. As a result of our acquisition of Sun, we recorded adjustments to reduce assumed hardware systems support obligations to their estimated fair values at the acquisition date as prescribed by business combination accounting rules that, as described above, affected the amounts of hardware systems support revenues that we recognized in fiscal 2011 and fiscal 2010.
Excluding the effect of currency rate fluctuations, total hardware systems support margin and margin as a percentage of total revenues increased2014 as our total revenues for this segment increased at a faster rate thanwhile our total expenses.expenses for this segment decreased.
Services Business
Our services business consists of consulting, managed cloudadvanced customer support services and education services. Consulting revenues are earned by providing services to customers in business and IT strategy alignment, enterprise architecture planning and design, initial product implementation and integration, and ongoing product enhancements and upgrades. Managed cloud services revenues are earned by providing services for comprehensive software and hardware management and maintenance services for customers hosted at our Oracle data center facilities, select partner data centers or physically on-premise atAdvanced customer facilities. Additionally, we provide support services both on-premiseare provided on-premises and remote,remotely to our customers to enable increased performance and higher availability of their Oracle products and services. Education revenues are earned by providing instructor-led, media-basedlive virtual training, self-paced online training, private events and internet-basedcustom training in the use of our software and hardware products.offerings. The cost of providing our services consists primarily of personnel related expenses, technology infrastructure expenditures, facilities expenses and external contractor expenses.
Year Ended May 31, | Year Ended May 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Percent Change | Percent Change | Percent Change | Percent Change | |||||||||||||||||||||||||||||||||||||||||||||||||||||
(Dollars in millions) | 2012 | Actual | Constant | 2011 | Actual | Constant | 2010 | 2015 | Actual | Constant | 2014 | Actual | Constant | 2013 | ||||||||||||||||||||||||||||||||||||||||||
Services Revenues: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Americas | $ | 2,420 | 2% | 2% | $ | 2,376 | 21% | 20% | $ | 1,967 | $ | 1,766 | -5% | -2% | $ | 1,850 | -6% | -5% | $ | 1,973 | ||||||||||||||||||||||||||||||||||||
EMEA | 1,473 | -1% | -1% | 1,493 | 11% | 10% | 1,346 | 1,097 | -2% | 6% | 1,125 | -4% | -7% | 1,170 | ||||||||||||||||||||||||||||||||||||||||||
Asia Pacific | 810 | 4% | 3% | 778 | 32% | 23% | 592 | 683 | -6% | -1% | 729 | -5% | 2% | 771 | ||||||||||||||||||||||||||||||||||||||||||
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Total revenues | 4,703 | 1% | 1% | 4,647 | 19% | 17% | 3,905 | 3,546 | -4% | 0% | 3,704 | -5% | -4% | 3,914 | ||||||||||||||||||||||||||||||||||||||||||
Expenses: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Services(1) | 3,720 | -2% | -2% | 3,802 | 12% | 11% | 3,384 | 2,899 | -1% | 4% | 2,925 | -7% | -6% | 3,159 | ||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | 23 | 39% | 39% | 16 | 17% | 17% | 14 | 30 | 2% | 2% | 29 | 25% | 25% | 23 | ||||||||||||||||||||||||||||||||||||||||||
Amortization of intangible assets(2) | 47 | -27% | -27% | 66 | 12% | 12% | 58 | 15 | -12% | -12% | 17 | -26% | -26% | 23 | ||||||||||||||||||||||||||||||||||||||||||
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Total expenses | 3,790 | -2% | -2% | 3,884 | 12% | 11% | 3,456 | 2,944 | -1% | 4% | 2,971 | -7% | -6% | 3,205 | ||||||||||||||||||||||||||||||||||||||||||
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Total Margin | $ | 913 | 20% | 19% | $ | 763 | 70% | 63% | $ | 449 | $ | 602 | -18% | -13% | $ | 733 | 3% | 5% | $ | 709 | ||||||||||||||||||||||||||||||||||||
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Total Margin % | 19% | 16% | 11% | 17% | 20% | 18% | ||||||||||||||||||||||||||||||||||||||||||||||||||
% Revenues by Geography: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Americas | 52% | 51% | 50% | 50% | 50% | 50% | ||||||||||||||||||||||||||||||||||||||||||||||||||
EMEA | 31% | 32% | 35% | 31% | 30% | 30% | ||||||||||||||||||||||||||||||||||||||||||||||||||
Asia Pacific | 17% | 17% | 15% | 19% | 20% | 20% |
(1) | Excluding stock-based compensation |
(2) | Included as a component of ‘Amortization of Intangible Assets’ in our consolidated statements of operations |
Fiscal 20122015 Compared to Fiscal 2011:2014: Excluding the effects of unfavorable currency rate fluctuations of 4 percentage points, our total services revenues were flat in fiscal 2015 as incremental revenues from our recently acquired companies, including MICROS, and an increase in fiscal 2015 advanced customer services revenues were offset by declines in our fiscal 2015 consulting and education revenues. In constant currency, revenues growth in the EMEA region was offset by revenue declines in the Americas region and Asia Pacific region during fiscal 2015.
Excluding the effects of favorable currency rate fluctuations of 5 percentage points, our total services expenses increased during fiscal 2015 due to higher employee related expenses resulting from increased headcount from our recent acquisitions and were partially offset by lower variable compensation and lower external contractor costs, each in comparison to fiscal 2014.
In constant currency, total margin and margin as a percentage of total revenues decreased during fiscal 2015 due to the increase in total expenses for this business.
Fiscal 2014 Compared to Fiscal 2013: Excluding the effecteffects of currency rate fluctuations, our total services revenues increased modestlydecreased in fiscal 20122014 due to increased consulting and managed cloudrevenue decreases in each of our services business’ segments. The largest services revenues including incremental contributions fromdecrease was to our recently acquired companies, which were partially offset by decreases in our educationconsulting segment’s revenues.
On a constantExcluding the effects of currency basis,rate fluctuations, our total services expenses decreased during fiscal 20122014 primarily due to expense decreases in our consulting services segment primarily due to decreased headcount, lower third-partyexternal contractor expenses associated with our managed cloud services offerings,costs and lower intangible asset amortization and certain other net expense reductions.amortization.
Excluding the effect ofIn constant currency, rate fluctuations, total services margin and total margin as a percentage of total revenues increased during fiscal 2012 as our total services revenues increased while our total services expenses decreased.
Fiscal 2011 Compared to Fiscal 2010: Excluding the effect of currency rate fluctuations, the increase in our services revenues in fiscal 2011 was2014 due to increases in our managed cloud services revenues resulting from the full fiscal year impact of revenue contributions from our acquisition of Sun.
On a constant currency basis, our services expenses increased during fiscal 2011 primarily due to additional employee related expenses associated with a full fiscal year of expense contributions from Sun and higher third-party contractor expenses that supported our increase in revenues.
Excluding the effect of currency rate fluctuations, total services margin and total margin as a percentage of revenues increased during fiscal 2011 as our total services revenues increased at a faster rate than our total services expenses.reductions 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.
Year Ended May 31, | Year Ended May 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
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(Dollars in millions) | 2012 | Actual | Constant | 2011 | Actual | Constant | 2010 | 2015 | Actual | Constant | 2014 | Actual | Constant | 2013 | ||||||||||||||||||||||||||||||||||||||||||
Research and development(1) | $ | 4,228 | -1% | -1% | $ | 4,288 | 39% | 38% | $ | 3,082 | $ | 5,002 | 5% | 6% | $ | 4,766 | 6% | 7% | $ | 4,498 | ||||||||||||||||||||||||||||||||||||
Stock-based compensation | 295 | 28% | 28% | 231 | 35% | 35% | 172 | 522 | 36% | 36% | 385 | 9% | 9% | 352 | ||||||||||||||||||||||||||||||||||||||||||
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Total expenses | $ | 4,523 | 0% | 1% | $ | 4,519 | 39% | 38% | $ | 3,254 | $ | 5,524 | 7% | 8% | $ | 5,151 | 6% | 7% | $ | 4,850 | ||||||||||||||||||||||||||||||||||||
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% of Total Revenues | 12% | 13% | 12% | 14% | 13% | 13% |
(1) | Excluding stock-based compensation |
Fiscal 2012 Compared to Fiscal 2011: On a constant currency basis, total research and development expenses increased slightly during fiscal 2012 primarily as a result of an increase in employee related expenses such as salaries, benefits and stock-based compensation from increased headcount, which was partially offset by a decrease in variable compensation expenses and a decrease in certain legal costs.
Fiscal 2011 Compared to Fiscal 2010:On a constant currency basis, total research and development expenses increased during fiscal 20112015 and 2014, each relative to the respective prior year period, primarily due to the impact of Sun’s contributions to our expenses for the full fiscal year, including additionalincreased employee related expenses such as salaries, variable compensation, benefits and stock-based compensationresulting from increased headcount.headcount, including additional headcount from our recent acquisitions.
General and Administrative Expenses: General and administrative expenses primarily consist of personnel related expenditures for information technology, finance, legal and human resources support functions.
Year Ended May 31, | Year Ended May 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
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(Dollars in millions) | 2012 | Actual | Constant | 2011 | Actual | Constant | 2010 | 2015 | Actual | Constant | 2014 | Actual | Constant | 2013 | ||||||||||||||||||||||||||||||||||||||||||
General and administrative(1) | $ | 964 | 17% | 17% | $ | 825 | 6% | 4% | $ | 779 | $ | 929 | 7% | 10% | $ | 867 | -4% | -3% | $ | 908 | ||||||||||||||||||||||||||||||||||||
Stock-based compensation | 162 | 12% | 12% | 145 | 10% | 10% | 132 | 148 | -14% | -14% | 171 | 4% | 4% | 164 | ||||||||||||||||||||||||||||||||||||||||||
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Total expenses | $ | 1,126 | 16% | 16% | $ | 970 | 6% | 5% | $ | 911 | $ | 1,077 | 4% | 7% | $ | 1,038 | -3% | -2% | $ | 1,072 | ||||||||||||||||||||||||||||||||||||
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% of Total Revenues | 3% | 3% | 3% | 3% | 3% | 3% |
(1) | Excluding stock-based compensation |
Fiscal 20122015 Compared to Fiscal 2011:2014: On a constant currency basis, total general and administrative expenses increased in fiscal 2012 primarily as a result of a fiscal 2011 $120 million benefit from the recovery of certain legal costs, which reduced our expenses in fiscal 2011.
Fiscal 2011 Compared to Fiscal 2010:On a constant currency basis, total general and administrative expenses increased during fiscal 20112015 primarily due to the impact of Sun’s contributions to our expenses for the full fiscal year, primarily additionalhigher employee related expenses which wereresulting from increased headcount and higher professional fees.
Fiscal 2014 Compared to Fiscal 2013: On a constant currency basis, total general and administrative expenses decreased during fiscal 2014 primarily due to lower professional fees and lower variable compensation expenses, partially offset by the recovery of legal costs noted above.slightly increased salaries and benefits expenses due to an increase in headcount.
Amortization of Intangible Assets:
Year Ended May 31, | Year Ended May 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Percent Change | Percent Change | Percent Change | Percent Change | |||||||||||||||||||||||||||||||||||||||||||||||||||||
(Dollars in millions) | 2012 | Actual | Constant | 2011 | Actual | Constant | 2010 | 2015 | Actual | Constant | 2014 | Actual | Constant | 2013 | ||||||||||||||||||||||||||||||||||||||||||
Software support agreements and related relationships | $ | 585 | 3% | 3% | $ | 570 | -1% | -1% | $ | 574 | $ | 531 | -7% | -7% | $ | 571 | -2% | -2% | $ | 582 | ||||||||||||||||||||||||||||||||||||
Hardware systems support agreements and related relationships | 119 | 1% | 1% | 118 | 300% | 300% | 29 | 144 | 1% | 1% | 143 | 18% | 18% | 121 | ||||||||||||||||||||||||||||||||||||||||||
Developed technology | 923 | -7% | -7% | 992 | 22% | 22% | 811 | 700 | -1% | -1% | 706 | -15% | -15% | 826 | ||||||||||||||||||||||||||||||||||||||||||
Core technology | 337 | 9% | 9% | 308 | 11% | 11% | 277 | 182 | -43% | -43% | 318 | -3% | -3% | 329 | ||||||||||||||||||||||||||||||||||||||||||
Customer relationships and contract backlog | 370 | 2% | 2% | 363 | 55% | 55% | 234 | 312 | -7% | -7% | 334 | -5% | -5% | 350 | ||||||||||||||||||||||||||||||||||||||||||
Cloud software subscriptions and related relationships | 33 | 267% | 267% | 9 | * | * | — | |||||||||||||||||||||||||||||||||||||||||||||||||
SaaS, PaaS and IaaS agreements and related relationships and other | 203 | 35% | 35% | 150 | 33% | 33% | 113 | |||||||||||||||||||||||||||||||||||||||||||||||||
Trademarks | 63 | -7% | -7% | 68 | 41% | 41% | 48 | 77 | -1% | -1% | 78 | 22% | 22% | 64 | ||||||||||||||||||||||||||||||||||||||||||
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Total amortization of intangible assets | $ | 2,430 | 0% | 0% | $ | 2,428 | 23% | 23% | $ | 1,973 | $ | 2,149 | -7% | -7% | $ | 2,300 | -4% | -4% | $ | 2,385 | ||||||||||||||||||||||||||||||||||||
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Fiscal 2012 Compared to Fiscal 2011:Amortization of intangible assets indecreased during fiscal 2012 in comparison2015 and 2014, each relative to fiscal 2011 was flat as additional amortization from intangible assets that we acquired from our acquisitions of RightNow and Taleo in fiscal 2012 and from our acquisitions of ATG and Phase Forward in fiscal 2011, amongst others, were offset bythe respective prior year period, due to a reduction in expenses associated with certain of our intangible assets that became fully amortized. These decreases were partially offset by additional amortization from intangible assets that we acquired in connection with our acquisitions of MICROS in fiscal 2015 and Responsys in fiscal 2014, among others. Note 7 of Notes to Consolidated Financial Statements included elsewhere in this Annual Report has additional information regarding our intangible assets and related amortization.
Fiscal 2011 Compared to Fiscal 2010: Amortization of intangible assets increased in fiscal 2011 in comparison to fiscal 2010 due to additional amortization from intangible assets that we acquired including our acquisitions of ATG and Phase Forward in fiscal 2011 and our acquisition of Sun in fiscal 2010. These increases were partially offset by a reduction in expenses associated with certain of our intangible assets that became fully amortized.
Acquisition Related and Other Expenses: Acquisition related and other expenses consist of personnel related costs for transitional and certain other employees, stock-based compensation expenses, integration related professional services, certain business combination adjustments including certain adjustments after the measurement period has ended and changes in fair value of contingent consideration payable (see Note 2 of Notes to Consolidated Financial Statements included elsewhere in this Annual Report) and certain other operating expenses,items, net. Stock-based compensation expenses included in acquisition related and other expenses resultedresult from unvested stock options and restricted stock-based awards assumed from acquisitions whereby vesting was accelerated upon termination of the employees pursuant to the original terms of those stock options and restricted stock-based awards.
Year Ended May 31, | Year Ended May 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
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(Dollars in millions) | 2012 | Actual | Constant | 2011 | Actual | Constant | 2010 | 2015 | Actual | Constant | 2014 | Actual | Constant | 2013 | ||||||||||||||||||||||||||||||||||||||||||
Transitional and other employee related costs | $ | 25 | -81% | -81% | $ | 129 | 94% | 86% | $ | 66 | $ | 57 | 112% | 120% | $ | 27 | 1% | 2% | $ | 27 | ||||||||||||||||||||||||||||||||||||
Stock-based compensation | 33 | 254% | 254% | 10 | -37% | -37% | 15 | 5 | -48% | -48% | 10 | -69% | -69% | 33 | ||||||||||||||||||||||||||||||||||||||||||
Professional fees and other, net | 13 | -81% | -83% | 66 | -2% | -4% | 68 | (35 | ) | 274% | 279% | 20 | 107% | 107% | (276 | ) | ||||||||||||||||||||||||||||||||||||||||
Business combination adjustments, net | (15 | ) | -499% | -515% | 3 | -28% | -78% | 5 | 184 | 1,235% | 1,239% | (16 | ) | 96% | 96% | (388 | ) | |||||||||||||||||||||||||||||||||||||||
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Total acquisition related and other expenses | $ | 56 | -73% | -74% | $ | 208 | 35% | 27% | $ | 154 | $ | 211 | 412% | 411% | $ | 41 | 107% | 107% | $ | (604 | ) | |||||||||||||||||||||||||||||||||||
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Fiscal 20122015 Compared to Fiscal 2011:2014: On a constant currency basis, acquisition related and other expenses increased during fiscal 2015 primarily due to a $186 million goodwill impairment loss (refer to Note 7 of Notes to Consolidated Financial Statements included elsewhere in this Annual Report for additional information) and an increase in certain transitional employee related costs, primarily related to our acquisition of MICROS. These fiscal 2015 expense increases were partially offset by a $53 million benefit recorded in the second quarter of fiscal 2015 related to certain litigation (refer to Note 18 of Notes to Consolidated Financial Statements included elsewhere in this Annual Report for additional information).
Fiscal 2014 Compared to Fiscal 2013: On a constant currency basis, the decreaseincrease in our acquisition related and other expenses duringin fiscal 20122014 was primarily due to lower transitional employee related costs and professional services expenses in comparison to thosecertain benefits that were incurred inwe recorded during fiscal 2011 (primarily related to our acquisition of Sun), and was also due to a benefit from a business combination related legal settlement,2013, which reduced our expenses during this period. We recorded a net benefit of $387 million during fiscal 2012 expenses. These expense reductions were partially offset by an increase in stock-based compensation expenses associated with our recent acquisitions and expenses associated with2013 related to the change in fair value of contingent consideration payable (seein connection with an acquisition (refer to Note 2 of Notes to Consolidated Financial Statements included elsewhere in this Annual Report)Report for additional information).
Fiscal 2011 Compared We also recorded a $306 million benefit in fiscal 2013 to Fiscal 2010: On a constant currency basis, acquisition relatedprofessional fees and other, expenses increased primarily duenet related to the full fiscal year impactcertain litigation (refer to Note 18 of Sun’s expense contributions, including higher transitional employee related expenses.Notes to Consolidated Financial Statements included elsewhere in this Annual Report for additional information).
Restructuring expenses:Expenses: Restructuring expenses result 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. Restructuring expenses consist of employee severance costs and may also include charges for duplicate facilities and other contract termination costs to improve our cost structure prospectively. For additional information regarding our restructuring plans, see Note 9 of Notes to Consolidated Financial Statements included elsewhere in this Annual Report.
Year Ended May 31, | Year Ended May 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
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(Dollars in millions) | 2012 | Actual | Constant | 2011 | Actual | Constant | 2010 | 2015 | Actual | Constant | 2014 | Actual | Constant | 2013 | ||||||||||||||||||||||||||||||||||||||||||
Restructuring expenses | $ | 295 | -40% | -40% | $ | 487 | -22% | -23% | $ | 622 | $ | 207 | 14% | 22% | $ | 183 | -48% | -49% | $ | 352 |
Fiscal 2012 Compared to Fiscal 2011:Restructuring expenses in fiscal 20122015 primarily related to our Sun2015 Restructuring Plan whichand our 2013 Restructuring Plan. Restructuring expenses in fiscal 2014 and fiscal 2013 primarily related to our 2013 Restructuring Plan. Our management approved, committed to and initiated in order to better align our cost structure as a result of our acquisition of Sun. To a lesser extent, we also incurred expenses associated with other Oracle-basedthese plans which our management approved, committed to and initiated in order to restructure and further improve efficiencies in our Oracle-based operations. The decrease intotal estimated restructuring expenses in fiscal 2012 in comparisoncosts associated with the 2015 Restructuring Plan are up to those that were incurred in fiscal 2011 primarily related$626 million and will be recorded to the decrease in expenses incurred in connectionrestructuring expense line item within our consolidated statements of operations as they are incurred. The total estimated remaining restructuring costs associated with our Sun Restructuring Plan.
Fiscal 2011 Compared to Fiscal 2010: During fiscal 2011, we incurred restructuring expenses primarily in connection with our Sunthe 2015 Restructuring Plan were approximately $526 million as of May 31, 2015 and the majority of the remaining costs are expected to a lesser extent, we alsobe incurred expenses associated with other Oracle-based plans. Duringthrough the end of fiscal 2010, we recorded restructuring expenses primarily in connection with our Sun2016. Actions pursuant to the 2013 Restructuring Plan andwere substantially complete as of May 31, 2015 (refer to Note 9 of Notes to Consolidated Financial Statements included elsewhere in this Annual Report for additional information pertaining to our Fiscal 2009 Oracle2013 Restructuring Plan.Plan). Our estimated costs are subject to change in future periods.
Interest Expense:
Year Ended May 31, | Year Ended May 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
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(Dollars in millions) | 2012 | Actual | Constant | 2011 | Actual | Constant | 2010 | 2015 | Actual | Constant | 2014 | Actual | Constant | 2013 | ||||||||||||||||||||||||||||||||||||||||||
Interest expense | $ | 766 | -5% | -5% | $ | 808 | 7% | 7% | $ | 754 | $ | 1,143 | 25% | 25% | $ | 914 | 15% | 15% | $ | 797 |
Fiscal 20122015 Compared to Fiscal 2011:2014: Interest expense decreased in fiscal 2012 due to lower average borrowings as compared to fiscal 2011 primarily due to the maturity and repayment of $2.25 billion of senior notes in January 2011.
Fiscal 2011 Compared to Fiscal 2010:Interest expense increased in fiscal 20112015 primarily due to higher average borrowings resulting primarily from our issuance of $3.25$10.0 billion of senior notes in May 2015 and $10.0 billion of senior notes in July 2010. This2014. The increase in interest expense increasein fiscal 2015 was partially offset by a reduction in interest expense associated withduring fiscal 2015 resulting from the maturitiesmaturity and repaymentsrepayment of $2.25$1.5 billion of senior notes as noted above, and $1.0 billion of floating rate senior notes andthe related variablefixed to fixedvariable interest rate swap agreements in May 2010.July 2014. See Recent Financing Activities below and Note 8 of Notes to Consolidated Financial Statements included elsewhere in this Annual Report for additional information regarding our fiscal 2015 borrowings.
Fiscal 2014 Compared to Fiscal 2013: Interest expense increased in fiscal 2014 primarily due to higher average borrowings resulting from our issuance of $3.0 billion and €2.0 billion of senior notes in July 2013 and our issuance of $5.0 billion of senior notes in October 2012, partially offset by a reduction in interest expense resulting from the maturity and repayment of $1.25 billion of senior notes in April 2013.
Non-Operating Income (Expense), net: Non-operating income (expense), net consists primarily of interest income, net foreign currency exchange gains (losses), the noncontrolling interests in the net profits of our majority-owned subsidiaries (Oracle(primarily Oracle Financial Services Software Limited and Oracle 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, | ||||||||||||||||||||||||||||
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(Dollars in millions) | 2012 | Actual | Constant | 2011 | Actual | Constant | 2010 | |||||||||||||||||||||
Interest income | $ | 231 | 42% | 45% | $ | 163 | 34% | 32% | $ | 122 | ||||||||||||||||||
Foreign currency gains (losses), net | (105 | ) | -1,041% | -1,112% | 11 | 108% | 112% | (148 | ) | |||||||||||||||||||
Noncontrolling interests in income | (119 | ) | 23% | 25% | (97 | ) | -2% | -1% | (95 | ) | ||||||||||||||||||
Other income, net | 15 | -86% | -86% | 109 | 92% | 89% | 56 | |||||||||||||||||||||
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Total non-operating income (expense), net | $ | 22 | -88% | -83% | $ | 186 | 388% | 372% | $ | (65 | ) | |||||||||||||||||
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(Dollars in millions) Interest income Foreign currency losses, net Noncontrolling interests in income Other income, net Total non-operating income (expense), net Year Ended May 31, Percent Change Percent Change 2015 Actual Constant 2014 Actual Constant 2013 $ 349 33% 33% $ 263 10% 17% $ 237 (157 ) -58% -59% (375 ) 131% 127% (162 ) (113 ) 15% 15% (98 ) -12% -12% (112 ) 27 -60% -60% 69 44% 44% 48 $ 106 175% 187% $ (141 ) 1,343% 1,749% $ 11
Fiscal 20122015 Compared to Fiscal 2011: 2014:On a constant currency basis, our non-operating income, net decreased in fiscal 2012 primarily as a result of2015 increased due to lower net foreign currency transaction losses incurredand due to higher interest income resulting from higher cash, cash equivalent and short-term investment balances. Included in foreign currency losses, net in fiscal 2012 in comparison2015 was a remeasurement loss of $23 million related to net foreign currency transaction gains incurred in fiscal 2011. In addition, we incurred a decrease in other income, net, which was attributable to net gains recorded in fiscal 2011 due to favorable changes in the values of our marketable securities that we classify as trading that are held to support our deferred compensation plan obligations. These unfavorable variations to non-operating income, net were partially offset by increases in interest income during fiscal 2012 due to larger average cash, cash equivalents and marketable securities balances in comparison to fiscal 2011.
Fiscal 2011 Compared to Fiscal 2010: Venezuelan subsidiary. We recorded non-operating income, net during fiscal 2011 in comparison to non-operating expense, net in fiscal 20102014 primarily due to net foreign currency transaction losses incurred in fiscal 2010, which included a foreign currency remeasurement loss of $81$213 million resulting fromthat also related to our Venezuelan subsidiary. Note 1 of Notes to Consolidated Financial Statements included elsewhere in this Annual Report contains additional information regarding the designationforeign currency remeasurement losses we incurred in fiscal 2015, 2014 and 2013 related to our Venezuelan subsidiary.
Fiscal 2014 Compared to Fiscal 2013: We recorded non-operating expense, net in fiscal 2014 in comparison to non-operating income, net in fiscal 2013 primarily due to an increase in foreign currency losses, net that were incurred in fiscal 2014 including foreign currency remeasurement losses of $213 million that related to our Venezuelan subsidiary as “highly inflationary”(see Note 1 of Notes to Consolidated Financial Statements included elsewhere in accordance with the FASB’s ASC 830,Foreign Currency Matters, and the subsequent devaluation of the Venezuelan currency by the Venezuelan government. In addition, our interest income increased in fiscal 2011 due to larger average cash, cash equivalents and marketable securities balances and other income, net increased in fiscal 2011 as a result of gains recognized on the sale of certain equity investments.this Annual Report for additional information).
Provision for Income Taxes: Our effective tax rate in all periods is the result of the mix of income earned in various tax jurisdictions that apply a broad range of income tax rates. The provision for income taxes differs from the tax computed at the U.S. federal statutory income tax rate due primarily to earnings considered as indefinitely reinvested in foreign operations, state taxes, the U.S. research and development tax credit and the U.S. domestic production activity deduction. Future effective tax rates could be adversely affected if earnings are lower than anticipated in countries where we have lower statutory tax rates, by unfavorable changes in tax laws and regulations or by adverse rulings in tax related litigation.
Year Ended May 31, | Year Ended May 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Percent Change | Percent Change | Percent Change | Percent Change | |||||||||||||||||||||||||||||||||||||||||||||||||||||
(Dollars in millions) | 2012 | Actual | Constant | 2011 | Actual | Constant | 2010 | 2015 | Actual | Constant | 2014 | Actual | Constant | 2013 | ||||||||||||||||||||||||||||||||||||||||||
Provision for income taxes | $ | 2,981 | 4% | 4% | $ | 2,864 | 36% | 32% | $ | 2,108 | $ | 2,896 | 5% | 13% | $ | 2,749 | -7% | -6% | $ | 2,973 | ||||||||||||||||||||||||||||||||||||
Effective tax rate | 23.0% | 25.1% | 25.6% | 22.6% | 20.1% | 21.4% |
Fiscal 20122015 Compared to Fiscal 2011:2014: Provision for income taxes in fiscal 2015 increased, duringrelative to the provision for income taxes in fiscal 20122014, due substantiallyin substantial part to higheran unfavorable change in the jurisdictional mix of our fiscal 2015 earnings, and due to the effects of acquisition related settlements with tax authorities in fiscal 2014 that were not present in fiscal 2015, which together were partially offset by lower fiscal 2015 income before provision for income taxes.
Fiscal 2014 Compared to Fiscal 2013: Provision for income taxes partially offset byin fiscal 2014 decreased, relative to the favorable effects of an increase in the number of foreign subsidiaries in countries with lower statutory rates than the United States, the earnings of which we consider to be indefinitely reinvested outside the United States. If these subsidiaries generate sufficient earnings in the future, our provision for income taxes may continue to be favorably affectedin fiscal 2013, due to a meaningful extent, although any suchtax favorable change in the jurisdictional mix of our fiscal 2014 earnings and the effects could be significantly reduced under a variety of circumstances.
Fiscal 2011 Compared to Fiscal 2010: Provision for income taxes increasedacquisition related settlements with tax authorities during fiscal 2011 due substantially to higher income before provision for income taxes and a reduction in the impact of favorable judicial decisions and settlements with worldwide taxing authorities.2014.
Liquidity and Capital Resources
As of May 31, | As of May 31, | |||||||||||||||||||||||||||||||||||||||
(Dollars in millions) | 2012 | Change | 2011 | Change | 2010 | 2015 | Change | 2014 | Change | 2013 | ||||||||||||||||||||||||||||||
Working capital | $ | 24,635 | -1% | $ | 24,982 | 103% | $ | 12,313 | $ | 47,892 | 42% | $ | 33,739 | 17% | $ | 28,813 | ||||||||||||||||||||||||
Cash, cash equivalents and marketable securities | $ | 30,676 | 6% | $ | 28,848 | 56% | $ | 18,469 | $ | 54,368 | 40% | $ | 38,819 | 20% | $ | 32,216 |
Working capital: The decreaseincrease in working capital as of May 31, 20122015 in comparison to May 31, 20112014 was primarily due to an increase in our stock repurchasesissuance of $20.0 billion of long-term senior notes during fiscal 2012 in comparison to fiscal 2011 (we used $5.9 billion of cash for stock repurchases during fiscal 2012 in comparison to $1.2 billion used for stock repurchases during fiscal 2011), the reclassification of $1.25 billion of our senior notes due April 2013 as a
current liability, cash used for acquisitions and cash used to pay dividends to our stockholders. These decreases to working capital were almost entirely offset by2015, the favorable impact to our net current assets resulting from our net income during fiscal 2012.2015, and, to a lesser extent, cash proceeds from stock option exercises. These working capital increases were partially offset by $6.2 billion of net cash used for our acquisitions of MICROS and others, $8.1 billion of cash used for repurchases of our common stock, the reclassification of $2.0 billion of senior notes due January 2016 from long-term to current, and $2.3 billion of cash used to pay dividends to our stockholders, all of which occurred during fiscal 2015. Our working capital may be impacted by some or all of the aforementioned factors in future periods, certainthe amounts and timing of which are variable.
The increase in working capital as of May 31, 20112014 in comparison to May 31, 20102013 was primarily due to our issuance of €2.0 billion and $3.0 billion of long-term senior notes in July 2013, the favorable impact to our net current assets resulting from our net income during fiscal 20112014, and, our issuance of $3.25 billion of long-term senior notes in July 2010.to a lesser extent, cash proceeds from stock option exercises. These working capital increases were partially offset by the reclassification of $1.5 billion of senior notes due July 2014 from long-term to current, $9.8 billion of cash used for our acquisitions, repurchases of our common stock, and cash used to pay dividends to our stockholders.stockholders, and cash used for acquisitions.
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 U.S. Treasury obligations, U.S. government agency and government sponsored enterprise obligations and other securities with original maturities of 90 days or less. Marketable securities primarily consist of time deposits held at major banks, Tier-1 commercial paper, corporate notes U.S. Treasury obligations, U.S. government agency and government sponsored enterprise obligations and certain other securities. The increase in cash, cash equivalents and marketable securities at May 31, 20122015 in comparison to May 31, 20112014 was primarily due to an increase in cash generated from our operating activities, and our short-term borrowingissuance of $1.7$20.0 billion made pursuantof senior notes in fiscal 2015, and to a revolving credit agreement.lesser extent, cash proceeds from stock option exercises. These increases in cash, cash equivalents and marketable securities were partially offset by our June 2011 repayment of $1.15 billion of short-term borrowings pursuant to our expired revolving credit facilities, $255 million of cash used to repay RightNow’s legacy convertible notes after the closing of the acquisition, the use of $4.7$6.2 billion of net cash paid for our acquisitions theof MICROS and others, $8.1 billion of repurchases of our common stock, (see discussion above)the repayment of $1.5 billion of senior notes and $2.3 billion used for the payment of cash dividends to our stockholders. Cash, cash equivalents and marketable securities included $26.8$42.7 billion held by our foreign subsidiaries as of May 31, 2012, $20.92015. We consider $38.0 billion of which we considerour undistributed earnings as indefinitely reinvested earningsin our foreign operations outside the United States. These undistributed earnings would be subject to U.S. income tax if repatriated to the United States. Assuming a full utilization of the foreign tax credits, the potential deferred tax liability associated with these undistributed earnings would be approximately $6.3$11.8 billion as of May 31, 2012.2015 should the amounts be repatriated to the United States. The amount of cash, cash equivalents and marketable securities that we report in U.S. Dollars for a significant portion of the cash, cash equivalents and marketable securities balances held by our foreign subsidiaries is subject to translation adjustments caused by changes in foreign currency exchange rates as of the end of each respective reporting period (the offset to which is substantially recorded to accumulated other comprehensive incomeloss in our consolidated balance sheet)sheets and is also presented as a line item in our consolidated statements of comprehensive income included elsewhere in this Annual Report). As the U.S. Dollar generally strengthened against certain major international currencies during fiscal 2012,2015, the amount of cash, cash equivalents and marketable securities that we reported in U.S. Dollars for these subsidiaries decreased on a net basis as of May 31, 20122015 relative to what we would have reported using constant currency rates as offrom our May 31, 2011.2014 balance sheet date.
The increase in cash, cash equivalents and marketable securities at May 31, 20112014 in comparison to May 31, 20102013 was primarily due to an increase in cash generated from our operating activities, our issuance of $3.25€2.0 billion and $3.0 billion of senior notes in July 20102013, and $1.15to a lesser extent, cash proceeds from stock option exercises. These increases were partially offset by $9.8 billion of short-term borrowings made pursuant to certainrepurchases of our revolving credit agreements.common stock, $3.5 billion of net cash paid for acquisitions and $2.2 billion used for the payment of cash dividends to our stockholders. Additionally, our reported cash, cash equivalents and marketable securities balances increasedas of May 31, 2014 decreased on a net basis in comparison to May 31, 2013 due to the weakeningmodest strengthening of the U.S. Dollar in comparison to certain major international currencies during fiscal 2011. These increases in our cash, cash equivalents and marketable securities balances were partially offset by the repayment of $2.25 billion of our senior notes which matured in January 2011, the repayment of $881 million of commercial paper notes, the usage of $1.9 billion of net cash for acquisitions, repurchases of our common stock and the payments of cash dividends to our stockholders.2014.
Days sales outstanding, which is calculatedwe calculate by dividing period end accounts receivable by average daily sales for the quarter, was 5347 days at May 31, 20122015 compared with 5548 days at May 31, 2011.2014. The days sales outstanding calculation excludes the impact of revenue adjustments resulting from business combinations that primarily reducereduced our acquired cloud software subscription,SaaS and PaaS obligations, software license updates and product support obligations and hardware systems support obligations to fair value.
Year Ended May 31, | ||||||||||||||||||||
(Dollars in millions) | 2012 | Change | 2011 | Change | 2010 | |||||||||||||||
Net cash provided by operating activities | $ | 13,743 | 23% | $ | 11,214 | 29% | $ | 8,681 | ||||||||||||
Net cash used for investing activities | $ | (8,381 | ) | 38% | $ | (6,081 | ) | -41% | $ | (10,319 | ) | |||||||||
Net cash (used for) provided by financing activities | $ | (6,099 | ) | 1,282% | $ | 516 | 81% | $ | 2,664 |
(Dollars in millions) Net cash provided by operating activities Net cash used for investing activities Net cash provided by (used for) financing activities Year Ended May 31, 2015 Change 2014 Change 2013 $ 14,336 -4% $ 14,921 5% $ 14,224 $ (19,047 ) 153% $ (7,539 ) 27% $ (5,956 ) $ 9,850 342% $ (4,068 ) 52% $ (8,500 )
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 software license updates and product support agreements. Payments from customers for these support agreements are generally received near the beginning of the contracts’ terms, which are generally one year in length. WeOver the course of a fiscal year, we also generate significanthave historically generated cash from the sales of new software license sales, sales oflicenses, cloud SaaS and PaaS offerings, hardware systems products, and hardware systems support arrangements, and to a lesser extent, services. Our primary uses of cash from operating activities are for employee related expenditures, material and manufacturing costs related to the production of our hardware systems products, taxes and leased facilities.
Fiscal 20122015 Compared to Fiscal 2011:2014: Net cash provided by operating activities decreased in fiscal 2015 in comparison to fiscal 2014 primarily due to the cash unfavorable effects of foreign currency exchange rate variances on our fiscal 2015 net income of 7 percentage points.
Fiscal 2014 Compared to Fiscal 2013: Net cash provided by operating activities increased in fiscal 2012 primarily due to increased net income adjusted for amortization of intangible assets, stock-based compensation and depreciation, an increase in cash from the collection of trade receivables, an increase in cash received that relates to our deferred revenue balances, a decrease in cash used to pay income tax obligations and certain other net cash favorable working capital movements, in each case compared to fiscal 2011. These cash favorable movements were partially offset by an increase in cash used to pay compensation liabilities in fiscal 2012 such as commissions and bonuses2014 in comparison to fiscal 2011.
Fiscal 2011 Compared to Fiscal 2010: Net cash provided by operating activities increased in fiscal 20112013 primarily due to higherthe following: the fiscal 2013 non-recurring impacts of a $387 million reduction of contingent consideration payable in connection with an acquisition (refer to Note 2 of Notes to Consolidated Financial Statements included elsewhere in this Annual Report for additional information) and the impact of a $306 million non-current receivable related to certain litigation (refer to Note 18 of Notes to Consolidated Financial Statements included elsewhere in this Annual Report for additional information), both of which increased our net income adjusted for amortization of intangible assets, stock-based compensation and depreciation.in fiscal 2013 without the corresponding operating cash flow benefits. These items did not recur during fiscal 2011 increases were partially offset by certain unfavorable changes in working capital, primarily increases in net trade receivables resulting from increases in revenues during our fiscal fourth quarter of 2011 in comparison to fiscal 2010.2014.
Cash flows from investing activities: The changes in cash flows from investing activities primarily relate to acquisitions and the timing of purchases, maturities and sales of our investments in marketable debt securities. We also use cash to invest in capital and other assets, including certain intangible assets, to support our growth.
Fiscal 2012 Compared to Fiscal 2011:Net cash used for investing activities increased in fiscal 20122015 and 2014, each relative to the respective prior year period, primarily due to an increase in cash used for acquisitions, net of cash acquired, and an increase in capital expenditures, partially offset by a decrease in net cash used to purchase marketable securities (net of proceeds received from sales and maturities).
Fiscal 2011 Compared to Fiscal 2010: Net cash used for investing activities decreased in fiscal 2011 due to a decrease in cash used for acquisitions, net of cash acquired, and a decrease in cash used to purchase marketable securities (net of proceeds received from sales and maturities), partially offset by an increase in net capital expenditures.
Cash flows from financing activities: The changes in cash flows from financing activities primarily relate to borrowings and payments underrepayments related to our debt facilitiesinstruments as well as stock repurchases, dividend payments and proceeds from stock option exercises.
Fiscal 20122015 Compared to Fiscal 2011: We used net cash for financing activities in fiscal 2012 of $6.1 billion in comparison to net cash provided by financing activities in fiscal 2011 of $516 million primarily due to our increase in common stock repurchases in fiscal 2012 (see discussion in “Working Capital” above and Note 13 of Notes to Consolidated Financial Statements included elsewhere in this Annual Report for additional information), a reduction in the amount of debt that we issued in fiscal 2012 ($1.7 billion of short-term borrowings pursuant to a revolving credit facility in May 2012 in comparison to $3.25 billion of long-term senior notes in July 2010 and $1.15 billion of borrowings pursuant to revolving credit facilities in May 2011), and a decrease in proceeds from stock option exercises during fiscal 2012, in each case in comparison to fiscal 2011. These unfavorable impacts to our financing cash flows during fiscal 2012 were partially offset by a decrease in cash used for debt related repayments during fiscal 2012 ($1.15 billion of short-term borrowings pursuant to our revolving credit facilities and $255 million of RightNow’s legacy convertible notes were repaid in February 2012 in comparison to fiscal 2011 repayments of $2.25 billion of senior notes and $881 million of commercial paper notes).
Fiscal 2011 Compared to Fiscal 2010:2014: Net cash provided by financing activities in fiscal 2011 decreased2015 increased in comparison to net cash used by financing activities in fiscal 2014 primarily due to a reductionnet increase in the amount of debt that we issuedborrowings in fiscal 2011 ($1.15 billion borrowed pursuant to our revolving credit facilities and $3.252015 (we issued $20.0 billion of long-term senior notes issued)during fiscal 2015 in comparison to fiscal 2010 ($4.5€2.0 billion and $3.0 billion of long-term senior notes and $2.8 billion of commercial paper notes issued). This unfavorable impactduring fiscal 2014) as well as lower stock repurchase activity during fiscal 2015. These favorable impacts to our financing cash flows wasduring fiscal 2015 were partially offset by a cash favorable reduction in debtthe repayment of $1.5 billion of borrowings pursuant to senior notes maturities during fiscal 2015 (no repayments during fiscal 2011 (repayments2014).
Fiscal 2014 Compared to Fiscal 2013: Net cash used for financing activities in fiscal 2014 decreased in comparison to fiscal 2013 primarily due to the repayment of $2.25$3.0 billion of borrowings pursuant to senior notes maturities and certain expired revolving credit facilities in fiscal 2013 (no repayments during fiscal 2014), a net increase in borrowings during fiscal 2014 (we issued €2.0 billion and $3.0 billion of senior notes in January 2011 and $881 million of commercial paper notes)during fiscal
2014 in comparison to fiscal 2010 (repayments of $1.9$5.0 billion of commercial paper notes, $1.0 billion of floating rate senior notes issued during fiscal 2013), lower stock repurchase activity during fiscal 2014 and $700 million of Sun’s legacy convertible notes) and an increase inhigher proceeds from stock option exercises during fiscal 2011.2014. These fiscal 2014 cash favorable variances were partially offset by an increase in payments of cash dividends to stockholders in fiscal 2014 in comparison to fiscal 2013.
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 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 flows as follows:
Year Ended May 31, | Year Ended May 31, | |||||||||||||||||||||||||||||||||||||||
(Dollars in millions) | 2012 | Change | 2011 | Change | 2010 | 2015 | Change | 2014 | Change | 2013 | ||||||||||||||||||||||||||||||
Net cash provided by operating activities | $ | 13,743 | 23% | $ | 11,214 | 29% | $ | 8,681 | $ | 14,336 | -4% | $ | 14,921 | 5% | $ | 14,224 | ||||||||||||||||||||||||
Capital expenditures(1) | (648 | ) | 44% | (450 | ) | 96% | (230 | ) | (1,391 | ) | 140% | (580 | ) | -11% | (650 | ) | ||||||||||||||||||||||||
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Free cash flow | $ | 13,095 | 22% | $ | 10,764 | 27% | $ | 8,451 | $ | 12,945 | -10% | $ | 14,341 | 6% | $ | 13,574 | ||||||||||||||||||||||||
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Net income | $ | 9,981 | $ | 8,547 | 39% | $ | 6,135 | $ | 9,938 | $ | 10,955 | $ | 10,925 | |||||||||||||||||||||||||||
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Free cash flow as percent of net income | 131% | 126% | 138% | 130% | 131% | 124% |
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Long-Term Customer Financing: We offer certain of our customers the option to acquire our software products, hardware systems products and services offerings through separate long-term payment contracts. We generally sell these contracts that we have financed for our customers on a non-recourse basis to financial institutions within 90 days of the contracts’ dates of execution. We record the transfers of amounts due from customers to financial institutions as sales of financial assets because we are considered to have surrendered control of these financial assets. We financed $1.6 billion $1.5in each of fiscal 2015 and 2014, and $1.8 billion and $1.2 billion, respectively,in fiscal 2013, or approximately 16%19%, 17% and 19%, respectively, of our new software licenselicenses revenues in each of fiscal 2012, 20112015, 2014 and 2010, and $1342013. We financed $172 million, $168 million and $117$161 million respectively, or approximately 3% of our hardware systems products revenues in fiscal 2015, 2014 and 2013, respectively, or approximately 6% in each of fiscal 20122015 and 2011.2014 and 5% in fiscal 2013 of our hardware systems products revenues.
Recent Financing Activities:
Revolving Credit AgreementSenior Notes: OnAs of May 29, 2012,31, 2015, we borrowed $1.7had $42.0 billion pursuant to a revolving credit agreementof senior notes outstanding ($24.1 billion outstanding as of May 31, 2014). In fiscal 2015, we issued $20.0 billion of senior notes comprised of $1.0 billion of floating rate notes due July 2017 (2017 Notes), $750 million of floating rate notes due October 2019 (2019 Floating Rate Notes), $2.0 billion of 2.25% notes due October 2019 (2019 Notes), $1.5 billion of 2.80% notes due July 2021 (2021 Notes), $2.5 billion of 2.50% notes due May 2022 (2022 Notes), $2.0 billion of 3.40% notes due July 2024 (2024 Notes), $2.5 billion of 2.95% notes due May 2025 (2025 Notes), $500 million of 3.25% notes due May 2030 (2030 Notes), $1.75 billion of 4.30% notes due July 2034 (2034 Notes), $1.25 billion of 3.90% notes due May 2035 (2035 Notes), $1.0 billion of 4.50% notes due July 2044 (2044 Notes), $2.0 billion of 4.125% notes due May 2045 (2045 Notes) and $1.25 billion of 4.375% notes due May 2055 (2055 Notes, and together with JPMorgan Chase Bank, N.A., as initial lenderthe 2017 Notes, 2019 Floating Rate Notes, 2019 Notes, 2021 Notes, 2022 Notes, 2024 Notes, 2025 Notes, 2030 Notes, 2034 Notes, 2035 Notes, 2044 Notes and administrative agent;2045 Notes, the Senior Notes).
We issued the Senior Notes for general corporate purposes, which may include stock repurchases, payment of cash dividends on our common stock, future acquisitions and J.P. Morgan Securities, LLC, as sole lead arranger and sole bookrunner (the 2012 Credit Agreement). Interest for the 2012 Credit Agreement is based on either (x) a “base rate” calculated as the highestrepayment of (i) JPMorgan’s prime rate, (ii) the federal funds effective rate plus 0.50% and (iii) the LIBOR for deposits in U.S. Dollars plus 1%, or (y) LIBOR for deposits made in U.S. Dollars plus 0.35%, depending on the type of borrowings made by us. This borrowing is due on July 2, 2012, which is the termination date of the 2012 Credit Agreement.indebtedness. Additional details regarding the 2012 Credit Agreementour Senior Notes and related interest rate swap agreements are included in NoteNotes 8 and 11 of Notes to Consolidated Financial Statements included elsewhere in this Annual Report.
In July 2014, our 3.75% senior notes due July 2014 for $1.5 billion matured and were repaid, and we settled the fixed to variable interest rate swap agreements associated with such fixed rate senior notes.
Interest Rate Swap Agreements: 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 2019 Notes and 2021 Notes so that the interest payable on these notes effectively became variable based on LIBOR. As of May 31, 2015, our 2019 Notes and 2021 Notes had effective interest rates of 0.76% and 0.91%, respectively, after considering the effects of the aforementioned interest rate swap arrangements. We are accounting for these interest rate swap agreements as fair value hedges pursuant to ASC 815,Derivatives and Hedging. Additional details regarding our Senior Notes and related interest rate swap agreements are included in Notes 8 and 11 of Notes to Consolidated Financial Statements included elsewhere in this Annual Report.
OnCash Dividends: In fiscal 2015, we declared and paid cash dividends of $0.51 per share that totaled $2.3 billion, an increase of $0.03 per share over the cash dividends declared and paid in fiscal 2014. In June 30, 2011,2015, our revolving credit agreements with BNP Paribas,Board of Directors declared a quarterly cash dividend of $0.15 per share of outstanding common stock payable on July 29, 2015 to stockholders of record as initial lender and administrative agent, and BNP Paribas Securities Corp., as sole lead arranger and sole bookrunner (the 2011 Credit Agreements), to borrow $1.15 billion were repaid in fullof the close of business on July 8, 2015. Future declarations of dividends and the 2011 Credit Agreements expired pursuant to their terms.
RightNow Convertible Notes: Subsequentestablishment of future record and payment dates are subject to the closingfinal determination of our acquisitionBoard of RightNow, we repaid, in full, $255 million of RightNow’s legacy convertible notes during the third quarter of fiscal 2012.
Senior Notes: As of May 31, 2012 and May 31, 2011, we had $14.8 billion of senior notes outstanding of which $1.3 billion matures and is payable in fiscal 2013. In accordance with our obligations under a registration rights agreement entered into in July 2010 in connection with the original issuance of our $3.25 billion of fixed rate senior notes consisting of $1.0 billion of 3.875% notes due July 2020 (2020 Notes) and $2.25 billion of 5.375% notes due July 2040 (2040 Notes, and together with the 2020 Notes, the Original Senior Notes), on December 16, 2011 we completed a registered offer to exchange the Original Senior Notes for new freely tradable notes having terms substantially identical to the Original Senior Notes. An aggregate of $994 million principal amount of the 2020 Notes and an aggregate of $2.24 billion principal amount of the 2040 Notes were tendered and exchanged in the offer. Additional details regarding these senior notes and all other borrowings are included in Note 8 of Notes to Consolidated Financial Statements included elsewhere in this Annual Report.Directors.
Common Stock Repurchases: Our Board of Directors has approved a program for us to repurchase shares of our common stock. On December 20, 2011,September 18, 2014, we announced that our Board of Directors approved an expansion of our stock repurchase program by an additional $5.0 billion. On June 18, 2012, we announced that our Board of Directors approved a further expansion by an additional $10.0$13.0 billion. As of May 31, 2012,2015, approximately $3.1$9.2 billion remained available for stock repurchases under the stock repurchase program prior to the June 2012 additional amount authorized.program. We repurchased 207.3193.7 million shares for $6.0$8.1 billion, 40.4280.4 million shares for $1.2$9.8 billion, and 43.3346.1 million shares for $1.0$11.0 billion in fiscal 2012, 20112015, 2014 and 2010,2013, respectively. 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 repayments,payments, our debt repayment obligations (described further below), 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.
Cash Dividends: In fiscal 2012, we declared and paid cash dividends of $0.24 per share that totaled $1.2 billion. In June 2012, our Board of Directors declared a quarterly cash dividend of $0.06 per share of outstanding common stock payable on August 3, 2012 to stockholders of record as of the close of business on July 13, 2012. Future declarations of dividends and the establishment of future record and payment dates are subject to the final determination of our Board of Directors.
Contractual Obligations: The contractual obligations presented in the table below represent our estimates of future payments under fixed contractual obligations and commitments. Changes in our business needs, cancellation provisions, changing interest rates and other factors may result in actual payments differing from these estimates. We cannot provide certainty regarding the timing and amounts of payments. We have presented below a summary of the most significant assumptions used in preparing this information within the context of our consolidated financial position, results of operations and cash flows. The following is a summary of certain of our contractual obligations as of May 31, 2012:2015:
Year Ending May 31, | Year Ending May 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
(Dollars in millions) | Total | 2013 | 2014 | 2015 | 2016 | 2017 | Thereafter | Total | 2016 | 2017 | 2018 | 2019 | 2020 | Thereafter | ||||||||||||||||||||||||||||||||||||||||||
Principal payments on borrowings(1) | $ | 16,450 | $ | 2,950 | $ | — | $ | 1,500 | $ | 2,000 | $ | — | $ | 10,000 | $ | 42,466 | $ | 2,000 | $ | — | $ | 6,000 | $ | 2,000 | $ | 4,500 | $ | 27,966 | ||||||||||||||||||||||||||||
Interest payments on borrowings(1) | 10,063 | 738 | 676 | 665 | 655 | 550 | 6,779 | 20,166 | 1,439 | 1,334 | 1,315 | 1,154 | 1,083 | 13,841 | ||||||||||||||||||||||||||||||||||||||||||
Operating leases(2) | 1,535 | 406 | 307 | 227 | 172 | 129 | 294 | 1,247 | 330 | 270 | 209 | 156 | 107 | 175 | ||||||||||||||||||||||||||||||||||||||||||
Purchase obligations and other(3) | 579 | 523 | 49 | 4 | 3 | — | — | 1,181 | 713 | 195 | 124 | 85 | 64 | — | ||||||||||||||||||||||||||||||||||||||||||
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Total contractual obligations | $ | 28,627 | $ | 4,617 | $ | 1,032 | $ | 2,396 | $ | 2,830 | $ | 679 | $ | 17,073 | $ | 65,060 | $ | 4,482 | $ | 1,799 | $ | 7,648 | $ | 3,395 | $ | 5,754 | $ | 41,982 | ||||||||||||||||||||||||||||
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Short-term borrowings (effective interest rate of 0.24%) | $ | 1,700 | ||
4.95% senior notes due April 2013 | 1,250 | |||
3.75% senior notes due July 2014, including fair value adjustment of $69 | 1,569 | |||
5.25% senior notes due January 2016, net of discount of $4 | 1,996 | |||
5.75% senior notes due April 2018, net of discount of $1 | 2,499 | |||
5.00% senior notes due July 2019, net of discount of $5 | 1,745 | |||
3.875% senior notes due July 2020, net of discount of $2 | 998 | |||
6.50% senior notes due April 2038, net of discount of $2 | 1,248 | |||
6.125% senior notes due July 2039, net of discount of $8 | 1,242 | |||
5.375% senior notes due July 2040, net of discount of $24 | 2,226 | |||
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Total borrowings | $ | 16,473 | ||
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We have entered into certain interest rate swap agreements related to our |
Our 2017 Notes, our floating rate senior notes due January 2019 and our 2019 Floating Rate Notes bore interest at a rate of 0.47%, 0.86% and 0.78%, respectively, as of May 31, 2015 and interest payments on these notes presented in |
Our 2.25% senior notes due January 2021 (January 2021 Notes) and our |
(2) | Primarily represents leases of facilities and includes future minimum rent payments for facilities that we have vacated pursuant to our restructuring and merger integration activities. We have approximately |
(3) | Primarily represents amounts associated with agreements that are enforceable, legally binding and specify terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the payment. We utilize several external manufacturers to manufacture sub-assemblies for our hardware products and to perform final assembly and testing of finished hardware products. We also obtain individual hardware components for our 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 amount presented in the above contractual obligations table. 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 |
As of May 31, 2012,2015, we had $4.0$4.8 billion of gross unrecognized income tax benefits, including related interest and penalties, recorded on our consolidated balance sheet and all such obligations have been excluded from the table above due to the uncertainty as to when they might be settled. We have reached certain settlement agreements with relevant taxing authorities to pay approximately $47.5 million of these liabilities. Although it remains unclear as to when payments pursuant to these agreements will be made, some or all may be made in fiscal 2013.
We cannot make a reasonably reliable estimate of the period in which the remainder of our unrecognized income tax benefits will be settled or released with the relevant tax authorities, although we believe it is reasonably possible that certain of these liabilities could be settled or released during fiscal 2013.
As described in Note 2 of Notes to Consolidated Financial Statements included elsewhere in this Annual Report, we have contingent consideration payable as a result of our acquisition of Pillar Data Systems, Inc. that will settle in fiscal 2015.
Subsequent to fiscal 2012, we agreed to acquire certain companies for amounts that are not material to our business. We expect to close such acquisitions within the next twelve months.2016.
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 we could fund any 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.
Off-Balance Sheet Arrangements: We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that areis material to investors.
Selected Quarterly Financial Data
Quarterly revenues, expenses and operating income have historically been affected by a variety of seasonal factors, including sales force incentive compensation plans. In addition, our European operations generally provide lower revenues in our first fiscal quarter because of the reduced economic activity in Europe during the summer. These seasonal factors are common in the high technology industry. These factors have caused a decrease in our first quarter revenues as compared to revenues in the immediately preceding fourth quarter, which historically has been our highest revenue quarter within a particular fiscal year. Similarly, the operating income of our business is affected by seasonal factors in a consistent manner as our revenues (in particular, our new software licenses and cloud software subscriptions segment) as certain expenses within our cost structure are relatively fixed in the short-term. We expect these trends to continue in fiscal 2013.2016.
The following tables set forth selected unaudited quarterly information for our last eight fiscal quarters. We believe that all necessary adjustments, which consisted only of normal recurring adjustments, have been included in the amounts stated below to present fairly the results of such periods when read in conjunction with the consolidated financial statements and related notes included elsewhere in this Annual Report. The sum of the quarterly financial information may vary from the annual data due to rounding.
Fiscal 2012 Quarter Ended (Unaudited) | Fiscal 2015 Quarter Ended (Unaudited) | |||||||||||||||||||||||||||||||
(in millions, except per share amounts) | August 31 | November 30 | February 29 | May 31 | August 31 | November 30 | February 28 | May 31 | ||||||||||||||||||||||||
Revenues | $ | 8,374 | $ | 8,792 | $ | 9,039 | $ | 10,916 | $ | 8,596 | $ | 9,598 | $ | 9,327 | $ | 10,706 | ||||||||||||||||
Gross profit | $ | 6,339 | $ | 6,792 | $ | 7,088 | $ | 8,853 | $ | 6,878 | $ | 7,657 | $ | 7,394 | $ | 8,611 | ||||||||||||||||
Operating income | $ | 2,683 | $ | 3,111 | $ | 3,317 | $ | 4,596 | $ | 2,963 | $ | 3,542 | $ | 3,383 | $ | 3,982 | ||||||||||||||||
Net income | $ | 1,840 | $ | 2,192 | $ | 2,498 | $ | 3,451 | $ | 2,184 | $ | 2,502 | $ | 2,495 | $ | 2,758 | ||||||||||||||||
Earnings per share—basic | $ | 0.36 | $ | 0.43 | $ | 0.50 | $ | 0.70 | $ | 0.49 | $ | 0.57 | $ | 0.57 | $ | 0.63 | ||||||||||||||||
Earnings per share—diluted | $ | 0.36 | $ | 0.43 | $ | 0.49 | $ | 0.69 | $ | 0.48 | $ | 0.56 | $ | 0.56 | $ | 0.62 | ||||||||||||||||
Fiscal 2011 Quarter Ended (Unaudited) | ||||||||||||||||||||||||||||||||
(in millions, except per share amounts) | August 31 | November 30 | February 28 | May 31 | ||||||||||||||||||||||||||||
Revenues | $ | 7,502 | $ | 8,582 | $ | 8,764 | $ | 10,775 | ||||||||||||||||||||||||
Gross profit | $ | 5,401 | $ | 6,384 | $ | 6,707 | $ | 8,544 | ||||||||||||||||||||||||
Operating income | $ | 1,917 | $ | 2,770 | $ | 2,987 | $ | 4,359 | ||||||||||||||||||||||||
Net income | $ | 1,352 | $ | 1,870 | $ | 2,116 | $ | 3,209 | ||||||||||||||||||||||||
Earnings per share—basic | $ | 0.27 | $ | 0.37 | $ | 0.42 | $ | 0.63 | ||||||||||||||||||||||||
Earnings per share—diluted | $ | 0.27 | $ | 0.37 | $ | 0.41 | $ | 0.62 |
(in millions, except per share amounts) Revenues Gross profit Operating income Net income Earnings per share—basic Earnings per share—diluted Fiscal 2014 Quarter Ended (Unaudited) August 31 November 30 February 28 May 31 $ 8,372 $ 9,275 $ 9,307 $ 11,320 $ 6,607 $ 7,420 $ 7,490 $ 9,340 $ 2,873 $ 3,410 $ 3,567 $ 4,909 $ 2,191 $ 2,553 $ 2,565 $ 3,646 $ 0.48 $ 0.56 $ 0.57 $ 0.81 $ 0.47 $ 0.56 $ 0.56 $ 0.80
Stock Options and Restricted Stock-Based Awards
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 historically have granted only stock options to our employees and any restricted stock-based awards outstanding were assumed as a result of our acquisitions.
We recognize that stock options and restricted stock-based awards dilute existing stockholders and have sought to control the number of stock options and restricted stock-based awards granted while providing competitive compensation packages. Consistent with these dual goals, our cumulative potential dilution since June 1, 20092012 has been a weighted average annualized rate of 1.7%1.9% per year. The potential dilution percentage is calculated as the average annualized new stock options or restricted stock-based awards granted and assumed, net of stock options and restricted stock-based awards 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 stock options are exercised and restricted stock-based awards vest. Some ofOf the outstanding stock options at May 31, 2015, which generally have a 10 year10-year exercise period, less than 1.0% have exercise prices higher than the current market price of our common stock. At May 31, 2012, 28.0% of our outstanding stock options had exercise prices in excess of the current market price.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 reduce the level of our stock repurchases in the future as we may use our available cash for acquisitions, to pay dividends, to repay or repurchase indebtedness or for other purposes. At May 31, 2012,2015, the maximum potential dilution from all outstanding and unexercised stock options and restricted stock-based awards, regardless of when granted and regardless of whether vested or unvested and including stock options where the strike price is higher than the current market price as of such date, was 8.7%10.2%.
The Compensation Committee of the Board of Directors reviews and approves the organization-wide stock optionstock-based award grants to selected employees, all stock optionstock-based award grants to executive officers and any individual stock option grantsgrant of stock-based awards in excess of 100,000 stock option equivalent shares. A separate Plan Committee, which is an executive officer committee, approves individual stock optionstock-based award grants of up to 100,000 stock option equivalent shares to non-executive officers and employees. Stock option and restricted stock-based award activity from June 1, 20092012 through May 31, 20122015 is summarized as follows (shares in millions):
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Stock options and restricted stock-based awards granted | 312 | |||
Stock options and restricted stock-based awards assumed | 20 | |||
Stock options exercised and restricted stock-based awards vested | (250 | ) | ||
Forfeitures, cancellations and other, net | (66 | ) | ||
Stock options and restricted stock-based awards outstanding at May 31, 2015 | 441 | |||
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Weighted average annualized stock options and restricted stock-based awards granted and assumed, net of forfeitures and | ||||
Weighted average annualized stock repurchases | ( | ) | ||
Shares outstanding at May 31, | ||||
Basic weighted average shares outstanding from June 1, | ||||
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In the money stock options and total restricted stock-based awards outstanding (based on the closing price of our common stock on the last trading day of our fiscal period presented) as a percent of shares outstanding at May 31, | ||||
Weighted average annualized stock options and restricted stock-based awards granted and assumed, net of forfeitures and cancellations and before stock repurchases, as a percent of weighted average shares outstanding from June 1, | ||||
Weighted average annualized stock options and restricted stock-based awards granted and assumed, net of forfeitures and cancellations and after stock repurchases, as a percent of weighted average shares outstanding from June 1, |
Our Compensation Committee approves the annual organization-wide optionstock-based award grants to certain employees. These annual optionstock-based award grants are generally made during the ten business day period following the second trading day after the announcement of our fiscal fourth quarter earnings report.
Recent Accounting Pronouncements
For information with respect to recent accounting pronouncements and the impact of these pronouncements on our consolidated financial statements, see Note 1 of Notes to Consolidated Financial Statements included elsewhere in this Annual Report.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Cash, Cash Equivalents, Marketable Securities and Interest Income Risk
Our bank deposits and money market investmentstime deposits are generally held with a number of large, diverse financial institutions worldwide with high investment grade credit ratings or financial institutions that meet investment grade ratings criteria, which we believe mitigates credit risk and certain other risks. In addition, we purchaseas of May 31, 2015, substantially all of our marketable securities are high quality debt security investments, all of which havewith approximately 28% having maturity dates if any, within twoone year and 72% having maturity dates within one to six years from the date of purchase (see a description of our debtmarketable securities held in NotesNote 3 and Note 4 of Notes to Consolidated Financial Statements included elsewhere in this Annual Report and “Liquidity and Capital Resources” above). Therefore,We hold a mix of both fixed and floating rate debt securities. Our floating rate debt securities serve to lower the overall risk to our investments portfolio associated with the risk of rising interest rates. The fair values of our fixed rate debt securities are impacted by interest rate movements generally do not materially affectand if interest rates increased by 50 basis points as of May 31, 2015, we estimate the valuationchange would decrease the fair
values of our debt security investments.marketable securities holdings by $191 million. Substantially all of our marketable securities are designated as available-for-sale. We generally do not use our investments for trading purposes.
Changes in the overall level of interest rates affect the interest income that is generated from our cash, cash equivalents and marketable securities. For fiscal 2012,2015, total interest income was $231$349 million with our cash, cash equivalents and marketable securities investments yielding an average 0.72%0.79% on a worldwide basis. The table below presents the approximate fair values of our cash, cash equivalentequivalents and marketable securities and the related weighted average interest rates for our investment portfolio at May 31, 20122015 and 2011.2014.
May 31, | May 31, | |||||||||||||||||||||||||||||||
2012 | 2011 | 2015 | 2014 | |||||||||||||||||||||||||||||
(Dollars in millions) | Fair Value | Weighted Average Interest Rate | Fair Value | Weighted Average Interest Rate | Fair Value | Weighted Average Interest Rate | Fair Value | Weighted Average Interest Rate | ||||||||||||||||||||||||
Cash and cash equivalents | $ | 14,955 | 0.61% | $ | 16,163 | 0.61% | $ | 21,716 | 0.36% | $ | 17,769 | 0.37% | ||||||||||||||||||||
Marketable securities | 15,721 | 0.80% | 12,685 | 0.68% | 32,652 | 1.07% | 21,050 | 1.14% | ||||||||||||||||||||||||
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Total cash, cash equivalents and marketable securities | $ | 30,676 | 0.71% | $ | 28,848 | 0.64% | $ | 54,368 | 0.79% | $ | 38,819 | 0.79% | ||||||||||||||||||||
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Interest Expense Risk
Interest Expense Risk—Fixed to Variable Interest Rate Swap Agreements
Our total borrowings were $16.5$42.0 billion as of May 31, 2012, all2015, consisting of which were$39.7 billion of fixed rate borrowings. Future changesborrowings and $2.3 billion of floating rate borrowings (Floating Rate Notes). During fiscal 2015, we issued $20.0 billion of senior notes comprised of $1.75 billion of floating rate notes and $18.25 billion of fixed rate notes as described in the “Recent Financing Activities” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations (Item 7) in this Annual Report.
In July 2014, we entered into certain interest ratesrate swap agreements that have the economic effect of modifying the fixed interest obligations associated with our $2.0 billion of 2.25% senior notes due October 2019 (2019 Notes) and resulting changes in estimated fair valuesour $1.5 billion of our borrowings other than our2.80% senior notes due July 2014 (20142021 (2021 Notes) and short-term borrowings pursuant to our 2012 Credit Agreement would not impact the interest expense we recognize in our consolidated statements of operations. We have entered into certain fixed to variable interest rate swap agreements to manage the interest rate and related fair value of our 2014 Notes so that the interest payable on the 20142019 Notes and the 2021 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 $1.5 billion of 2.375% senior notes due January 2019 (January 2019 Notes) so that the interest payable on the January 2019 Notes effectively became variable based on LIBOR. The critical terms of the interest rate swap agreements match the critical terms of the 2019 Notes, 2021 Notes and the January 2019 Notes that the interest rate swap agreements pertain to, including the notional amounts and maturity dates. We do not use these interest rate swap arrangements or our fixed rate borrowings for trading purposes. We have designated these swap agreements as qualifying hedging instruments and are accounting for themthese interest rate swap agreements as fair value hedges pursuant to ASC 815,Derivatives and Hedging. These transactions are characterized asThe total fair value hedges for financial accounting purposes because they protect us against changes in the fair valuegain of ourthese fixed rate borrowings due to benchmarkvariable interest rate movements. The changes inswap agreements as of May 31, 2015 was $74 million. If LIBOR-based interest rates increased by 100 basis points as of May 31, 2015, the change would decrease the fair values of thesethe fixed to variable swap agreements by $221 million. Additional details regarding our senior notes and related interest rate swap agreements are recognized as interest expense in our consolidated statements of operations with the corresponding amounts included in other assets or other non-current liabilitiesNotes 8 and 11 of Notes to Consolidated Financial Statements included elsewhere 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 and other non-current borrowings. The periodic interest settlements for the swap agreements, which occur at the same interval as those per the 2014 Notes, are recorded as interest expense.this Annual Report.
By issuing the Floating Rate Notes and entering into thesethe aforementioned interest rate swap arrangements, we have assumed risks associated with variable interest rates based upon LIBOR. Our 2014 Notes had an effective interest rate of 1.39% asAs of May 31, 2012,2015, the weighted average interest rate associated with our Floating Rate Notes and January 2019 Notes, 2019 Notes and 2021 Notes, after considering the effects of the aforementioned interest rate swap arrangements.arrangements, was 0.79%. Changes in the overall level of
interest rates affect the interest expense that we recognize in our statements of operations. An interest rate risk sensitivity analysis is used to measure interest rate risk by computing estimated changes in cash flows as a result of assumed changes in market interest rates. As of May 31, 2012,2015, if LIBOR-based interest rates increased by 100 basis points, the change would increase our interest expense annually by approximately $15$73 million as it relates to our fixed to variable interest rate swap agreements.agreements and floating rate borrowings.
In July 2014, our 3.75% senior notes due July 2014 for $1.5 billion matured and were repaid, and we settled the fixed to variable interest rate swap agreements associated with such fixed rate senior notes.
Foreign Currency Risk
Foreign Currency Transaction and Translation Risks—Foreign Currency Borrowings and Related Hedges
In July 2013, we issued €1.25 billion of 2.25% notes due January 2021 (January 2021 Notes) and we entered into certain cross-currency swap agreements to manage the related foreign exchange risk by effectively converting the fixed-rate Euro denominated debt, including the annual interest payments and the payment of principal at maturity, to a 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 an annual interest rate of 3.53%. The critical terms of the cross-currency swap agreements match the critical terms of January 2021 Notes, including the notional amounts and maturity dates. We do not use these cross-currency swap arrangements for trading purposes. We are accounting for these interest rate swap agreements as cash flow hedges pursuant to ASC 815. The fair values of these cross-currency swap agreements as of May 31, 2015 and 2014 were a $(244) million loss and a $74 million gain, respectively. The changes in the fair values of the cross-currency swap agreements during fiscal 2015 were primarily attributable to the decline in the value of the Euro relative to the U.S. Dollar. If the Euro weakened by 10% as of May 31, 2015, we estimate the change would decrease the fair values of the cross-currency swap agreements by $174 million. If interest rates that correspond to the remaining term of the January 2021 Notes decreased by 100 basis points as of May 31, 2015, we estimate the change would decrease the fair values of the cross-currency swap agreements by $91 million. Additional details regarding our senior notes and related cross-currency swap agreements are included in Notes 8 and 11 of Notes to Consolidated Financial Statements included elsewhere in this Annual Report.
In July 2013, we also issued €750 million of 3.125% notes due July 2025 (2025 Notes). We designated the 2025 Notes as a net investment hedge of our investments in certain of our international subsidiaries that use the Euro as their functional currency in order to reduce the volatility in stockholders’ equity caused by the changes in foreign currency exchange rates of the Euro with respect to the U.S. Dollar. As a result, the change in the carrying value of the Euro denominated 2025 Notes due to fluctuations in foreign currency exchange rates on the effective portion is recorded in accumulated other comprehensive loss on our consolidated balance sheet and is also presented as a line item in our consolidated statements of comprehensive income included elsewhere in this Annual Report and totaled $208 million of net other comprehensive gains for fiscal 2015. Any remaining change in the carrying value of the 2025 Notes representing the ineffective portion of the net investment hedge is recognized in non-operating income (expense), net. We did not record any ineffectiveness during fiscal 2015.
Fluctuations in the exchange rates between the Euro and the U.S. Dollar will impact the amount of U.S. Dollars that we will require to settle the 2025 Notes at maturity. If the U.S. Dollar weakened by 10% in comparison to the Euro as of May 31, 2015, we estimate our obligation to cash settle the principal portion of the 2025 Notes in U.S. Dollars would increase by approximately $81 million.
Foreign Currency Transaction Risk—Foreign Currency Forward Contracts
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 expected to be cash settled in the near term.transactions. Our foreign currency forward contracts are generally short-term in duration.
We neither 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 record the fair values of these contracts as of the end of our reporting period to our consolidated balance sheet with changes in fair values recorded to our consolidated statement of operations. Given the short duration of the forward contracts, the amount recorded is
not significant. The balance sheet classification for the fair values of these forward contracts is prepaid expenses and other current assets for a net unrealized gain position and other current liabilities for a net unrealized loss position. The statement of operations classification for changes in fair values of these forward contracts is non-operating income (expense), net for both realized and unrealized gains and losses.
We expect that we will continue to realize gains or losses with respect to our foreign currency exposures, net of gains or losses from our foreign currency forward contracts. Our ultimate realized gain or loss with respect to foreign currency exposures will generally depend on the size and type of cross-currency transactions that we enter into, the currency exchange rates associated with these exposures and changes in those rates, the net realized gain or loss on our foreign currency forward contracts and other factors. As of May 31, 20122015 and 2011,2014, the notional amounts of the forward contracts we held to purchase U.S. Dollars in exchange for other major international currencies were $3.0$2.2 billion and $2.5$3.6 billion, respectively,respectively. As of May 31, 2015 and 2014, the notional amounts of forward contracts we held to sell U.S. Dollars in exchange for other major international currencies were $873 million$1.2 billion and $1.6$2.0 billion, respectively. The fair values of our outstanding foreign currency forward contracts were nominal at May 31, 20122015 and 2011.2014. Net foreign exchange transaction gains (losses)losses included in non-operating income (expense), net in the accompanying consolidated statements of operations were $(105)$157 million, $11$375 million and $(149)$162 million in fiscal 2012, 20112015, 2014 and 2010,2013, respectively. Included in the net foreign exchange transaction losses for fiscal 20102015, fiscal 2014 and fiscal 2013 were foreign currency remeasurement losses relating to our Venezuelan subsidiary’s operations which are more thoroughly described under “Non-Operating Income (Expense), net”of $23 million, $213 million and $64 million, respectively (see Note 1 of Notes to Consolidated Financial Statements included elsewhere in Management’s Discussion and Analysis of Financial Condition and Results of Operations above.this Annual Report for additional information). As a large portion of our consolidated operations are international, we could experience additional foreign currency volatility in the future, the amounts and timing of which may vary.are unknown.
Foreign Currency Translation RiskRisk—Impact on Cash, Cash Equivalents and Marketable Securities
Fluctuations in foreign currencies impact the amount of total assets and liabilities that we report for our foreign subsidiaries upon the translation of these amounts into U.S. Dollars. In particular, the amount of cash, cash equivalents and marketable securities that we report in U.S. Dollars for a significant portion of the cash held by these subsidiaries is subject to translation variance caused by changes in foreign currency exchange rates as of the end of each respective reporting period (the offset to which is substantially recorded to accumulated other comprehensive incomeloss on our consolidated balance sheet). Periodically, we may hedge net assetssheet and is also presented as a line item in our consolidated statements of certain international subsidiaries from foreign currency exposure.comprehensive income included elsewhere in this Annual Report).
As the U.S. Dollar fluctuated against certain international currencies as of the end of fiscal 2012,2015, the amount of cash, cash equivalents and marketable securities that we reported in U.S. Dollars for theseforeign subsidiaries that hold international currencies as of May 31, 20122015 decreased relative to what we would have reported using a constant currency rate as of May 31, 2011.2014. As reported in our consolidated statements of cash flows, the estimated effecteffects of exchange rate changes on
our reported cash and cash equivalents balances in U.S. Dollars for fiscal 2012, 20112015, 2014 and 2010 was a (decrease) increase2013 were decreases of $(471) million, $600$1.2 billion, $158 million and $(107)$110 million, respectively. The following table includes estimates of the U.S. Dollar equivalent of cash, cash equivalents and marketable securities denominated in certain major foreign currencies that we held as of May 31, 2012:2015:
(in millions) | U.S. Dollar Equivalent at May 31, 2012 | U.S. Dollar Equivalent at May 31, 2015 | ||||||
Euro | $ | 1,302 | $ | 2,190 | ||||
Japanese Yen | 1,143 | |||||||
Indian Rupee | 674 | |||||||
Saudi Arabian Riyal | 445 | |||||||
Chinese Renminbi | 930 | 427 | ||||||
Indian Rupee | 814 | |||||||
Japanese Yen | 760 | |||||||
Australian Dollar | 712 | 397 | ||||||
South African Rand | 329 | 344 | ||||||
Canadian Dollar | 259 | 231 | ||||||
British Pound | 258 | |||||||
Other foreign currencies | 2,002 | 1,802 | ||||||
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Total cash, cash equivalents and marketable securities denominated in foreign currencies | $ | 7,366 | $ | 7,653 | ||||
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If overall foreign currency exchange rates in comparison to the U.S. Dollar uniformly weakened by 10%, the amount of cash, cash equivalents and marketable securities we would report in U.S. Dollars would decrease by approximately $737$765 million, assuming constant foreign currency cash, cash equivalentequivalents and marketable securities balances.
Item 8. Financial Statements and Supplementary Data
The response to this item is submitted as a separate section of this Annual Report. See Part IV, Item 15.
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Annual Report on Form 10-K, we carried out an evaluation under the supervision and with the participation of our Disclosure Committee and our management, including the Chiefour Principal Executive OfficerOfficers and the Chiefour Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rules 13a-15(e) and 15d-15(e). Disclosure controls are procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, or the Exchange Act, such as this Annual Report on Form 10-K, is recorded, processed, summarized and reported within the time periods specified by the U.S. Securities and Exchange Commission. Disclosure controls are also designed to ensure that such information is accumulated and communicated to our management, including our ChiefPrincipal Executive OfficerOfficers and Chiefour Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Our quarterly evaluation of disclosure controls includes an evaluation of some components of our internal control over financial reporting. We also perform a separate annual evaluation of internal control over financial reporting for the purpose of providing the management report below.
The evaluation of our disclosure controls included a review of their objectives and design, our implementation of the controls and the effect of the controls on the information generated for use in this Annual Report onForm 10-K. In the course of the controls evaluation, we reviewed data errors or control problems identified and sought to confirm that appropriate corrective actions, including process improvements, were being undertaken. This type of evaluation is performed on a quarterly basis so that the conclusions of management, including our ChiefPrincipal Executive OfficerOfficers and Chiefour Principal Financial Officer, concerning the effectiveness of the disclosure controls can be reported in our periodic reports on Form 10-Q and Form 10-K. Many of the components of our disclosure
controls are also evaluated on an ongoing basis by both our internal audit and finance organizations. The overall goals of these various evaluation activities are to monitor our disclosure controls and to modify them as necessary. We intend to maintain our disclosure controls as dynamic processes and procedures that we adjust as circumstances merit.
Based on our management’s evaluation (with the participation of our ChiefPrincipal Executive OfficerOfficers and our ChiefPrincipal Financial Officer), as of the end of the period covered by this report, our ChiefPrincipal Executive OfficerOfficers and our ChiefPrincipal Financial Officer have concluded that our disclosure controls and procedures were effective.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our ChiefPrincipal Executive OfficerOfficers and Chiefour Principal Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of May 31, 20122015 based on the guidelines established inInternal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).Commission’s 2013 framework. Our internal control over financial reporting includes policies and procedures that provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles.
Based on the results of our evaluation, our management concluded that our internal control over financial reporting was effective as of May 31, 2012.2015. We reviewed the results of management’s assessment with our Finance and Audit Committee.
The effectiveness of our internal control over financial reporting as of May 31, 20122015 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which is included in Part IV, Item 15 of this Annual Report.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Our management, including our ChiefPrincipal Executive OfficerOfficers and Chiefour Principal Financial Officer, believes that our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives and are effective at the reasonable assurance level. However, our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost effective control system, misstatements due to error or fraud may occur and not be detected.
None.
Item 10. Directors, Executive Officers and Corporate Governance
Pursuant to General Instruction G(3) of Form 10-K, the information required by this item relating to our executive officers is included under the caption “Executive Officers of the Registrant” in Part I of this Annual Report.
The other information required by this Item 10 is incorporated by reference from the information contained in our Proxy Statement to be filed with the U.S. Securities and Exchange Commission in connection with the solicitation of proxies for our 20122015 Annual Meeting of Stockholders (the “2012“2015 Proxy Statement”) under the sections entitled “Board of Directors—Nominees for Directors,” “Board of Directors—Committees, Membership and Meetings—Committee Memberships, During Fiscal 2012,” “Board of Directors—Committees, Membership and Meetings—The Finance and Audit Committee,” “Corporate Governance—Employee Matters—Code of Conduct”Conduct,” and “Section 16(a) Beneficial Ownership Reporting Compliance”.
Item 11. Executive Compensation
The information required by this Item 11 is incorporated by reference from the information to be contained in our 20122015 Proxy Statement under the sections entitled “Board of Directors—Committees, Membership and Meetings—The Compensation Committee—Compensation Committee Interlocks and Insider Participation,” “Board of Directors—Director Compensation”Compensation,” and “Executive Compensation”.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
The information required by this Item 12 is incorporated herein by reference from the information to be contained in our 20122015 Proxy Statement under the sections entitled “Security Ownership of Certain Beneficial Owners and Management” and “Executive Compensation—Equity Compensation Plan Information”.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this Item 13 is incorporated herein by reference from the information to be contained in our 20122015 Proxy Statement under the sections entitled “Corporate Governance—Board of Directors and Director Independence” and “Transactions with Related Persons”.
Item 14. Principal AccountingAccountant Fees and Services
The information required by this Item 14 is incorporated herein by reference from the information to be contained in our 20122015 Proxy Statement under the section entitled “Ratification of Selection of Independent Registered Public Accounting Firm”.
Item 15. Exhibits and Financial Statement Schedules
The following financial statements are filed as a part of this report:
Page | ||||
Reports of | ||||
Consolidated Financial Statements: | ||||
Statements of Operations for the years ended May 31, | ||||
Statements of Comprehensive Income for the years ended May 31, 2015, 2014 and 2013 | 88 | |||
Statements of Equity for the years ended May 31, | ||||
Statements of Cash Flows for the years ended May 31, | ||||
2. Financial Statement Schedules | ||||
The following financial statement schedule is filed as a part of this report: | ||||
Page | ||||
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 follows the signature page of this Annual Report.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMReport of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of Oracle Corporation
We have audited the accompanying consolidated balance sheets of Oracle Corporation as of May 31, 20122015 and 2011,2014, and the related consolidated statements of operations, statements ofcomprehensive income, equity, and cash flows for each of the three years in the period ended May 31, 2012.2015. Our audits also included the financial statement schedule listed in the Index at Item 15(a) 2. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Oracle Corporation at May 31, 20122015 and 2011,2014, and the consolidated results of its operations and its cash flows for each of the three years in the period ended May 31, 2012,2015, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Oracle Corporation’s internal control over financial reporting as of May 31, 2012,2015, 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 26, 201225, 2015 expressed an unqualified opinion thereon.
/s/ ERNSTErnst & YOUNGYoung LLP
San Jose, California
June 26, 201225, 2015
REPORT OF ERNST & YOUNG LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMReport of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of Oracle Corporation
We have audited Oracle Corporation’s internal control over financial reporting as of May 31, 2012,2015, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). Oracle Corporation’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’scompany’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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.
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.
In our opinion, Oracle Corporation maintained, in all material respects, effective internal control over financial reporting as of May 31, 2012,2015, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Oracle Corporation as of May 31, 20122015 and 2011,2014, 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, 20122015 of Oracle Corporation and our report dated June 26, 201225, 2015 expressed an unqualified opinion thereon.
/s/ ERNSTErnst & YOUNGYoung LLP
San Jose, California
June 26, 201225, 2015
As of May 31, 20122015 and 20112014
May 31, | ||||||||
(in millions, except per share data) | 2012 | 2011 | ||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 14,955 | $ | 16,163 | ||||
Marketable securities | 15,721 | 12,685 | ||||||
Trade receivables, net of allowances for doubtful accounts of $323 and $372 as of May 31, 2012 and 2011, respectively | 6,377 | 6,628 | ||||||
Inventories | 158 | 303 | ||||||
Deferred tax assets | 877 | 1,189 | ||||||
Prepaid expenses and other current assets | 1,935 | 2,206 | ||||||
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| |||||
Total current assets | 40,023 | 39,174 | ||||||
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| |||||
Non-current assets: | ||||||||
Property, plant and equipment, net | 3,021 | 2,857 | ||||||
Intangible assets, net | 7,899 | 7,860 | ||||||
Goodwill | 25,119 | 21,553 | ||||||
Deferred tax assets | 595 | 1,076 | ||||||
Other assets | 1,670 | 1,015 | ||||||
|
|
|
| |||||
Total non-current assets | 38,304 | 34,361 | ||||||
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| |||||
Total assets | $ | 78,327 | $ | 73,535 | ||||
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| |||||
LIABILITIES AND EQUITY | ||||||||
Current liabilities: | ||||||||
Notes payable, current and other current borrowings | $ | 2,950 | $ | 1,150 | ||||
Accounts payable | 438 | 494 | ||||||
Accrued compensation and related benefits | 2,002 | 2,320 | ||||||
Deferred revenues | 7,035 | 6,802 | ||||||
Other current liabilities | 2,963 | 3,426 | ||||||
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| |||||
Total current liabilities | 15,388 | 14,192 | ||||||
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| |||||
Non-current liabilities: | ||||||||
Notes payable and other non-current borrowings | 13,524 | 14,772 | ||||||
Income taxes payable | 3,759 | 3,169 | ||||||
Other non-current liabilities | 1,569 | 1,157 | ||||||
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| |||||
Total non-current liabilities | 18,852 | 19,098 | ||||||
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| |||||
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: 4,905 shares and 5,068 shares as of May 31, 2012 and 2011, respectively | 17,489 | 16,653 | ||||||
Retained earnings | 26,087 | 22,581 | ||||||
Accumulated other comprehensive income | 112 | 542 | ||||||
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Total Oracle Corporation stockholders’ equity | 43,688 | 39,776 | ||||||
Noncontrolling interests | 399 | 469 | ||||||
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| |||||
Total equity | 44,087 | 40,245 | ||||||
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Total liabilities and equity | $ | 78,327 | $ | 73,535 | ||||
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See notes to consolidated financial statements.
ORACLE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended May 31, 2012, 2011 and 2010
Year Ended May 31, | ||||||||||||
(in millions, except per share data) | 2012 | 2011 | 2010 | |||||||||
Revenues: | ||||||||||||
New software licenses | $ | 9,906 | $ | 9,235 | $ | 7,533 | ||||||
Software license updates and product support | 16,210 | 14,796 | 13,092 | |||||||||
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Software revenues | 26,116 | 24,031 | 20,625 | |||||||||
Hardware systems products | 3,827 | 4,382 | 1,506 | |||||||||
Hardware systems support | 2,475 | 2,562 | 784 | |||||||||
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Hardware systems revenues | 6,302 | 6,944 | 2,290 | |||||||||
Services | 4,703 | 4,647 | 3,905 | |||||||||
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Total revenues | 37,121 | 35,622 | 26,820 | |||||||||
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| |||||||
Operating expenses: | ||||||||||||
Sales and marketing(1) | 7,127 | 6,579 | 5,080 | |||||||||
Software license updates and product support(1) | 1,226 | 1,264 | 1,063 | |||||||||
Hardware systems products(1) | 1,843 | 2,057 | 880 | |||||||||
Hardware systems support(1) | 1,046 | 1,259 | 423 | |||||||||
Services(1) | 3,743 | 3,818 | 3,398 | |||||||||
Research and development | 4,523 | 4,519 | 3,254 | |||||||||
General and administrative | 1,126 | 970 | 911 | |||||||||
Amortization of intangible assets | 2,430 | 2,428 | 1,973 | |||||||||
Acquisition related and other | 56 | 208 | 154 | |||||||||
Restructuring | 295 | 487 | 622 | |||||||||
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Total operating expenses | 23,415 | 23,589 | 17,758 | |||||||||
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Operating income | 13,706 | 12,033 | 9,062 | |||||||||
Interest expense | (766 | ) | (808 | ) | (754 | ) | ||||||
Non-operating income (expense), net | 22 | 186 | (65 | ) | ||||||||
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Income before provision for income taxes | 12,962 | 11,411 | 8,243 | |||||||||
Provision for income taxes | 2,981 | 2,864 | 2,108 | |||||||||
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Net income | $ | 9,981 | $ | 8,547 | $ | 6,135 | ||||||
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Earnings per share: | ||||||||||||
Basic | $ | 1.99 | $ | 1.69 | $ | 1.22 | ||||||
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Diluted | $ | 1.96 | $ | 1.67 | $ | 1.21 | ||||||
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Weighted average common shares outstanding: | ||||||||||||
Basic | 5,015 | 5,048 | 5,014 | |||||||||
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Diluted | 5,095 | 5,128 | 5,073 | |||||||||
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Dividends declared per common share | $ | 0.24 | $ | 0.21 | $ | 0.20 | ||||||
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See notes to consolidated financial statements.
ORACLE CORPORATION
CONSOLIDATED STATEMENTS OF EQUITY
For the Years Ended May 31, 2012, 2011 and 2010
Comprehensive Income | Common Stock and Additional Paid in Capital | Retained Earnings | Accumulated Other Comprehensive Income | Total Oracle Corporation Stockholders’ Equity | Noncontrolling Interests | Total Equity | ||||||||||||||||||||||||||
(in millions) | Number of Shares | Amount | ||||||||||||||||||||||||||||||
Balances as of May 31, 2009 | 5,005 | $ | 12,980 | $ | 11,894 | $ | 216 | $ | 25,090 | $ | 355 | $ | 25,445 | |||||||||||||||||||
Common stock issued under stock-based compensation plans | $ | — | 60 | 812 | — | — | 812 | — | 812 | |||||||||||||||||||||||
Common stock issued under stock purchase plans | — | 3 | 62 | — | — | 62 | — | 62 | ||||||||||||||||||||||||
Assumption of stock-based compensation plan awards in connection with acquisitions | — | — | 100 | — | — | 100 | — | 100 | ||||||||||||||||||||||||
Stock-based compensation | — | — | 440 | — | — | 440 | — | 440 | ||||||||||||||||||||||||
Repurchase of common stock | — | (43 | ) | (112 | ) | (880 | ) | — | (992 | ) | — | (992 | ) | |||||||||||||||||||
Cash dividends declared ($0.20 per share) | — | — | — | (1,004 | ) | — | (1,004 | ) | — | (1,004 | ) | |||||||||||||||||||||
Tax benefit from stock plans | — | — | 268 | — | — | 268 | — | 268 | ||||||||||||||||||||||||
Other, net | — | 1 | 98 | 1 | — | 99 | 1 | 100 | ||||||||||||||||||||||||
Distributions to noncontrolling interests | — | — | — | — | — | — | (59 | ) | (59 | ) | ||||||||||||||||||||||
Net unrealized loss on defined benefit plans, net of tax | (35 | ) | — | — | — | (35 | ) | (35 | ) | — | (35 | ) | ||||||||||||||||||||
Foreign currency translation, net of tax | (171 | ) | — | — | — | (171 | ) | (171 | ) | 9 | (162 | ) | ||||||||||||||||||||
Net unrealized losses on derivative financial instruments, net of tax | (6 | ) | — | — | — | (6 | ) | (6 | ) | — | (6 | ) | ||||||||||||||||||||
Net income | 6,135 | — | — | 6,135 | — | 6,135 | 95 | 6,230 | ||||||||||||||||||||||||
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Comprehensive income | $ | 5,923 | ||||||||||||||||||||||||||||||
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Balances as of May 31, 2010 | 5,026 | 14,648 | 16,146 | 4 | 30,798 | 401 | 31,199 | |||||||||||||||||||||||||
Common stock issued under stock-based compensation plans | $ | — | 78 | 1,281 | — | — | 1,281 | — | 1,281 | |||||||||||||||||||||||
Common stock issued under stock purchase plans | — | 4 | 95 | — | — | 95 | — | 95 | ||||||||||||||||||||||||
Assumption of stock-based compensation plan awards in connection with acquisitions | — | — | 17 | — | — | 17 | — | 17 | ||||||||||||||||||||||||
Stock-based compensation | — | — | 510 | — | — | 510 | — | 510 | ||||||||||||||||||||||||
Repurchase of common stock | — | (40 | ) | (121 | ) | (1,051 | ) | — | (1,172 | ) | — | (1,172 | ) | |||||||||||||||||||
Cash dividends declared ($0.21 per share) | — | — | — | (1,061 | ) | — | (1,061 | ) | — | (1,061 | ) | |||||||||||||||||||||
Tax benefit from stock plans | — | — | 222 | — | — | 222 | — | 222 | ||||||||||||||||||||||||
Other, net | — | — | 1 | — | — | 1 | 1 | 2 | ||||||||||||||||||||||||
Distributions to noncontrolling interests | — | — | — | — | — | — | (65 | ) | (65 | ) | ||||||||||||||||||||||
Net unrealized gain on defined benefit plans, net of tax | 32 | — | — | — | 32 | 32 | — | 32 | ||||||||||||||||||||||||
Foreign currency translation, net of tax | 480 | — | — | — | 480 | 480 | 35 | 515 | ||||||||||||||||||||||||
Net unrealized gain on marketable securities, net of tax | 26 | — | — | — | 26 | 26 | — | 26 | ||||||||||||||||||||||||
Net income | 8,547 | — | — | 8,547 | — | 8,547 | 97 | 8,644 | ||||||||||||||||||||||||
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Comprehensive income | $ | 9,085 | ||||||||||||||||||||||||||||||
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Balances as of May 31, 2011 | 5,068 | 16,653 | 22,581 | 542 | 39,776 | 469 | 40,245 | |||||||||||||||||||||||||
Common stock issued under stock-based compensation plans | $ | — | 40 | 622 | — | — | 622 | — | 622 | |||||||||||||||||||||||
Common stock issued under stock purchase plans | — | 4 | 111 | — | — | 111 | — | 111 | ||||||||||||||||||||||||
Assumption of stock-based compensation plan awards in connection with acquisitions | — | — | 29 | — | — | 29 | — | 29 | ||||||||||||||||||||||||
Stock-based compensation | — | — | 659 | — | — | 659 | — | 659 | ||||||||||||||||||||||||
Repurchase of common stock | — | (207 | ) | (698 | ) | (5,270 | ) | — | (5,968 | ) | — | (5,968 | ) | |||||||||||||||||||
Cash dividends declared ($0.24 per share) | — | — | — | (1,205 | ) | — | (1,205 | ) | — | (1,205 | ) | |||||||||||||||||||||
Tax benefit from stock plans | — | — | 113 | — | — | 113 | — | 113 | ||||||||||||||||||||||||
Other, net | — | — | — | — | — | — | 2 | 2 | ||||||||||||||||||||||||
Distributions to noncontrolling interests | — | — | — | — | — | — | (163 | ) | (163 | ) | ||||||||||||||||||||||
Net unrealized loss on defined benefit plans, net of tax | (102 | ) | — | — | — | (102 | ) | (102 | ) | — | (102 | ) | ||||||||||||||||||||
Foreign currency translation, net of tax | (398 | ) | — | — | — | (398 | ) | (398 | ) | (28 | ) | (426 | ) | |||||||||||||||||||
Net unrealized gain on marketable securities, net of tax | 70 | — | — | — | 70 | 70 | — | 70 | ||||||||||||||||||||||||
Net income | 9,981 | — | — | 9,981 | — | 9,981 | 119 | 10,100 | ||||||||||||||||||||||||
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Comprehensive income | $ | 9,551 | ||||||||||||||||||||||||||||||
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Balances as of May 31, 2012 | 4,905 | $ | 17,489 | $ | 26,087 | $ | 112 | $ | 43,688 | $ | 399 | $ | 44,087 | |||||||||||||||||||
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See notes to consolidated financial statements.
ORACLE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended May 31, 2012, 2011 and 2010
Year Ended May 31, | ||||||||||||
(in millions) | 2012 | 2011 | 2010 | |||||||||
Cash Flows From Operating Activities: | ||||||||||||
Net income | $ | 9,981 | $ | 8,547 | $ | 6,135 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Depreciation | 486 | 368 | 298 | |||||||||
Amortization of intangible assets | 2,430 | 2,428 | 1,973 | |||||||||
Allowances for doubtful accounts receivable | 92 | 164 | 143 | |||||||||
Deferred income taxes | 9 | (253 | ) | (511 | ) | |||||||
Stock-based compensation | 659 | 510 | 436 | |||||||||
Tax benefits on the exercise of stock options and vesting of restricted stock-based awards | 182 | 325 | 203 | |||||||||
Excess tax benefits on the exercise of stock options and vesting of restricted stock-based awards | (97 | ) | (215 | ) | (110 | ) | ||||||
Other, net | 84 | 68 | 13 | |||||||||
Changes in operating assets and liabilities, net of effects from acquisitions: | ||||||||||||
Increase in trade receivables | (8 | ) | (729 | ) | (362 | ) | ||||||
Decrease (increase) in inventories | 150 | (28 | ) | 73 | ||||||||
(Increase) decrease in prepaid expenses and other assets | (51 | ) | 14 | 340 | ||||||||
Decrease in accounts payable and other liabilities | (720 | ) | (120 | ) | (360 | ) | ||||||
Increase (decrease) in income taxes payable | 54 | (96 | ) | (79 | ) | |||||||
Increase in deferred revenues | 492 | 231 | 489 | |||||||||
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Net cash provided by operating activities | 13,743 | 11,214 | 8,681 | |||||||||
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Cash Flows From Investing Activities: | ||||||||||||
Purchases of marketable securities and other investments | (38,625 | ) | (31,009 | ) | (15,703 | ) | ||||||
Proceeds from maturities and sales of marketable securities and other investments | 35,594 | 27,120 | 11,220 | |||||||||
Acquisitions, net of cash acquired | (4,702 | ) | (1,847 | ) | (5,606 | ) | ||||||
Capital expenditures | (648 | ) | (450 | ) | (230 | ) | ||||||
Proceeds from sale of property | — | 105 | — | |||||||||
|
|
|
|
|
| |||||||
Net cash used for investing activities | (8,381 | ) | (6,081 | ) | (10,319 | ) | ||||||
|
|
|
|
|
| |||||||
Cash Flows From Financing Activities: | ||||||||||||
Payments for repurchases of common stock | (5,856 | ) | (1,160 | ) | (992 | ) | ||||||
Proceeds from issuances of common stock | 733 | 1,376 | 874 | |||||||||
Payments of dividends to stockholders | (1,205 | ) | (1,061 | ) | (1,004 | ) | ||||||
Proceeds from borrowings, net of issuance costs | 1,700 | 4,354 | 7,220 | |||||||||
Repayments of borrowings | (1,405 | ) | (3,143 | ) | (3,582 | ) | ||||||
Excess tax benefits on the exercise of stock options and vesting of restricted stock-based awards | 97 | 215 | 110 | |||||||||
Distributions to noncontrolling interests | (163 | ) | (65 | ) | (59 | ) | ||||||
Other, net | — | — | 97 | |||||||||
|
|
|
|
|
| |||||||
Net cash (used for) provided by financing activities | (6,099 | ) | 516 | 2,664 | ||||||||
|
|
|
|
|
| |||||||
Effect of exchange rate changes on cash and cash equivalents | (471 | ) | 600 | (107 | ) | |||||||
|
|
|
|
|
| |||||||
Net (decrease) increase in cash and cash equivalents | (1,208 | ) | 6,249 | 919 | ||||||||
Cash and cash equivalents at beginning of period | 16,163 | 9,914 | 8,995 | |||||||||
|
|
|
|
|
| |||||||
Cash and cash equivalents at end of period | $ | 14,955 | $ | 16,163 | $ | 9,914 | ||||||
|
|
|
|
|
| |||||||
Non-cash investing and financing transactions: | ||||||||||||
Fair value of stock options and restricted stock-based awards assumed in connection with acquisitions | $ | 29 | $ | 17 | $ | 100 | ||||||
Fair value of contingent consideration payable in connection with acquisition | $ | 346 | $ | — | $ | — | ||||||
Increase in unsettled repurchases of common stock | $ | 112 | $ | 12 | $ | — | ||||||
Supplemental schedule of cash flow data: | ||||||||||||
Cash paid for income taxes | $ | 2,731 | $ | 2,931 | $ | 2,488 | ||||||
Cash paid for interest | $ | 737 | $ | 770 | $ | 652 |
May 31, | ||||||||
(in millions, except per share data) | 2015 | 2014 | ||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 21,716 | $ | 17,769 | ||||
Marketable securities | 32,652 | 21,050 | ||||||
Trade receivables, net of allowances for doubtful accounts of $285 and $306 as of May 31, 2015 and 2014, respectively | 5,618 | 6,087 | ||||||
Inventories | 314 | 189 | ||||||
Deferred tax assets | 663 | 914 | ||||||
Prepaid expenses and other current assets | 2,220 | 2,119 | ||||||
|
|
|
| |||||
Total current assets | 63,183 | 48,128 | ||||||
|
|
|
| |||||
Non-current assets: | ||||||||
Property, plant and equipment, net | 3,686 | 3,061 | ||||||
Intangible assets, net | 6,406 | 6,137 | ||||||
Goodwill, net | 34,087 | 29,652 | ||||||
Deferred tax assets | 795 | 837 | ||||||
Other assets | 2,746 | 2,451 | ||||||
|
|
|
| |||||
Total non-current assets | 47,720 | 42,138 | ||||||
|
|
|
| |||||
Total assets | $ | 110,903 | $ | 90,266 | ||||
|
|
|
| |||||
LIABILITIES AND EQUITY | ||||||||
Current liabilities: | ||||||||
Notes payable, current | $ | 1,999 | $ | 1,508 | ||||
Accounts payable | 806 | 471 | ||||||
Accrued compensation and related benefits | 1,839 | 1,940 | ||||||
Income taxes payable | 532 | 416 | ||||||
Deferred revenues | 7,245 | 7,269 | ||||||
Other current liabilities | 2,870 | 2,785 | ||||||
|
|
|
| |||||
Total current liabilities | 15,291 | 14,389 | ||||||
|
|
|
| |||||
Non-current liabilities: | ||||||||
Notes payable, non-current | 39,959 | 22,589 | ||||||
Income taxes payable | 4,386 | 4,184 | ||||||
Other non-current liabilities | 2,169 | 1,657 | ||||||
|
|
|
| |||||
Total non-current liabilities | 46,514 | 28,430 | ||||||
|
|
|
| |||||
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: 4,343 shares and 4,464 shares as of May 31, 2015 and 2014, respectively | 23,156 | 21,077 | ||||||
Retained earnings | 26,503 | 25,965 | ||||||
Accumulated other comprehensive loss | (996 | ) | (164 | ) | ||||
|
|
|
| |||||
Total Oracle Corporation stockholders’ equity | 48,663 | 46,878 | ||||||
Noncontrolling interests | 435 | 569 | ||||||
|
|
|
| |||||
Total equity | 49,098 | 47,447 | ||||||
|
|
|
| |||||
Total liabilities and equity | $ | 110,903 | $ | 90,266 | ||||
|
|
|
|
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended May 31, 2015, 2014 and 2013
Year Ended May 31, | ||||||||||||
(in millions, except per share data) | 2015 | 2014 | 2013 | |||||||||
Revenues: | ||||||||||||
New software licenses | $ | 8,535 | $ | 9,416 | $ | 9,411 | ||||||
Cloud software as a service and platform as a service | 1,485 | 1,121 | 910 | |||||||||
Cloud infrastructure as a service | 608 | 456 | 457 | |||||||||
Software license updates and product support | 18,847 | 18,206 | 17,142 | |||||||||
|
|
|
|
|
| |||||||
Software and cloud revenues | 29,475 | 29,199 | 27,920 | |||||||||
Hardware systems products | 2,825 | 2,976 | 3,033 | |||||||||
Hardware systems support | 2,380 | 2,396 | 2,313 | |||||||||
|
|
|
|
|
| |||||||
Hardware systems revenues | 5,205 | 5,372 | 5,346 | |||||||||
Services revenues | 3,546 | 3,704 | 3,914 | |||||||||
|
|
|
|
|
| |||||||
Total revenues | 38,226 | 38,275 | 37,180 | |||||||||
|
|
|
|
|
| |||||||
Operating expenses: | ||||||||||||
Sales and marketing(1) | 7,655 | 7,567 | 7,062 | |||||||||
Cloud software as a service and platform as a service(1) | 773 | 455 | 327 | |||||||||
Cloud infrastructure as a service(1) | 344 | 308 | 304 | |||||||||
Software license updates and product support(1) | 1,199 | 1,162 | 1,175 | |||||||||
Hardware systems products(1) | 1,471 | 1,521 | 1,501 | |||||||||
Hardware systems support(1) | 816 | 836 | 890 | |||||||||
Services(1) | 2,929 | 2,954 | 3,182 | |||||||||
Research and development | 5,524 | 5,151 | 4,850 | |||||||||
General and administrative | 1,077 | 1,038 | 1,072 | |||||||||
Amortization of intangible assets | 2,149 | 2,300 | 2,385 | |||||||||
Acquisition related and other | 211 | 41 | (604 | ) | ||||||||
Restructuring | 207 | 183 | 352 | |||||||||
|
|
|
|
|
| |||||||
Total operating expenses | 24,355 | 23,516 | 22,496 | |||||||||
|
|
|
|
|
| |||||||
Operating income | 13,871 | 14,759 | 14,684 | |||||||||
Interest expense | (1,143 | ) | (914 | ) | (797 | ) | ||||||
Non-operating income (expense), net | 106 | (141 | ) | 11 | ||||||||
|
|
|
|
|
| |||||||
Income before provision for income taxes | 12,834 | 13,704 | 13,898 | |||||||||
Provision for income taxes | 2,896 | 2,749 | 2,973 | |||||||||
|
|
|
|
|
| |||||||
Net income | $ | 9,938 | $ | 10,955 | $ | 10,925 | ||||||
|
|
|
|
|
| |||||||
Earnings per share: | ||||||||||||
Basic | $ | 2.26 | $ | 2.42 | $ | 2.29 | ||||||
|
|
|
|
|
| |||||||
Diluted | $ | 2.21 | $ | 2.38 | $ | 2.26 | ||||||
|
|
|
|
|
| |||||||
Weighted average common shares outstanding: | ||||||||||||
Basic | 4,404 | 4,528 | 4,769 | |||||||||
|
|
|
|
|
| |||||||
Diluted | 4,503 | 4,604 | 4,844 | |||||||||
|
|
|
|
|
| |||||||
Dividends declared per common share | $ | 0.51 | $ | 0.48 | $ | 0.30 | ||||||
|
|
|
|
|
|
(1) | Exclusive of amortization of intangible assets, which is shown separately. |
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Years Ended May 31, 2015, 2014 and 2013
Year Ended May 31, | ||||||||||||
(in millions) | 2015 | 2014 | 2013 | |||||||||
Net income | $ | 9,938 | $ | 10,955 | $ | 10,925 | ||||||
Other comprehensive loss, net of tax: | ||||||||||||
Net foreign currency translation losses | (770 | ) | (78 | ) | (123 | ) | ||||||
Net unrealized (losses) gains on defined benefit plans | (151 | ) | 23 | (68 | ) | |||||||
Net unrealized gains (losses) on marketable securities | 59 | (15 | ) | (20 | ) | |||||||
Net unrealized gains on cash flow hedges | 30 | 5 | — | |||||||||
|
|
|
|
|
| |||||||
Total other comprehensive loss, net | (832 | ) | (65 | ) | (211 | ) | ||||||
|
|
|
|
|
| |||||||
Comprehensive income | $ | 9,106 | $ | 10,890 | $ | 10,714 | ||||||
|
|
|
|
|
|
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF EQUITY
For the Years Ended May 31, 2015, 2014 and 2013
Common Stock and Additional Paid in Capital | Retained Earnings | Accumulated Other Comprehensive (Loss) Income | Total Oracle Corporation Stockholders’ Equity | Noncontrolling Interests | Total Equity | |||||||||||||||||||||||
(in millions) | Number of Shares | Amount | ||||||||||||||||||||||||||
Balances as of May 31, 2012 | 4,905 | $ | 17,489 | $ | 26,087 | $ | 112 | $ | 43,688 | $ | 399 | $ | 44,087 | |||||||||||||||
Common stock issued under stock-based compensation plans | 84 | 1,417 | — | — | 1,417 | — | 1,417 | |||||||||||||||||||||
Common stock issued under stock purchase plans | 3 | 110 | — | — | 110 | — | 110 | |||||||||||||||||||||
Assumption of stock-based compensation plan awards in connection with acquisitions | — | 15 | — | — | 15 | — | 15 | |||||||||||||||||||||
Stock-based compensation | — | 755 | — | — | 755 | — | 755 | |||||||||||||||||||||
Repurchase of common stock | (346 | ) | (1,269 | ) | (9,725 | ) | — | (10,994 | ) | — | (10,994 | ) | ||||||||||||||||
Cash dividends declared ($0.30 per share) | — | — | (1,433 | ) | — | (1,433 | ) | — | (1,433 | ) | ||||||||||||||||||
Tax benefit from stock plans | — | 257 | — | — | 257 | — | 257 | |||||||||||||||||||||
Other, net | — | 119 | — | — | 119 | 66 | 185 | |||||||||||||||||||||
Distributions to noncontrolling interests | — | — | — | — | — | (31 | ) | (31 | ) | |||||||||||||||||||
Other comprehensive loss, net | — | — | — | (211 | ) | (211 | ) | (49 | ) | (260 | ) | |||||||||||||||||
Net income | — | — | 10,925 | — | 10,925 | 112 | 11,037 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Balances as of May 31, 2013 | 4,646 | 18,893 | 25,854 | (99 | ) | 44,648 | 497 | 45,145 | ||||||||||||||||||||
Common stock issued under stock-based compensation plans | 95 | 2,026 | — | — | 2,026 | — | 2,026 | |||||||||||||||||||||
Common stock issued under stock purchase plans | 3 | 109 | — | — | 109 | — | 109 | |||||||||||||||||||||
Assumption of stock-based compensation plan awards in connection with acquisitions | — | 148 | — | — | 148 | — | 148 | |||||||||||||||||||||
Stock-based compensation | — | 805 | — | — | 805 | — | 805 | |||||||||||||||||||||
Repurchase of common stock | (280 | ) | (1,160 | ) | (8,638 | ) | — | (9,798 | ) | — | (9,798 | ) | ||||||||||||||||
Cash dividends declared ($0.48 per share) | — | — | (2,178 | ) | — | (2,178 | ) | — | (2,178 | ) | ||||||||||||||||||
Tax benefit from stock plans | — | 254 | — | — | 254 | — | 254 | |||||||||||||||||||||
Other, net | — | 2 | (28 | ) | — | (26 | ) | 12 | (14 | ) | ||||||||||||||||||
Distributions to noncontrolling interests | — | — | — | — | — | (28 | ) | (28 | ) | |||||||||||||||||||
Other comprehensive loss, net | — | — | — | (65 | ) | (65 | ) | (10 | ) | (75 | ) | |||||||||||||||||
Net income | — | — | 10,955 | — | 10,955 | 98 | 11,053 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Balances as of May 31, 2014 | 4,464 | 21,077 | 25,965 | (164 | ) | 46,878 | 569 | 47,447 | ||||||||||||||||||||
Common stock issued under stock-based compensation plans | 70 | 1,688 | — | — | 1,688 | — | 1,688 | |||||||||||||||||||||
Common stock issued under stock purchase plans | 3 | 114 | — | — | 114 | — | 114 | |||||||||||||||||||||
Assumption of stock-based compensation plan awards in connection with acquisitions | — | 12 | — | — | 12 | — | 12 | |||||||||||||||||||||
Stock-based compensation | — | 933 | — | — | 933 | — | 933 | |||||||||||||||||||||
Repurchase of common stock | (194 | ) | (943 | ) | (7,145 | ) | — | (8,088 | ) | — | (8,088 | ) | ||||||||||||||||
Cash dividends declared ($0.51 per share) | — | — | (2,255 | ) | — | (2,255 | ) | — | (2,255 | ) | ||||||||||||||||||
Tax benefit from stock plans | — | 267 | — | — | 267 | — | 267 | |||||||||||||||||||||
Other, net | — | 8 | — | — | 8 | 15 | 23 | |||||||||||||||||||||
Distributions to noncontrolling interests | — | — | — | — | — | (196 | ) | (196 | ) | |||||||||||||||||||
Other comprehensive loss, net | — | — | — | (832 | ) | (832 | ) | (66 | ) | (898 | ) | |||||||||||||||||
Net income | — | — | 9,938 | — | 9,938 | 113 | 10,051 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Balances as of May 31, 2015 | 4,343 | $ | 23,156 | $ | 26,503 | $ | (996 | ) | $ | 48,663 | $ | 435 | $ | 49,098 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended May 31, 2015, 2014 and 2013
Year Ended May 31, | ||||||||||||
(in millions) | 2015 | 2014 | 2013 | |||||||||
Cash flows from operating activities: | ||||||||||||
Net income | $ | 9,938 | $ | 10,955 | $ | 10,925 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Depreciation | 712 | 608 | 546 | |||||||||
Amortization of intangible assets | 2,149 | 2,300 | 2,385 | |||||||||
Allowances for doubtful accounts receivable | 56 | 122 | 118 | |||||||||
Deferred income taxes | (548 | ) | (248 | ) | (117 | ) | ||||||
Stock-based compensation | 933 | 805 | 755 | |||||||||
Tax benefits on the exercise of stock options and vesting of restricted stock-based awards | 396 | 480 | 410 | |||||||||
Excess tax benefits on the exercise of stock options and vesting of restricted stock-based awards | (244 | ) | (250 | ) | (241 | ) | ||||||
Other, net | 327 | 311 | 155 | |||||||||
Changes in operating assets and liabilities, net of effects from acquisitions: | ||||||||||||
Decrease in trade receivables | 208 | 24 | 267 | |||||||||
(Increase) decrease in inventories | (96 | ) | 57 | (66 | ) | |||||||
Increase in prepaid expenses and other assets | (387 | ) | (143 | ) | (555 | ) | ||||||
Increase (decrease) in accounts payable and other liabilities | 247 | 48 | (541 | ) | ||||||||
(Decrease) increase in income taxes payable | (10 | ) | (320 | ) | 35 | |||||||
Increase in deferred revenues | 655 | 172 | 148 | |||||||||
|
|
|
|
|
| |||||||
Net cash provided by operating activities | 14,336 | 14,921 | 14,224 | |||||||||
|
|
|
|
|
| |||||||
Cash flows from investing activities: | ||||||||||||
Purchases of marketable securities and other investments | (31,421 | ) | (32,316 | ) | (32,160 | ) | ||||||
Proceeds from maturities and sales of marketable securities and other investments | 20,004 | 28,845 | 30,159 | |||||||||
Acquisitions, net of cash acquired | (6,239 | ) | (3,488 | ) | (3,305 | ) | ||||||
Capital expenditures | (1,391 | ) | (580 | ) | (650 | ) | ||||||
|
|
|
|
|
| |||||||
Net cash used for investing activities | (19,047 | ) | (7,539 | ) | (5,956 | ) | ||||||
|
|
|
|
|
| |||||||
Cash flows from financing activities: | ||||||||||||
Payments for repurchases of common stock | (8,087 | ) | (9,813 | ) | (11,021 | ) | ||||||
Proceeds from issuances of common stock | 1,802 | 2,135 | 1,527 | |||||||||
Payments of dividends to stockholders | (2,255 | ) | (2,178 | ) | (1,433 | ) | ||||||
Proceeds from borrowings, net of issuance costs | 19,842 | 5,566 | 4,974 | |||||||||
Repayments of borrowings | (1,500 | ) | — | (2,950 | ) | |||||||
Excess tax benefits on the exercise of stock options and vesting of restricted stock-based awards | 244 | 250 | 241 | |||||||||
Distributions to noncontrolling interests | (196 | ) | (28 | ) | (31 | ) | ||||||
Other, net | — | — | 193 | |||||||||
|
|
|
|
|
| |||||||
Net cash provided by (used for) financing activities | 9,850 | (4,068 | ) | (8,500 | ) | |||||||
|
|
|
|
|
| |||||||
Effect of exchange rate changes on cash and cash equivalents | (1,192 | ) | (158 | ) | (110 | ) | ||||||
|
|
|
|
|
| |||||||
Net increase (decrease) in cash and cash equivalents | 3,947 | 3,156 | (342 | ) | ||||||||
Cash and cash equivalents at beginning of period | 17,769 | 14,613 | 14,955 | |||||||||
|
|
|
|
|
| |||||||
Cash and cash equivalents at end of period | $ | 21,716 | $ | 17,769 | $ | 14,613 | ||||||
|
|
|
|
|
| |||||||
Non-cash investing and financing transactions: | ||||||||||||
Fair value of stock options and restricted stock-based awards assumed in connection with acquisitions | $ | 12 | $ | 148 | $ | 15 | ||||||
Increase (decrease) in unsettled repurchases of common stock | $ | 1 | $ | (15 | ) | $ | (27 | ) | ||||
Increase in unsettled investment purchases | $ | 264 | $ | 78 | $ | — | ||||||
Supplemental schedule of cash flow data: | ||||||||||||
Cash paid for income taxes | $ | 3,055 | $ | 2,841 | $ | 2,644 | ||||||
Cash paid for interest | $ | 1,022 | $ | 827 | $ | 781 |
See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 31, 20122015
1. | ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES |
We develop, manufacture, market, distribute, hostOracle Corporation develops, manufactures, markets, sells, hosts and supportsupports database and middleware software; applications software; andsoftware, application software, cloud infrastructure, hardware systems, with the latter consisting primarily ofsystems—including Oracle Engineered Systems, computer server, storage, networking and storage products. Our businesses provide products industry specific hardware products—and related services that are built upon industry standards, are engineered to work together or independently within existing customerin cloud-based and on-premises information technology (IT) environments,environments. We offer our customers the option to purchase our software and run securely on a wide range of customerhardware systems products and related services to manage their own cloud-based or on-premises IT environments, or to deploy our comprehensive set of cloud service offerings including cloud computing environments.
DatabaseOracle Software as a Service (SaaS), Platform as a Service (PaaS) and middlewareInfrastructure as a Service (IaaS). Customers that purchase our software is generally used for the secure storage, retrieval and manipulation of all forms of software-based data and for developing and deploying applications on the internet and on corporate intranets. Applications software is generally usedproducts may elect to manage and automate business processes and to provide business intelligence. We also offerpurchase software license updates and product support contracts, thatwhich provide our customers with rights to unspecified product upgrades and maintenance releases issued during the support period as well as technical support assistance.
On January 26, 2010, we completed Customers that purchase our acquisition of Sun Microsystems, Inc. (Sun), a provider of hardware systems, software and services, by means of a merger of one of our wholly owned subsidiaries with and into Sun such that Sun became a wholly owned subsidiary of Oracle. As a result of our acquisition of Sun, we entered into a new hardware systems business. Our hardware systems business consists of two operating segments: (1) hardware systems products which consists primarily of computer server and storage product offerings and (2)may elect to purchase hardware systems support contracts, which providesprovide customers with unspecified software updates for the software components that are essential to the functionality of our hardware systemsproducts, such as Oracle Solaris and storagecertain other software products, and can include product repairs, maintenance services, and technical support services. In addition, we enhanced our existing softwareWe also offer customers a broad set of services offerings including consulting services, advanced customer support services and services businesses with additional offerings from Sun. Our acquisition of Sun addededucation services.
Oracle Corporation conducts business globally and was incorporated in 2005 as a significant amount of revenuesDelaware corporation and expensesis the successor to our results of operations originally begun in comparison to our historical operating results.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 (expense), 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. General
Acquisition related and administrativeother expenses as presented in our consolidated statements of operations for fiscal 20112015 included a benefit of $120$186 million related to a goodwill impairment loss (refer to Note 7 below for additional information) and for fiscal 2015 and 2013 included benefits of $53 million and $306 million, respectively, related to certain litigation (refer to Note 18 below for additional information). Further, acquisition related and other expenses for fiscal 2013 included a change in fair value of contingent consideration payable, which resulted in a net benefit of $387 million in fiscal 2013 (refer to Note 2 below for additional information).
In fiscal 2015, we adopted Accounting Standards Update (ASU) No. 2015-03,Interest—Imputation of Interest (Subtopic 835-30): Simplifying the recoveryPresentation of legalDebt Issuance Costs (ASU 2015-03). In connection with the adoption of ASU 2015-03, we reclassified debt issuance costs that reducedrelated to our expensessenior notes from other assets to notes payable, non-current as a deduction to the carrying amounts of our senior notes in that period.our May 31, 2015 and 2014 consolidated balance sheets. The adoption of ASU 2015-03 did not have a material impact on our consolidated financial statements.
In fiscal 2015, we also adopted ASU 2015-02,Amendments to the Consolidation Analysis, ASU 2015-01,Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items, ASU 2014-15,Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, ASU 2014-12,Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period, and ASU 2014-08,Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, none of which had an impact on our reported financial position or results of operations and cash flows.
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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 U.S. Securities and Exchange Commission (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 there are differences between these estimates, judgments or assumptions and actual results, our consolidated financial statements will be affected. In many cases, the
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accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its 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: (1) software which includesand cloud revenues, including new software licenselicenses revenues earned from granting licenses to use our software products and industry specific software; cloud SaaS and PaaS revenues generated from fees for granting customers access to a broad range of our software and related support offerings on a subscription basis in a secure, standards-based cloud computing environment; cloud IaaS revenues generated from cloudfees for deployment and management offerings for our software and hardware and related IT infrastructure generally on a subscription offerings,basis; and software license updates and product support revenues;revenues (described further below); (2) hardware systems revenues, which includesinclude the sale of hardware systems products including Oracle Engineered Systems, computer servers, and storage products, networking and data center fabric products, and industry specific hardware; and hardware systems support revenues; and (3) services, which includesinclude software and hardware related services including consulting, managed cloud servicesadvanced customer support and education revenues. RevenueRevenues generally isare recognized net of any taxes collected from customers and subsequently remitted to governmental authorities.
Revenue Recognition for Software Products and Software Related Services (Software Elements)
New software licenselicenses revenues primarily represent fees earned from granting customers licenses to use our database, middleware and applicationsapplication software and exclude cloud SaaS and PaaS revenues and revenues derived from software license updates, which are included in software license updates and product support revenues. The basis for our new software licenselicenses revenue recognition is substantially governed by the accounting guidance contained in ASC 985-605,Software-Revenue Recognition, we. We exercise judgment and use estimates in connection with the determination of the amount of software and software related services revenues to be recognized in each accounting period.
For software license arrangements that do not require significant modification or customization of the underlying software, we recognize new software licenselicenses 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 sale because the foregoing conditions are not met, are recognized when those conditions are subsequently met.
Substantially all of our software license arrangements do not include acceptance provisions. However, if acceptance provisions exist as part of public policy, for example, in agreements with government entities where acceptance periods are required by law, or within previously executed terms and conditions that are referenced in the current agreement and are short-term in nature, we generally recognize revenues upon delivery provided the
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acceptance terms are perfunctory and all other revenue recognition criteria have been met. If acceptance provisions are not perfunctory (for example, acceptance provisions that are long-term in nature or are not included as standard terms of an arrangement), revenues are recognized upon the earlier of receipt of written customer acceptance or expiration of the acceptance period.
The vast majority of our software license arrangements include software license updates and product support contracts, which are entered into at the customer’s option and are recognized ratably over the term of the arrangement, typically one year. Software license updates provide customers with rights to unspecified software product upgrades, maintenance releases and patches released during the term of the support period. Product support includes internet access to technical content, as well as internet and telephone access to technical support personnel. Software license updates and product support contracts are generally priced as a percentage of the net new software licenselicenses fees. Substantially all of our customers renew their software license updates and product support contracts annually.
Revenue Recognition for Multiple-Element Arrangements—Software Products and Software Related Services (Software Arrangements)
We often enter into arrangements with customers that purchase both software related products and software related services from us at the same time, or within close proximity of one another (referred to as software related
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multiple-element arrangements). Such software related multiple-element arrangements include the sale of our software products, software license updates and product support contracts and other software related services whereby software license delivery is followed by the subsequent or contemporaneous delivery of the other elements. For those software related multiple-element arrangements, we have applied the residual method to determine the amount of new software license revenues to be recognized pursuant to ASC 985-605. Under the residual method, if fair value exists for undelivered elements in a multiple-element arrangement, such fair value of the undelivered elements is deferred with the remaining portion of the arrangement consideration generally recognized upon delivery of the software license or services arrangement.license. We allocate the fair value of each element of a software related multiple-element arrangement based upon its fair value as determined by our vendor specific objective evidence (VSOE—described further below), with any remaining amount allocated to the software license.
Revenue Recognition for Cloud SaaS, PaaS and IaaS Offerings, Hardware Systems Products, Hardware Systems Support and Related Services and Cloud Software Subscription Offerings (Nonsoftware Elements)
Revenues from the sale of hardware systems products represent amounts earned primarily from the sale of computer servers and storage products. Our revenue recognition policy for these nonsoftware deliverables and other nonsoftware deliverables including cloud SaaS, PaaS and IaaS offerings, hardware systems products, support and related services and cloud software subscription offerings is based upon the accounting guidance contained in ASC 605,605-25,Revenue Recognition,Multiple-Element Arrangements, and we exercise judgment and use estimates in connection with the determination of the amount of cloud SaaS, PaaS and IaaS revenues, hardware systems products hardware systemsrevenues, support and related services revenues and cloud software subscription revenues to be recognized in each accounting period.
Revenues from the sales of our nonsoftware elements are recognized when: (1) persuasive evidence of an arrangement exists; (2) we deliver the products and passage of the title to the buyer occurs; (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. When applicable, we reduce revenues for estimated returns or certain other incentive programs where we have the ability to sufficiently estimate the effects of these items. Where an arrangement is subject to acceptance criteria and the acceptance provisions are not perfunctory (for example, acceptance provisions that are long-term in nature or are not included as standard terms of an arrangement), revenues are recognized upon the earlier of receipt of written customer acceptance or expiration of the acceptance period.
Our cloud SaaS and PaaS offerings generally provide customers access to certain of our software within a cloud-based IT environment that we manage, host and support and offer to customers on a subscription basis. Revenues for our cloud SaaS and PaaS offerings are generally recognized ratably over the contract term commencing with the date the service is made available to customers and all other revenue recognition criteria have been satisfied.
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Our cloud IaaS offerings provide deployment and management offerings for our software and hardware and related IT infrastructure including comprehensive software and hardware management and maintenance services arrangements for customer IT infrastructure for a stated term that is hosted at our data center facilities, select partner data centers or physically on-premises at customer facilities generally for a term-based fee; and virtual machine instances that are subscription-based and designed for computing and reliable and secure object storage. Revenues for these cloud IaaS offerings are generally recognized ratably over the contract term commencing with the date the service is made available to customers and all other revenue recognition criteria have been satisfied.
Revenues from the sale of hardware systems products represent amounts earned primarily from the sale of our Oracle Engineered Systems, computer servers, storage, networking and industry specific hardware.
Our hardware systems support offerings generally provide customers with software updates for the software components that are essential to the functionality of our server and storagehardware products and can also include product repairs, maintenance services and technical support services. Hardware systems support contracts are generally priced as a percentage of the net hardware systems products fees. Hardware systems support contracts are entered into at the customer’s option and are recognized ratably over the contractual term of the arrangements, which are typically one year.
Our cloud software subscription offerings generally provide customers access to certain of our software within a cloud-based IT environment that we manage and offer to customers on a subscription basis. Revenues for our cloud software subscription offerings are recognized ratably over the contract term commencing with the date our service is made available to customers and all other revenue recognition criteria have been satisfied.
Revenue Recognition for Multiple-Element Arrangements—Cloud SaaS, PaaS and IaaS Offerings, Hardware Systems Products, and Hardware Systems Support and Related Services (Nonsoftware Arrangements)
We enter into arrangements with customers that purchase both nonsoftware related products and services from us at the same time, or within close proximity of one another (referred to as nonsoftware multiple-element arrangements). Each element within a nonsoftware multiple-element arrangement is accounted for as a separate
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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. 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 delivery period.contractual period of the arrangement or in the case of our cloud offerings, we generally recognize revenues over the contractual term of the cloud software 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 nonsoftware 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: 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 systems product includes software, we determine whether the tangible hardware systems product and the software work together to deliver the product’s essential functionality and, if so, the entire product is treated as a nonsoftware deliverable. The total arrangement consideration is allocated to each separate unit of accounting for each of the nonsoftware deliverables using the relative selling prices of each unit based on the aforementioned 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.
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When possible, we establish VSOE of selling price for deliverables in software and nonsoftware multiple-element arrangements using the price charged for a deliverable when sold separately and for software license updates and product support and hardware systems support, based on the renewal rates offered to customers. 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 including, but not limited to, pricing practices including discounting, margin objectives, competition, contractually stated prices, the geographies in which we offer our products and services, the type of customer (i.e., distributor, value added reseller, government agency and direct end user, among others) and the stage of the product lifecycle. The determination of ESP is made through consultation with and approval by our management, taking into consideration our pricing model and go-to-market strategy. As our, or our competitors’, pricing and go-to-market strategies evolve, we may modify our pricing practices in the future, which could result in changes to our determination of VSOE, TPE and ESP. As a result, our future revenue recognition for multiple-element arrangements could differ materially from our results in the current period. Selling prices are analyzed on an annual basis or more frequently if we experience significant changes in our selling prices.
Revenue Recognition Policies Applicable to both Software and Nonsoftware Elements
Revenue Recognition for Multiple-Element Arrangements – Arrangements—Arrangements with Software and Nonsoftware Elements
We also enter into multiple-element arrangements that may include a combination of our various software related and nonsoftware related products and services offerings including hardware systems products, hardware systems
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support, new software licenses, software license updates and product support, cloud software subscription,SaaS, PaaS and IaaS offerings, hardware systems products, hardware systems support, consulting, managed cloudadvanced 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 to the nonsoftware 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. After the arrangement consideration has been allocated to the elements, we account for each respective element in the arrangement as described above.
Other Revenue Recognition Policies Applicable to Software and Nonsoftware Elements
Many of our software 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 new software licenselicenses 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 software license fee. Revenues for consulting services are generally recognized as the services are performed. If there is a significant uncertainty about the project completion or receipt of payment for the consulting services, revenues are deferred until the uncertainty is sufficiently resolved. We estimate the proportional performance on contracts with fixed or “not to exceed” fees on a monthly basis utilizing hours incurred to date as a percentage of total estimated hours to complete the project. If we do not have a sufficient basis to measure progress towards completion, revenues are recognized when we receive final acceptance from the customer that the services have been completed. When total cost estimates exceed revenues, we accrue for the estimated losses immediately using cost estimates that are based upon an average fully
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burdened daily rate applicable to the consulting organization delivering the services. The complexity of the estimation process and factors relating to the assumptions, risks and uncertainties inherent with the application of the proportional performance method of accounting affects the amounts of revenues and related expenses reported in our consolidated financial statements. A number of internal and external factors can affect our estimates, including labor rates, utilization and efficiency variances and specification and testing requirement changes.
Our managed cloudadvanced customer support services are offered as standalone arrangements or as a part of arrangements to customers buying newother software licenses or hardware systemsand non-software products and services. Oracle managed cloud services are designed to provide comprehensive software and hardware management and maintenance services for customers hosted at our Oracle data center facilities, select partner data centers or physically on-premise at customer facilities. Additionally, we provideWe offer these advanced support services, both on-premiseon-premises and remote, to Oracle customers to enable increased performance and higher availability of their products and services. Depending upon the nature of the arrangement, revenues from managed cloudthese services are recognized as the services are performed or ratably over the term of the service period, which is generally one year or less.
Education revenues are also a part of our services business and include instructor-led, media-based and internet-based training in the use of our software and hardware products. Education revenues are recognized as the classes or other education offerings are delivered.
If an arrangement contains multiple elements and does not qualify for separate accounting for the product and service transactions, then new software licenselicenses revenues and/or hardware systems products revenues, including the costs of hardware systems products, are generally recognized together with the services based on contract accounting using either the percentage-of-completion or completed-contract method. Contract accounting is applied to any bundled software and cloud, hardware systems and services arrangements: (1) that include milestones or customer specific acceptance criteria that may affect collection of the software license or hardware systems
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product fees; (2) where consulting services include significant modification or customization of the software or hardware systems product or are of a specialized nature and generally performed only by Oracle; (3) where significant consulting services are provided for in the software license contract or hardware systems product contract without additional charge or are substantially discounted; or (4) where the software license or hardware systems product payment is tied to the performance of consulting services. For the purposes of revenue classification of the elements that are accounted for as a single unit of accounting, we allocate revenues to software and nonsoftware elements based on a rational and consistent methodology utilizing our best estimate of the relative selling price of such elements.
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 cancellation. We consider multiple factors, including the history with the customer in similar transactions, the “essential use” of the software or hardware systems 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 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.
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. Payments that are due within six months are generally deemed to be fixed or determinable based on our successful collection history on such arrangements, 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
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contract date. Provided all other revenue recognition criteria have been met, we recognize new software licenselicenses revenues and hardware systems 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. During fiscal 20122015, 2014 and fiscal 2011, $1.62013, $1.8 billion, $2.0 billion and $1.5$2.2 billion of our financing receivables were sold to financial institutions, respectively.
In addition, we enter into arrangements with leasing companies for the sale of our hardware systems products. These leasing companies, in turn, lease our products to end-users. The leasing companies generally have no recourse to us in the event of default by the end-user and we recognize revenue upon delivery, if all the other revenue recognition criteria have been met.
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). Software license agreements or sales of hardware systems that occur within a three-month time period from the date we have purchased goods or services from that same customer are reviewed for appropriate accounting treatment and disclosure. When we acquire goods or services from a customer, 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 new software license revenues or hardware systems product 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.
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Business Combinations
We apply the provisions of ASC 805,Business Combinations, in the accounting for our acquisitions. It requires us to recognize separately from goodwill the assets acquired and the liabilities assumed, at theirthe acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred andover 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 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.
Costs to exit or restructure certain activities of an acquired company or our internal operations are accounted for as one-time 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.
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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: (i) it is probable that an asset existed or a liability had been incurred at the acquisition date and (ii) 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 provided that we areif 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 marketable equity securities as available-for-sale. DebtMarketable debt and marketable equity securities classified as available-for-sale are reported at fair value, with all unrealized gains (losses) reflected net of tax in stockholders’ equity.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 (expense), 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.
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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 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.
Fair ValueValues of Financial Instruments
We apply the provisions of ASC 820,Fair Value Measurements and DisclosuresMeasurement(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 marketable 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.
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Concentrations of Credit 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 a number of 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. 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 2012, 20112015, 2014 or 2010.2013.
We outsource the design, manufacturing, assembly and delivery of certain of our hardware products to a variety of companies, many of which are located outside the United States. 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 systems products. The inability of these third party manufacturing partners to fulfill orders for our hardware products could adversely impact future operating results of our hardware systems business.
Inventories
Inventories are stated at the lower of cost or market 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 months or less)to nine months). Inventories in excess of future demand are written down and charged to hardware systems products 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.
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 $812$817 million and $876$906 million at May 31, 20122015 and 2011,2014, respectively.
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We defer sales commission expenses associated with our cloud SaaS, PaaS and IaaS offerings, and recognize the related expenses over the non-cancelable term of the related contracts, which are typically one to three years. Amortization of deferred sales commissions is included as a component of sales and marketing expense in our consolidated statements of operations.
Property, Plant and Equipment
Property, plant and equipment isare 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 fifty 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 isare 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 2012, 20112015, 2014 or 2010.2013.
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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 ten 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 theseour 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. Effective fiscal 2012,According to ASC 350,Intangibles—Goodwill and Other, we optedcan opt to perform a qualitative assessment to test a reporting unit’s goodwill for impairment.impairment or we can directly perform the two step impairment test. Based on our qualitative assessment, if we determine that the fair value of a reporting unit is more likely than not (i.e., a likelihood of more than 50 percent) to be less than its carrying amount, the two step impairment test will be performed. In the first step, we compare the fair value of each reporting unit to its carrying value. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit, goodwill is not considered impaired and we are not required to perform further testing. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, then we must perform the second step of the impairment test in order to determine the implied fair value of the reporting unit’s goodwill. If the carrying value of a reporting unit’s goodwill exceeds its implied fair value, then we would record an impairment loss equal to the difference. During fiscal 2015, we recognized a $186 million goodwill impairment loss (refer to Note 7 below for additional information). We did not recognize any goodwill impairment charges in fiscal 2014 or 2013.
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 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 goodwill or intangible asset impairment charges in fiscal 2012, 20112015, 2014 or 2010.2013.
Derivative Financial Instruments
During fiscal 2012, 20112015, 2014 and 2010,2013, we used derivative and non-derivative financial instruments to manage foreign currency and interest rate risks.risks (see Note 11 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 offset toaccounting 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, the gain or loss on derivative financial instruments that were designated as fair value hedges wereis recognized in earnings in the period of change. The loss or gain attributable to the risk being hedged is recognized in earnings with an offset recorded to the item for which the risk wasis being hedged. Any ineffective or excluded portion ofFor a derivative instrument designated as a cash flow hedge, oreach reporting period we record the change in fair value on the effective portion 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 designated as a net investment hedge of our investments in certain of our international subsidiaries, the change on account of remeasurement of the effective portion for each reporting period is recorded to accumulated other comprehensive loss in our consolidated balance sheets.
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 2015
We perform the effectiveness testing of our aforementioned designated hedges on a quarterly basis and gains or losses on our fair value hedgesthe changes in ineffective portions, if any, are recognized immediately in earnings.
Legal 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. A description of our accounting policies associated with contingencies assumed as a part of a business combination is provided under “Business Combinations” above. For legal and other contingencies that are not a part
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 2012
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. A descriptionNote 18 below provides additional information regarding certain of our accounting policies associated with contingencies assumed as a part of a business combination is provided under “Business Combinations” above.legal contingencies.
Shipping and Handling Costs
Our shipping and handling costs for hardware systems products sales are included in hardware systems products 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 date. The effects of foreign currency translation adjustments are included in stockholders’ equity as a component of accumulated other comprehensive incomeloss in the accompanying consolidated balance sheets.sheets and related periodic movements are summarized as a line item in our consolidated statements of comprehensive income. Net foreign exchange transaction gains (losses)losses included in non-operating income (expense), net in the accompanying consolidated statements of operations were $(105)$157 million, $11$375 million and $(149)$162 million in fiscal 2012, 20112015, 2014 and 2010,2013, respectively.
Stock-Based Compensation
We account for share-based payments to employees, including grants of service-based employee stock options, service-based restricted stock-basedstock awards, performance-based restricted stock awards (PSUs) and purchases under employee stock purchase plans, in accordance with ASC 718,Compensation-StockCompensation—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 and the estimated number of shares we ultimately expect will vest. WeFor our service-based 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, we recognize stock-based compensation expense on a straight-line basis over the service period for each separately vesting tranche, which is generally twelve months, as the performance conditions to evaluate attainment of each tranche for each participant are independent of the performance conditions for the other tranches. We update the amount of stock-based compensation expense, net of forfeitures, to record as of the end of each reporting period based on the expected attainment of performance targets, which is subject to change until a final determination is known. Changes to the target estimates are reflected in the amount of stock-based compensation expense that we recognize for each tranche on a cumulative basis during the reporting period in which the target estimates are altered and may cause the amount of stock-based compensation expense that we record for such reporting period to vary.
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 2015
We record deferred tax assets for stock-based compensation plan awards that result in deductions on our income tax returns based on the amount of stock-based compensation recognized and the fair value attributable to the vested portion of stock awards assumed in connection with a business combination, at the statutory tax rate in the jurisdiction in which we will receive a tax deduction.
Advertising
All advertising costs are expensed as incurred. Advertising expenses, which are included within sales and marketing expenses, were $55 million, $79 million $88 million and $75$85 million in fiscal 2012, 20112015, 2014 and 2010,2013, respectively.
Research and Development and Software Development Costs
All research and development costs are expensed as incurred. Costs eligible for capitalization
Software development costs required to be capitalized under ASC 985-20,Software—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 2012, 2011 or 2010.2015, 2014 and 2013.
Acquisition Related and Other Expenses
Acquisition related and other expenses consist of personnel related costs for transitional and certain other employees, stock-based compensation expenses, integration related professional services, certain business combination adjustments including adjustments after the measurement period has ended and changes in fair value of contingent consideration payable (further discussed in Note 2 below) and certain other operating expenses,items, net.
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 2012
Stock-based compensation included in acquisition related and other expenses resultedresult from unvested options and restricted stock-based awards assumed from acquisitions whereby vesting was accelerated upon termination of the employees pursuant to the original terms of those options and restricted stock-based awards.
Year Ended May 31, | Year Ended May 31, | |||||||||||||||||||||||
(in millions) | 2012 | 2011 | 2010 | 2015 | 2014 | 2013 | ||||||||||||||||||
Transitional and other employee related costs | $ | 25 | $ | 129 | $ | 66 | $ | 57 | $ | 27 | $ | 27 | ||||||||||||
Stock-based compensation | 33 | 10 | 15 | 5 | 10 | 33 | ||||||||||||||||||
Professional fees and other, net | 13 | 66 | 68 | (35 | ) | 20 | (276 | ) | ||||||||||||||||
Business combination adjustments, net | (15 | ) | 3 | 5 | 184 | (16 | ) | (388 | ) | |||||||||||||||
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Total acquisition related and other expenses | $ | 56 | $ | 208 | $ | 154 | $ | 211 | $ | 41 | $ | (604 | ) | |||||||||||
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Included in acquisition related and other expenses for fiscal 2015 was a goodwill impairment loss of $186 million (refer to Note 7 below for additional information). Included in acquisition related and other expenses for fiscal 2015 and 2013 were benefits of $53 million and $306 million, respectively, related to certain litigation (refer to Note 18 below for additional information). Also included in acquisition related and other expenses for fiscal 2013 were changes in estimates for contingent consideration payable, which reduced acquisition related and other expenses by $387 million during fiscal 2013 (refer to Note 2 below for additional information).
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 2015
Non-Operating Income (Expense), net
Non-operating income (expense), net consists primarily of interest income, net foreign currency exchange gains (losses), the noncontrolling interests in the net profits of our majority-owned subsidiaries (Oracle(primarily Oracle Financial Services Software Limited and Oracle 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, | Year Ended May 31, | |||||||||||||||||||||||
(in millions) | 2012 | 2011 | 2010 | 2015 | 2014 | 2013 | ||||||||||||||||||
Interest income | $ | 231 | $ | 163 | $ | 122 | $ | 349 | $ | 263 | $ | 237 | ||||||||||||
Foreign currency gains (losses), net | (105 | ) | 11 | (148 | ) | |||||||||||||||||||
Foreign currency losses, net | (157 | ) | (375 | ) | (162 | ) | ||||||||||||||||||
Noncontrolling interests in income | (119 | ) | (97 | ) | (95 | ) | (113 | ) | (98 | ) | (112 | ) | ||||||||||||
Other income, net | 15 | 109 | 56 | 27 | 69 | 48 | ||||||||||||||||||
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Total non-operating income (expense), net | $ | 22 | $ | 186 | $ | (65 | ) | $ | 106 | $ | (141 | ) | $ | 11 | ||||||||||
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Included in our non-operating expense,foreign currency losses, net for fiscal 2010 was a2015 were foreign currency remeasurement losslosses of $81$23 million, resulting from the designation ofrelated to our Venezuelan subsidiary asdue to the continued “highly inflationary” designation of the Venezuelan economy in accordance with ASC 830,Foreign Currency Matters,; the introduction of currency exchange legislation in Venezuela in February 2015 to create a new foreign exchange mechanism known as SIMADI; and the subsequent devaluationremeasurement of certain assets and liabilities of our Venezuelan subsidiary pursuant to the SIMADI rate, which we determined, based upon our specific facts and circumstances, was the most appropriate for the reporting of our Venezuelan currency by thesubsidiary’s Bolivar based transactions and net monetary assets in U.S. Dollars. We incurred losses related to our Venezuelan government.subsidiary of $213 million and $64 million during fiscal 2014 and 2013, respectively, for generally similar reasons.
Income Taxes
We account for income taxes in accordance with ASC 740,Income Taxes. 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.
Recent Accounting Pronouncements
Cloud Computing Arrangements that Include a Software Element: In April 2015, the FASB issued ASU 2015-05, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement(ASU 2015-05). ASU 2015-05 provides guidance to customers about whether a cloud computing arrangement includes software. If a cloud computing arrangement includes a software license, the customer should account for the software license element of the arrangement
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 20122015
Recent Accounting Pronouncements
Presentation of Comprehensive Income: In June 2011,consistent with the FASB issued Accounting Standards Update No. 2011-05,Comprehensive Income (Topic 220)—Presentation of Comprehensive Income(ASU 2011-05), to require an entity to present the total of comprehensive income, the components of net income and the componentsacquisition of other comprehensive income either insoftware licenses. If a single continuous statement of comprehensive income or in two separate but consecutive statements.cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The new guidance does not change the accounting for a customer’s accounting for service contracts. ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of equity. In December 2011, the FASB issued Accounting Standards Update No. 2011-12,Comprehensive Income (Topic 220)—Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05 (ASU 2011-12), which defers the requirement to present reclassification adjustments for each component of other comprehensive income on the face of the financial statements. ASU 2011-05 and ASU 2011-12 are2015-05 is effective for us in our first quarter of fiscal 20132017 with early adoption permitted using either of two methods: (i) prospective to all arrangements entered into or materially modified after the effective date and should be appliedrepresent a change in accounting principle; or (ii) retrospectively. We are currently evaluating the impact of our pending adoption of ASU 2011-052015-05 on our consolidated financial statements.
Revenue Recognition: In May 2014, the FASB issued ASU 2014-09,Revenue from Contracts with Customers: Topic606 (ASU 2014-09), to supersede nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 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. ASU 2014-09 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 U.S. 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. ASU 2011-122014-09 is effective for us in our first quarter of fiscal 2018 using either of two methods: (i) retrospective application of ASU 2014-09 to each prior reporting period presented with the option to elect certain practical expedients as defined within ASU 2014-09; or (ii) retrospective application of ASU 2014-09 with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application and providing certain additional disclosures as defined per ASU 2014-09. We are currently evaluating the impact of our pending adoption of ASU 2014-09 on our consolidated financial statements.
2. | ACQUISITIONS |
Fiscal 2012 Acquisitions
Acquisition of Taleo CorporationMICROS Systems, Inc.
On April 5, 2012,June 22, 2014, we completed our acquisitionentered into an Agreement and Plan of Taleo Corporation (Taleo)Merger (Merger Agreement) with MICROS Systems, Inc. (MICROS), a provider of cloud-based talent management solutions.integrated software, hardware and services solutions to the hospitality and retail industries. On July 3, 2014, pursuant to the Merger Agreement, we commenced a tender offer to purchase all of the issued and outstanding shares of common stock of MICROS at a purchase price of $68.00 per share, net to the holder in cash, without interest thereon, based upon the terms and subject to the conditions set forth in the Merger Agreement. Between September 3, 2014 and September 8, 2014, pursuant to the terms of the tender offer, we accepted and paid for the substantial majority of outstanding shares of MICROS common stock. On September 8, 2014, we effectuated the merger of MICROS with and into a wholly-owned subsidiary of Oracle pursuant to the terms of the Merger Agreement and applicable Maryland law and MICROS became an indirect, wholly-owned subsidiary of Oracle. Pursuant to the merger, shares of MICROS common stock that remained outstanding and were not acquired by us were converted into, and cancelled in exchange for, the right to receive $68.00 per share in cash. The unvested equity awards to acquire MICROS common stock that were outstanding immediately prior to the conclusion of the merger were converted into equity awards denominated in shares of Oracle common stock based on formulas contained in the Merger Agreement. We acquired MICROS to, among other things, expand our software and cloud, hardware and related services offerings for hotels, food and beverage industries, facilities, and retailers. We have included the financial results of TaleoMICROS in our consolidated financial statements from the date of acquisition. These results were not individually material
Pursuant to our consolidated financial statements. The totalbusiness combinations accounting policy, we estimated the preliminary purchase price for Taleo was approximately $2.0 billion, which consisted of approximately $2.0 billion in cash and $10 million for the fair value of stock options and restricted stock-based awards assumed. We have preliminarily recorded $1.1 billion of identifiable intangible assets and $282 millionvalues of net tangible liabilities related primarily to deferred tax liabilities and customer performance obligations that were assumed as a partintangible assets acquired and the excess of this acquisition based on their estimatedthe consideration transferred over the aggregate of such fair values and $1.2 billion of residualwas recorded as goodwill.
Acquisition of RightNow Technologies, Inc.
On January 25, 2012, we completed our acquisition of RightNow Technologies, Inc. (RightNow), a provider of cloud-based customer service. We have included the financial results of RightNow 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 RightNow was approximately $1.5 billion, which consisted of approximately $1.5 billion in cash and $14 million for the fair value of stock options and restricted stock-based awards assumed. We have preliminarily recorded $697 million of identifiable intangible assets and $296 millionvalues of net tangible liabilities related primarilyassets and intangible assets acquired were based upon preliminary valuations and our estimates and assumptions are subject to customer performance obligations, convertible debt and deferred tax liabilitieschange within the measurement period (up to one year from the acquisition date). The primary areas that were assumed as a part of this acquisition based on their estimatedremain preliminary relate to the fair values of intangible assets acquired, certain tangible assets and $1.1 billion of residual goodwill.
Acquisition of Pillar Data Systems, Inc.
On July 18, 2011, weliabilities acquired, Pillar Data Systems, Inc. (Pillar Data), a provider of enterprise storage systems solutions. Prior to the acquisition, Pillar Data was directly and indirectly majority-owned and controlled by Lawrence J. Ellison, our Chief Executive Officer, director and largest stockholder. Pursuant to the agreement and plan of merger dated as of June 29, 2011 (Merger Agreement), we acquired all of the issued and outstanding equity interests of Pillar Data from the stockholders in exchange for rights to receive contingent cash consideration (Earn-Out), if any, pursuant to an Earn-Out calculation. An affiliate of Mr. Ellison’s has acertain legal
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 20122015
preference rightmatters, income and non-income based taxes and residual goodwill. We expect to receivecontinue to obtain information to assist us in determining the first approximately $565 millionfair values of the Earn-Out, if any, and rights to 55% of any amount of the Earn-Out that exceeds $565 million.
The Earn-Out will be calculated with respect to a three-year period that commenced with our second quarter of fiscal 2012 and will conclude with our first quarter of fiscal 2015 (Earn-Out Period). The Earn-Out will be an amount (if positive) calculated based on the product of (i) the difference between (x) future revenues generated from the sale of certain Pillar Data products during Oracle’s last four full fiscal quartersnet assets acquired during the Earn-Out Period minus (y) certain losses associated with certain Pillar Data products incurred overmeasurement period. The following table summarizes the entire Earn-Out Period, multiplied by (ii) three. Our obligation to pay the Earn-Out will be subject to reduction as a resultestimated preliminary fair values of our right to set-off the amount of any indemnification claims we may have under the Merger Agreement. net assets acquired from MICROS:
(in millions) | ||||
Cash and cash equivalents | $ | 675 | ||
Trade receivables, net | 183 | |||
Inventories | 44 | |||
Goodwill | 3,277 | |||
Intangible assets | 2,030 | |||
Other assets | 149 | |||
Accounts payable and other liabilities | (348 | ) | ||
Deferred tax liabilities, net | (633 | ) | ||
Deferred revenues | (130 | ) | ||
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Total | $ | 5,247 | ||
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We do not expect the amountgoodwill recognized as a part of the Earn-Out or its potential impact willMICROS acquisition to be materialdeductible for income tax purposes.
Other Fiscal 2015 Acquisitions
During fiscal 2015, we acquired certain other companies and purchased certain technology and development assets primarily to expand our results of operations or financial position.
products and services offerings. These acquisitions were not individually significant. We have included the financial results of Pillar Datathe 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 preliminary purchase price for these acquisitions was approximately $1.7 billion, which consisted of approximately $1.7 billion in cash and $7 million for the fair values of stock options and restricted stock-based awards assumed. We have preliminarily recorded $14 million of net tangible assets and $388 million of identifiable intangible assets, based on their estimated fair values, and $1.3 billion of residual goodwill.
The initial purchase price calculation and related accounting for our acquisitions completed during fiscal 2015 is preliminary. The preliminary fair value estimates for the assets acquired and liabilities assumed for our acquisitions completed during fiscal 2015 were based upon preliminary calculations and valuations and our estimates and assumptions for these acquisitions are subject to change as we obtain additional information during the respective measurement periods (up to one year from the respective acquisition dates). The primary areas of those preliminary estimates that are not yet finalized relate to certain tangible assets and liabilities acquired, identifiable intangible assets, certain legal matters and income and non-income based taxes.
Fiscal 2014 Acquisitions
Acquisition of Responsys, Inc.
On February 6, 2014, we completed our acquisition of Responsys, Inc. (Responsys), a provider of enterprise-scale cloud-based business-to-consumer marketing software. We have included the financial results of Responsys in our consolidated financial statements from the date of acquisition. These results were not material to our consolidated financial statements. The estimated fair value of the liability for contingent consideration, representing the preliminarytotal purchase price payable for our acquisition of Pillar Data,Responsys was approximately $346$1.6 billion, which consisted of approximately $1.4 billion in cash and $147 million for the fair values of stock options and was included in other non-currentrestricted stock-based awards assumed. We recorded $32 million of net tangible liabilities, in our consolidated balance sheet. This preliminary purchase price payable may differ from the amount that is ultimately payable via the Earn-Out calculation (described above) with any changes in the liability recorded as acquisition related and other in our consolidated statements of operations until the liability is settled. We have preliminarily recorded $142primarily to deferred tax liabilities, $580 million of identifiable intangible assets, and $11$14 million of net tangible liabilities,in-process research and development, based on their estimated fair values, and $215 million$1.0 billion of residual goodwill. The fair value of contingent consideration payable was estimated using a discounted cash flow technique with significant inputs that are not observable in the market and thus represents a Level 3 fair value measurement as defined in the ASC 820. The significant inputs in the Level 3 measurement not supported by market activity included our probability assessments of expected future cash flows related to our acquisition of Pillar Data during the Earn-Out Period, appropriately discounted considering the uncertainties associated with the obligation, and calculated in accordance with the terms of the Merger Agreement. Subsequent to the date of acquisition, the estimated fair value of the Earn-Out liability increased to $387 million as of
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 2012 primarily as a result of the passage of time and the corresponding impact of discounting.2015
Other Fiscal 20122014 Acquisitions
During fiscal 2012,2014, we acquired certain other companies and purchased certain technology and development assets primarily to expand our products and services offerings. These acquisitions were not individually significant. We have included the financial results of these 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 preliminary purchase price for these acquisitions was approximately $1.6$2.3 billion, which consisted primarily of approximately $1.6 billion in cash consideration, and $5 million for the fair value of stock options assumed. We have preliminarilywe recorded $540 million of identifiable intangible assets and $29$230 million of net tangible liabilities, related primarily to deferred tax liabilities, $1.1 billion of identifiable intangible assets, and $99 million of in-process research and development, based on their estimated fair values, and $1.1$1.3 billion of residual goodwill.
In aggregate, companies acquired during fiscal 2012 collectively contributed $231 million to our total software revenues during fiscal 2012. Other collective revenue and earnings contributions were not significant or were not separately identifiable due to the integration of these acquired entities into our existing operations.
The preliminary fair value estimates for the assets acquired and liabilities assumed for all acquisitions completed during fiscal 2012 were based upon preliminary calculations and valuations and our estimates and assumptions for each of these acquisitions are subject to change as we obtain additional information for our estimates during the respective measurement periods (up to one year from the respective acquisition dates). The primary areas of
ORACLE CORPORATIONFiscal 2013 Acquisitions
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 2012
those preliminary estimates that are not yet finalized related to certain tangible assets and liabilities acquired, identifiable intangible assets, certain legal matters and income and non-income based taxes.
Subsequent to May 31, 2012, we agreed to acquire certain other companies for amounts that are not material to our business. We expect to close such acquisitions within the next twelve months.
Fiscal 2011 AcquisitionsAcquisition of Acme Packet, Inc.
On January 5, 2011,March 28, 2013, we completed our acquisition of Art Technology Group,Acme Packet, Inc. (ATG)(Acme Packet), a provider of eCommerce software and related on demand commerce optimization applications.session border control technology. We have included the financial results of ATGAcme Packet in our consolidated financial statements from the date of acquisition. The total purchase price for ATGAcme Packet was approximately $1.0$2.1 billion, which consisted of approximately $990 million$2.1 billion in cash and $16$12 million for the fair value of stock options and restricted stock-based awards assumed. We have recorded $404$247 million of net tangible assets, $525 million of identifiable intangible assets, and $111$45 million of net tangible assets,in-process research and development, based on their estimated fair values, and $491 million$1.3 billion of residual goodwill.
Acquisition of Eloqua, Inc.
On August 11, 2010,February 8, 2013, we completed our acquisition of Phase Forward Incorporated (Phase Forward)Eloqua, Inc. (Eloqua), a provider of applications for life sciences companiescloud-based marketing automation and healthcare providers.revenue performance management software. We have included the financial results of Phase ForwardEloqua in our consolidated financial statements from the date of acquisition. The total purchase price for Phase ForwardEloqua was approximately $736$935 million, which consisted of approximately $735$933 million in cash and $1$2 million for the fair value of restricted stock-based awardsstock options assumed. We have recorded $370$1 million of net tangible assets and $327 million of identifiable intangible assets, $20 million of in-process research and development and $17 million of net tangible assets, based on their estimated fair values, and $329$607 million of residual goodwill.
Other Fiscal 2013 Acquisitions
During fiscal 2011,2013, 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. We have included
Contingent Consideration Related to the financial resultsAcquisition of these companies in our consolidated results from their respective acquisition dates, which were not individually significant.Pillar Data Systems, Inc.
In aggregate, companiesfiscal 2012, we acquired during fiscal 2011 collectively contributed $231 million to our total software revenues in fiscal 2011. Other collective revenue and earnings contributions were not significant or were not separately identifiable due to the integration of these acquired entities into our existing operations.
Fiscal 2010 Acquisitions
Acquisition of Sun Microsystems,Pillar Data Systems, Inc.
On January 26, 2010 we completed our acquisition of Sun, (Pillar Data), a provider of hardwareenterprise storage systems softwaresolutions. Pursuant to the agreement and services, by meansplan of a merger dated as of oneJune 29, 2011, we acquired all of our wholly owned subsidiaries withthe issued and into Sun such that Sun became a wholly owned subsidiaryoutstanding equity interests of Oracle. We acquired Sun to, among other things, expand our product offerings by adding Sun’s existing hardware systems business and broadening our software and services offerings. We have included the financial results of Sun in our consolidated financial statementsPillar Data from the date of acquisition. Forstockholders in exchange for Pillar Data’s former stockholders to have rights to receive contingent cash consideration (Earn-Out), if any, pursuant to an Earn-Out calculation. During fiscal 2010,2013, we estimated that Sun’s contributionno amount of contingent consideration was to be payable pursuant to the Earn-Out calculation and we recognized a benefit of $387 million. The Earn-Out period ended at the conclusion of our total revenues was $2.8 billion, which included allocationsfirst quarter of revenues from our softwarefiscal 2015 and services businesses thatno amounts were not separately identifiable due to our integration activities. For fiscal 2010, we estimated that Sun reduced our operating income by $620 million, which included management’s allocations and estimates of revenues and expenses that were not separately identifiable due to our integration activities, intangible asset amortization, restructuring expenses and stock-based compensation expenses.
The total purchase price for Sun was $7.3 billion which consisted of $7.2 billion in cash paid to acquirePillar Data’s former stockholders, including Lawrence J. Ellison, Oracle’s Executive Chairman of the outstanding common stock of SunBoard and $99 million for the fair value of stock optionsChief Technology Officer and restricted-stock based awards assumed. In allocating the purchase price based on estimated fair values, we recorded approximately $1.4 billion of goodwill, $3.3 billion of identifiable intangible assets, $415 million of in-process research and development and $2.2 billion of net tangible assets.largest stockholder.
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 20122015
Other Fiscal 2010 Acquisitions
During fiscal 2010, we acquired certain other companies and purchased certain technology and development assets to expand our product and services offerings. These acquisitions were not significant individually or in the aggregate. We have included the financial results of these companies in our consolidated results from their respective acquisition dates.
Unaudited Pro Forma Financial Information
The unaudited pro forma financial information in the table below summarizes the combined results of operations for Oracle, Taleo, RightNow, Pillar Data, ATG, Phase ForwardMICROS, Responsys, and certain other companies that we acquired since the beginning of fiscal 20112014 (which were considered significantrelevant for the purposes of unaudited pro forma financial information disclosure) as though the companies were combined as of the beginning of fiscal 2011.2014. The unaudited pro forma financial information for all periods presented also included the business combination accounting effects resulting from these acquisitions, including our amortization charges from acquired intangible assets (certain of which wereare preliminary), stock-based compensation charges for unvested stock options and restricted stock-based awards assumed, if any, and the related tax effects as though the aforementioned companies were combined as of the beginning of fiscal 2011.2014. 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 2011.2014.
The unaudited pro forma financial information for fiscal 20122015 combined the historical results of Oracle for fiscal 2012,2015, the historical results of TaleoMICROS for the twelvesix months ended December 31, 2011June 30, 2014 (adjusted due to differences in reporting periods and considering the date we acquired Taleo), the historical results of RightNow for the nine months ended September 30, 2011 (adjusted due to differences in reporting periods and considering the date we acquired RightNow), the historical results of Pillar Data for the three months ended June 30, 2011 (adjusted due to differences in reporting periods and considering the date we acquired Pillar Data)MICROS), the historical results of certain other companies that we acquired since the beginning of fiscal 20122015 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 20112014 combined the historical results of Oracle for fiscal 2011,2014, the historical results of TaleoMICROS for the twelve monthsyear ended June 30, 20112014 (due to differences in reporting periods), the historical results of RightNow for the twelve months ended June 30, 2011 (due to differences in reporting periods), the historical results of Pillar Data for the twelve months ended June 30, 2011 (due to differences in reporting periods), the historical results of ATGResponsys for the nine months ended September 30, 20102013 (adjusted due to differences in reporting periods and considering the date we acquired ATG), the historical results of Phase Forward for the three months ended June 30, 2010 (adjusted due to differences in reporting periods and considering the date we acquired Phase Forward)Responsys), the historical results of certain other companies that we acquired since the beginning of fiscal 20112014 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 for fiscal 20122015 and 2011:2014:
Year Ended May 31, | ||||||||
(in millions, except per share data) | 2012 | 2011 | ||||||
Total revenues | $ | 37,617 | $ | 36,501 | ||||
Net income | $ | 9,763 | $ | 8,154 | ||||
Basic earnings per share | $ | 1.95 | $ | 1.62 | ||||
Diluted earnings per share | $ | 1.92 | $ | 1.59 |
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 2012
Year Ended May 31, | ||||||||
(in millions, except per share data) | 2015 | 2014 | ||||||
Total revenues | $ | 38,700 | $ | 40,007 | ||||
Net income | $ | 9,877 | $ | 10,770 | ||||
Basic earnings per share | $ | 2.24 | $ | 2.38 | ||||
Diluted earnings per share | $ | 2.19 | $ | 2.34 |
3. | 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 U.S. Treasury obligations, U.S. government agency and government sponsored enterprise obligations and other securities with original maturities of 90 days or less. Marketable securities primarily consist of time deposits held at major banks, Tier-1 commercial paper, corporate notes U.S. Treasury obligations and U.S. government agency and government sponsored enterprise debt obligations and certain other securities.
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 2015
The amortized principal amounts of our cash, cash equivalents and marketable securities approximated their fair values at May 31, 20122015 and 2011.2014. 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 2012, 20112015, 2014 and 2010.2013. 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, | May 31, | |||||||||||||||
(in millions) | 2012 | 2011 | 2015 | 2014 | ||||||||||||
Money market funds | $ | 25 | $ | 3,362 | ||||||||||||
U.S. Treasury, U.S. government and U.S. government agency debt securities | 100 | 1,150 | ||||||||||||||
Commercial paper, corporate debt securities and other | 16,166 | 13,875 | ||||||||||||||
U.S. Treasury securities | $ | 668 | $ | — | ||||||||||||
Commercial paper debt securities | 9,203 | 7,969 | ||||||||||||||
Corporate debt securities and other | 28,844 | 16,657 | ||||||||||||||
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Total investments | $ | 16,291 | $ | 18,387 | $ | 38,715 | $ | 24,626 | ||||||||
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Investments classified as cash equivalents | $ | 570 | $ | 5,702 | $ | 6,063 | $ | 3,576 | ||||||||
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Investments classified as marketable securities | $ | 15,721 | $ | 12,685 | $ | 32,652 | $ | 21,050 | ||||||||
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Substantially allAs of May 31, 2015 and 2014, approximately 28% and 45%, respectively, of our marketable securitysecurities investments held as of May 31, 2012 mature within twoone year and 72% and 55%, respectively, mature within one to six years. Our investment portfolio is subject to market risk due to changes in interest rates. As described above, we place our investments withlimit purchases of marketable debt securities to investment grade securities, which have high credit quality issuersratings and by policy,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 market risk and reinvestmentmarket risk.
4. | FAIR VALUE MEASUREMENTS |
We perform fair value measurements in accordance with the guidance provided by 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.
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.
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 20122015
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 2 and 32 inputs are defined above):
May 31, 2012 | May 31, 2011 | May 31, 2015 | May 31, 2014 | |||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Measurements Using Input Types | Fair Value Measurements Using Input Types | Fair Value Measurements Using Input Types | Fair Value Measurements Using Input Types | |||||||||||||||||||||||||||||||||||||||||||||||||
(in millions) | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Total | Level 1 | Level 2 | Total | Level 1 | Level 2 | Total | |||||||||||||||||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Money market funds | $ | 25 | $ | — | $ | — | $ | 25 | $ | 3,362 | $ | — | $ | 3,362 | ||||||||||||||||||||||||||||||||||||||
U.S. Treasury, U.S. government and U.S. government agency debt securities | 100 | — | — | 100 | 1,150 | — | 1,150 | |||||||||||||||||||||||||||||||||||||||||||||
U.S. Treasury securities | $ | 668 | $ | — | $ | 668 | $ | — | $ | — | $ | — | ||||||||||||||||||||||||||||||||||||||||
Commercial paper debt securities | — | 13,954 | — | 13,954 | — | 11,884 | 11,884 | — | 9,203 | 9,203 | — | 7,969 | 7,969 | |||||||||||||||||||||||||||||||||||||||
Corporate debt securities and other | 229 | 1,983 | — | 2,212 | 106 | 1,885 | 1,991 | 190 | 28,654 | 28,844 | 119 | 16,538 | 16,657 | |||||||||||||||||||||||||||||||||||||||
Derivative financial instruments | — | 69 | — | 69 | — | 69 | 69 | — | 74 | 74 | — | 97 | 97 | |||||||||||||||||||||||||||||||||||||||
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Total assets | $ | 354 | $ | 16,006 | $ | — | $ | 16,360 | $ | 4,618 | $ | 13,838 | $ | 18,456 | $ | 858 | $ | 37,931 | $ | 38,789 | $ | 119 | $ | 24,604 | $ | 24,723 | ||||||||||||||||||||||||||
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Liabilities: | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Contingent consideration payable | $ | — | $ | — | $ | 387 | $ | 387 | $ | — | $ | — | $ | — | ||||||||||||||||||||||||||||||||||||||
Derivative financial instruments | $ | — | $ | 244 | $ | 244 | $ | — | $ | — | $ | — | ||||||||||||||||||||||||||||||||||||||||
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Our valuation techniques used to measure the fair values of our money market funds, U.S. Treasury, U.S. government and U.S. government agency debt securities and certain other marketable securities that were classified as Level 1 in the table above were derived from quoted market prices as substantially all of these instruments have maturity dates, if any, within two years from our date of purchase and active markets for these instruments exist. Our valuation techniques used to measure the fair values of Level 2 instruments listed in the table above, all of which mature within two years and the counterparties to which have high credit ratings, were derived from the following: non-binding market consensus prices that are 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. Our valuation techniques and Level 3 inputs used to estimate the fair value of contingent consideration payable in connection with our acquisition of Pillar Data are described in Note 2.
Based on the trading prices of our $16.5$42.0 billion and $15.9$24.1 billion of borrowings, which consisted of senior notes and certain other borrowings that were outstanding atas of May 31, 20122015 and 2011,2014, respectively, the estimated fair values of our borrowings using Level 2 inputs at May 31, 20122015 and May 31, 20112014 were $19.3$44.1 billion and $17.4$26.4 billion, respectively.
5. | INVENTORIES |
Inventories consisted of the following:
May 31, | May 31, | |||||||||||||||
(in millions) | 2012 | 2011 | 2015 | 2014 | ||||||||||||
Raw materials | $ | 45 | $ | 94 | $ | 112 | $ | 74 | ||||||||
Work-in-process | 20 | 17 | 38 | 28 | ||||||||||||
Finished goods | 93 | 192 | 164 | 87 | ||||||||||||
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Total | $ | 158 | $ | 303 | $ | 314 | $ | 189 | ||||||||
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ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 20122015
6. | PROPERTY, PLANT AND EQUIPMENT |
Property, plant and equipment, net consisted of the following:
Estimated Useful Life | May 31, | Estimated Useful Life | May 31, | |||||||||||||||||||||
(Dollars in millions) | 2012 | 2011 | 2015 | 2014 | ||||||||||||||||||||
Computer, network, machinery and equipment | 1-5 years | $ | 1,761 | $ | 1,603 | 1-5 years | $ | 3,345 | $ | 2,468 | ||||||||||||||
Buildings and improvements | 1-50 years | 2,351 | 2,245 | 1-50 years | 2,721 | 2,582 | ||||||||||||||||||
Furniture, fixtures and other | 3-10 years | 492 | 495 | 3-10 years | 547 | 531 | ||||||||||||||||||
Land | — | 702 | 692 | — | 589 | 632 | ||||||||||||||||||
Construction in progress | — | 113 | 60 | — | 93 | 26 | ||||||||||||||||||
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Total property, plant and equipment | 1-50 years | 5,419 | 5,095 | 1-50 years | 7,295 | 6,239 | ||||||||||||||||||
Accumulated depreciation | (2,398 | ) | (2,238 | ) | (3,609 | ) | (3,178 | ) | ||||||||||||||||
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Total property, plant and equipment, net | $ | 3,021 | $ | 2,857 | $ | 3,686 | $ | 3,061 | ||||||||||||||||
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7. | INTANGIBLE ASSETS AND GOODWILL |
The changes in intangible assets for fiscal 20122015 and the net book value of intangible assets at May 31, 20122015 and 20112014 were as follows:
Intangible Assets, Gross | Accumulated Amortization | Intangible Assets, Net | Weighted Average Useful Life(1) | Intangible Assets, Gross | Accumulated Amortization | Intangible Assets, Net | Weighted | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(Dollars in millions) | May 31, 2011 | Additions | May 31, 2012 | May 31, 2011 | Expense | May 31, 2012 | May 31, 2011 | May 31, 2012 | May 31, 2014 | Additions(1) | Retirements | May 31, 2015 | May 31, 2014 | Expense | Retirements | May 31, 2015 | May 31, 2014 | May 31, 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Software support agreements and related relationships | $ | 5,177 | $ | 117 | $ | 5,294 | $ | (2,745 | ) | $ | (585 | ) | $ | (3,330 | ) | $ | 2,432 | $ | 1,964 | 8 years | $ | 5,218 | $ | 1,206 | $ | (2,234 | ) | $ | 4,190 | $ | (4,403 | ) | $ | (531 | ) | $ | 2,234 | $ | (2,700 | ) | $ | 815 | $ | 1,490 | 13 years | |||||||||||||||||||||||||||||||||
Hardware systems support agreements and related relationships | 760 | 8 | 768 | (147 | ) | (119 | ) | (266 | ) | 613 | 502 | 8 years | 969 | 63 | (20 | ) | 1,012 | (530 | ) | (144 | ) | 20 | (654 | ) | 439 | 358 | 10 years | |||||||||||||||||||||||||||||||||||||||||||||||||||
Developed technology | 6,034 | 874 | 6,908 | (3,728 | ) | (923 | ) | (4,651 | ) | 2,306 | 2,257 | 7 years | 4,387 | 736 | (521 | ) | 4,602 | (2,176 | ) | (700 | ) | 521 | (2,355 | ) | 2,211 | 2,247 | 7 years | |||||||||||||||||||||||||||||||||||||||||||||||||||
Core technology | 2,295 | 254 | 2,549 | (1,272 | ) | (337 | ) | (1,609 | ) | 1,023 | 940 | 6 years | 1,617 | — | (1,065 | ) | 552 | (1,294 | ) | (182 | ) | 1,065 | (411 | ) | 323 | 141 | N.A. | |||||||||||||||||||||||||||||||||||||||||||||||||||
Customer relationships and contract backlog | 1,935 | 325 | 2,260 | (917 | ) | (370 | ) | (1,287 | ) | 1,018 | 973 | 3 years | 2,054 | 204 | (61 | ) | 2,197 | (1,459 | ) | (312 | ) | 61 | (1,710 | ) | 595 | 487 | 6 years | |||||||||||||||||||||||||||||||||||||||||||||||||||
Cloud software subscriptions and related relationships | 128 | 861 | 989 | (9 | ) | (33 | ) | (42 | ) | 119 | 947 | 10 years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SaaS, PaaS and IaaS agreements and related relationships and other. | 1,789 | 204 | — | 1,993 | (305 | ) | (203 | ) | — | (508 | ) | 1,484 | 1,485 | 10 years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Trademarks | 528 | 69 | 597 | (229 | ) | (63 | ) | (292 | ) | 299 | 305 | 9 years | 516 | 35 | (50 | ) | 501 | (276 | ) | (77 | ) | 50 | (303 | ) | 240 | 198 | 10 years | |||||||||||||||||||||||||||||||||||||||||||||||||||
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Total intangible assets subject to amortization | 16,857 | 2,508 | 19,365 | (9,047 | ) | (2,430 | ) | (11,477 | ) | 7,810 | 7,888 | 8 years | 16,550 | 2,448 | (3,951 | ) | 15,047 | (10,443 | ) | (2,149 | ) | 3,951 | (8,641 | ) | 6,107 | 6,406 | 10 years | |||||||||||||||||||||||||||||||||||||||||||||||||||
In-process research and development | 50 | (39 | ) | 11 | — | — | — | 50 | 11 | N.A. | 30 | (30 | ) | — | — | — | — | — | — | 30 | — | N.A. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Total intangible assets, net | $ | 16,907 | $ | 2,469 | $ | 19,376 | $ | (9,047 | ) | $ | (2,430 | ) | $ | (11,477 | ) | $ | 7,860 | $ | 7,899 | $ | 16,580 | $ | 2,418 | $ | (3,951 | ) | $ | 15,047 | $ | (10,443 | ) | $ | (2,149 | ) | $ | 3,951 | $ | (8,641 | ) | $ | 6,137 | $ | 6,406 | |||||||||||||||||||||||||||||||||||
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(1) | The substantial majority of intangible assets acquired during fiscal 2015 related to our acquisition of MICROS. |
(2) | Represents weighted average useful lives of intangible assets acquired |
Total amortization expense related to our intangible assets was $2.1 billion, $2.3 billion and $2.4 billion in each of fiscal 20122015, 2014 and 2011 and $2.0 billion in fiscal 2010.2013, respectively. As of May 31, 2012,2015, estimated future amortization expenses related to intangible assets were as follows (in millions):
Fiscal 2013 | $ | 2,313 | ||
Fiscal 2014 | 1,938 | |||
Fiscal 2015 | 1,488 | |||
Fiscal 2016 | 941 | |||
Fiscal 2017 | 384 | |||
Thereafter | 824 | |||
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Total intangible assets subject to amortization | 7,888 | |||
In-process research and development | 11 | |||
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Total intangible assets, net | $ | 7,899 | ||
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Fiscal 2016 | $ | 1,624 | ||
Fiscal 2017 | 995 | |||
Fiscal 2018 | 848 | |||
Fiscal 2019 | 742 | |||
Fiscal 2020 | 598 | |||
Thereafter | 1,599 | |||
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Total intangible assets, net | $ | 6,406 | ||
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ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 20122015
The changes in the carrying amounts of goodwill, net, which is generally not deductible for tax purposes, for our operating segments for fiscal 20122015 and 20112014 were as follows:
(Dollars in millions) | New Software Licenses | Software License Updates and Product Support | Hardware Systems Support | Other(2) | Total | |||||||||||||||
Balances as of May 31, 2010 | $ | 5,995 | $ | 11,802 | $ | 923 | $ | 1,705 | $ | 20,425 | ||||||||||
Goodwill from acquisitions | 797 | 240 | 23 | 2 | 1,062 | |||||||||||||||
Goodwill adjustments(1) | (7 | ) | 10 | 63 | — | 66 | ||||||||||||||
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Balances as of May 31, 2011 | 6,785 | 12,052 | 1,009 | 1,707 | 21,553 | |||||||||||||||
Goodwill from acquisitions | 658 | 461 | 184 | 2,378 | 3,681 | |||||||||||||||
Goodwill adjustments(1) | (76 | ) | (34 | ) | — | (5 | ) | (115 | ) | |||||||||||
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Balances as of May 31, 2012 | $ | 7,367 | $ | 12,479 | $ | 1,193 | $ | 4,080 | $ | 25,119 | ||||||||||
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(in millions) | New Software Licenses and Cloud Software Subscriptions | Software License Updates and Product Support | Hardware Systems Support | Consulting | Other, net(4) | Total Goodwill, net | ||||||||||||||||||
Balances as of May 31, 2013 | $ | 10,533 | $ | 12,474 | $ | 1,259 | $ | 1,584 | $ | 1,493 | $ | 27,343 | ||||||||||||
Allocation of goodwill(1) | 875 | — | 380 | 13 | (1,268 | ) | — | |||||||||||||||||
Goodwill from acquisitions | 1,721 | 4 | 436 | 134 | — | 2,295 | ||||||||||||||||||
Goodwill adjustments, net(2) | 10 | (6 | ) | 7 | 2 | 1 | 14 | |||||||||||||||||
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Balances as of May 31, 2014 | 13,139 | 12,472 | 2,082 | 1,733 | 226 | 29,652 | ||||||||||||||||||
Goodwill from acquisitions | 2,086 | 1,991 | 269 | 27 | 240 | 4,613 | ||||||||||||||||||
Goodwill adjustments, net(2) | (8 | ) | (2 | ) | 19 | (1 | ) | — | 8 | |||||||||||||||
Goodwill impairment(3) | — | — | — | — | (186 | ) | (186 | ) | ||||||||||||||||
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Balances as of May 31, 2015 | $ | 15,217 | $ | 14,461 | $ | 2,370 | $ | 1,759 | $ | 280 | $ | 34,087 | ||||||||||||
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(1) | Represents the allocation of goodwill to our operating segments upon completion of our intangible asset valuations. |
(2) | Pursuant to our business combinations accounting policy, we recorded goodwill adjustments for the effect on goodwill of changes to net assets acquired during the measurement period (up to one year from the date of an acquisition). |
During fiscal 2015, we recorded a $186 million goodwill impairment loss to our hardware systems products reporting unit. We considered several approaches to determine the fair value of our hardware systems reporting unit as of March 1, 2015 and concluded the most appropriate to be the income approach. The fair value of our hardware systems products reporting unit pursuant to the income approach was impacted by lower forecasted operating results for this reporting unit, primarily caused by lower forecasted revenues and our continued investment in hardware products research and development activities. We compared the implied fair value of goodwill in our hardware systems products reporting unit to its carrying value, which resulted in the $186 million goodwill impairment loss and represented the aggregate amount of goodwill for our hardware systems products reporting unit. The aggregate hardware systems reporting unit goodwill that was impaired in fiscal 2015 resulted from our acquisitions of Pillar Data Systems, Inc., Xsigo Systems, Inc., GreenBytes, Inc. and MICROS Systems, Inc. Such impairment loss was recorded to acquisition related and other expenses in our fiscal 2015 consolidated statement of operations. We did not recognize any goodwill impairment losses in fiscal 2014 or 2013. |
(4) | Represents goodwill allocated to our other operating |
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 2015
8. | NOTES PAYABLE AND OTHER BORROWINGS |
Notes payable and other borrowings consisted of the following:
(Dollars in millions) | May 31, 2012 | May 31, 2011 | ||||||
Short-term borrowings | $ | 1,700 | $ | 1,150 | ||||
4.95% senior notes due April 2013 | 1,250 | 1,250 | ||||||
3.75% senior notes due July 2014, net of fair value adjustment of $69 each as of May 31, 2012 and 2011(1) | 1,569 | 1,569 | ||||||
5.25% senior notes due January 2016, net of discount of $4 and $5 as of May 31, 2012 and 2011, respectively | 1,996 | 1,995 | ||||||
5.75% senior notes due April 2018, net of discount of $1 each as of May 31, 2012 and 2011 | 2,499 | 2,499 | ||||||
5.00% senior notes due July 2019, net of discount of $5 each as of May 31, 2012 and 2011 | 1,745 | 1,745 | ||||||
3.875% senior notes due July 2020, net of discount of $2 each as of May 31, 2012 and 2011 | 998 | 998 | ||||||
6.50% senior notes due April 2038, net of discount of $2 each as of May 31, 2012 and 2011 | 1,248 | 1,248 | ||||||
6.125% senior notes due July 2039, net of discount of $8 each as of May 31, 2012 and 2011 | 1,242 | 1,242 | ||||||
5.375% senior notes due July 2040, net of discount of $24 and $25 as of May 31, 2012 and 2011, respectively | 2,226 | 2,225 | ||||||
Capital leases | 1 | 1 | ||||||
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Total borrowings | $ | 16,474 | $ | 15,922 | ||||
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Notes payable, current and other current borrowings | $ | 2,950 | $ | 1,150 | ||||
|
|
|
| |||||
Notes payable, non-current and other non-current borrowings | $ | 13,524 | $ | 14,772 | ||||
|
|
|
|
May 31, | ||||||||
(Dollars in millions) | 2015 | 2014 | ||||||
3.75% senior notes due July 2014, net of fair value adjustment of $8 as of May 31, 2014(1) | $ | — | $ | 1,508 | ||||
5.25% senior notes due January 2016, net of discount of $1 and $2 as of May 31, 2015 and 2014, respectively | 1,999 | 1,998 | ||||||
Floating rate senior notes due July 2017, net of debt issuance cost of $1 as of May 31, 2015 | 999 | — | ||||||
1.20% senior notes due October 2017, net of discount and debt issuance costs of $6 and $9 as of May 31, 2015 and 2014, respectively | 2,494 | 2,491 | ||||||
5.75% senior notes due April 2018, net of debt issuance costs of $7 and $8 as of May 31, 2015 and 2014, respectively | 2,493 | 2,492 | ||||||
Floating rate senior notes due January 2019, net of debt issuance costs of $1 each as of May 31, 2015 and 2014 | 499 | 499 | ||||||
2.375% senior notes due January 2019, net of fair value losses of $21 and $15 and discount and debt issuance costs of $7 and $9 as of May 31, 2015 and May 31, 2014, respectively(1) | 1,514 | 1,506 | ||||||
5.00% senior notes due July 2019, net of discount and debt issuance costs of $11 and $12 as of May 31, 2015 and 2014, respectively | 1,739 | 1,738 | ||||||
Floating rate senior notes due October 2019, net of debt issuance cost of $2 as of May 31, 2015 | 748 | — | ||||||
2.25% senior notes due October 2019, net of fair value loss of $22 and discount and debt issuance cost of $7 as of May 31, 2015(1) | 2,015 | — | ||||||
3.875% senior notes due July 2020, net of discount and debt issuance costs of $4 and $5 as of May 31, 2015 and 2014, respectively | 996 | 995 | ||||||
2.25% senior notes due January 2021, net of discount and debt issuance costs of $11 and $14 as of May 31, 2015 and 2014, respectively(2) | 1,341 | 1,685 | ||||||
2.80% senior notes due July 2021, net of fair value loss of $31 and discount and debt issuance cost of $6 as of May 31, 2015(1) | 1,525 | — | ||||||
2.50% senior notes due May 2022, net of discount and debt issuance cost of $17 as of May 31, 2015 | 2,483 | — | ||||||
2.50% senior notes due October 2022, net of discount and debt issuance costs of $10 and $11 as of May 31, 2015 and 2014, respectively | 2,490 | 2,489 | ||||||
3.625% senior notes due July 2023, net of discount and debt issuance costs of $11 and $12 as of May 31, 2015 and 2014, respectively | 989 | 988 | ||||||
3.40% senior notes due July 2024, net of discount and debt issuance cost of $12 as of May 31, 2015 | 1,988 | — | ||||||
2.95% senior notes due May 2025, net of discount and debt issuance cost of $22 as of May 31, 2015 | 2,478 | — | ||||||
3.125% senior notes due July 2025, net of discount and debt issuance costs of $6 and $9 as of May 31, 2015 and 2014, respectively(2) | 804 | 1,013 | ||||||
3.25% senior notes due May 2030, net of discount and debt issuance cost of $6 as of May 31, 2015 | 494 | — | ||||||
4.30% senior notes due July 2034, net of discount and debt issuance cost of $13 as of May 31, 2015 | 1,737 | — | ||||||
3.90% senior notes due May 2035, net of discount and debt issuance cost of $18 as of May 31, 2015 | 1,232 | — | ||||||
6.50% senior notes due April 2038, net of discount and debt issuance costs of $5 and $6 as of May 31, 2015 and 2014, respectively | 1,245 | 1,244 | ||||||
6.125% senior notes due July 2039, net of discount and debt issuance costs of $12 and $14 as of May 31, 2015 and 2014, respectively | 1,238 | 1,236 | ||||||
5.375% senior notes due July 2040, net of discount and debt issuance costs of $34 and $35 as of May 31, 2015 and 2014, respectively | 2,216 | 2,215 | ||||||
4.50% senior notes due July 2044, net of debt issuance cost of $8 as of May 31, 2015 | 992 | — | ||||||
4.125% senior notes due May 2045, net of discount and debt issuance cost of $24 as of May 31, 2015 | 1,976 | — | ||||||
4.375% senior notes due May 2055, net of discount and debt issuance cost of $16 as of May 31, 2015 | 1,234 | — | ||||||
|
|
|
| |||||
Total borrowings | $ | 41,958 | $ | 24,097 | ||||
|
|
|
| |||||
Notes payable, current | $ | 1,999 | $ | 1,508 | ||||
|
|
|
| |||||
Notes payable, non-current | $ | 39,959 | $ | 22,589 | ||||
|
|
|
|
(1) | Refer to Note 11 for a description of our accounting for fair value hedges. |
(2) | Euro based notes valued at May 31, 2015 and May 31, 2014 foreign exchange rates, respectively (see further discussion below). |
Senior Notes and Other
In May 2015, we issued $10.0 billion of senior notes comprised of $2.5 billion of 2.50% notes due May 2022 (2022 Notes), $2.5 billion of 2.95% notes due May 2025 (2025 Notes), $500 million 3.25% notes due May 2030 (2030 Notes), $1.25 billion of 3.90% notes due May 2035 (2035 Notes), $2.0 billion of 4.125% notes due May 2045 (2045 Notes) and $1.25 billion of 4.375% notes due May 2055 (2055 Notes, and together with the 2022 Notes, 2025 Notes, 2030 Notes, 2035 Notes
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 20122015
and 2045 Notes, the May 2015 Senior Notes). We issued the May 2015 Senior Notes for general corporate purposes, which may include stock repurchases, payment of cash dividends on our common stock and Otherfuture acquisitions, and repayment of indebtedness.
In July 2014, we issued $10.0 billion of senior notes comprised of $1.0 billion of floating rate notes due July 2017 (2017 Floating Rate Notes), $750 million of floating rate notes due October 2019 (2019 Floating Rate Notes), $2.0 billion of 2.25% notes due October 2019 (2019 Notes), $1.5 billion of 2.80% notes due July 2021 (2021 Notes), $2.0 billion of 3.40% notes due July 2024 (2024 Notes), $1.75 billion of 4.30% notes due July 2034 (2034 Notes) and $1.0 billion of 4.50% notes due July 2044 (2044 Notes and, together with the 2017 Floating Rate Notes, 2019 Floating Rate Notes, 2019 Notes, 2021 Notes, 2024 Notes and 2034 Notes, the July 2014 Senior Notes). The floating rate notes bear interest at a floating rate equal to three-month LIBOR plus 0.20% for the 2017 Floating Rate Notes and 0.51% for the 2019 Floating Rate Notes (0.47% and 0.78% as of May 31, 2015, respectively) with interest payable quarterly. We issued the July 2014 Senior Notes for general corporate purposes, which may include stock repurchases, payment of cash dividends on our common stock, our acquisition of MICROS and future acquisitions, and repayment of indebtedness.
In July 2013, we issued €2.0 billion ($2.2 billion and $2.7 billion as of May 31, 2015 and 2014, respectively) of fixed rate senior notes comprised of €1.25 billion of 2.25% notes due January 2021 (January 2021 Notes) and €750 million of 3.125% notes due July 2025 (July 2025 Notes, and together with the January 2021 Notes, the Euro Notes). The Euro Notes are registered and trade on the New York Stock Exchange.
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 11 for additional information). Further, 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 (see Note 11 for additional information).
In July 2013, we also issued $3.0 billion of senior notes comprised of $500 million of floating rate notes due January 2019 (January 2019 Floating Rate Notes), $1.5 billion of 2.375% notes due January 2019 (January 2019 Notes) and $1.0 billion of 3.625% notes due July 2023 (2023 Notes). The January 2019 Floating Rate Notes bear interest at a floating rate equal to three-month LIBOR plus 0.58% (0.86% and 0.81% as of May 31, 2015 and 2014, respectively) with interest payable quarterly.
In October 2012, we issued $5.0 billion of fixed rate senior notes comprised of $2.5 billion of 1.20% notes due October 2017 (2017 Notes) and $2.5 billion of 2.50% notes due October 2022 (October 2022 Notes).
In July 2010, we issued $3.25 billion of fixed rate senior notes comprised of $1.0 billion of 3.875% notes due July 2020 (2020 Notes) and $2.25 billion of 5.375% notes due July 2040 (2040 Notes, and together with the 2020 Notes, the Original Senior Notes). We issued the Original Senior Notes in order to repay indebtedness, including the repayment of $2.25 billion of 5.00% senior notes that matured and were repaid in January 2011, for general corporate purposes, for future acquisitions and in order to replenish cash used to repay $1.0 billion of floating rate senior notes that matured in May 2010. As part of the offering of the Original Senior Notes, we entered into a registration rights agreement with the initial purchasers for the benefit of the holders of the Original Senior Notes in which we agreed to file with the SEC a registration statement with respect to senior notes identical in all material respects to the Original Senior Notes within fourteen months after the issue date of the Original Senior Notes and on December 16, 2011 we completed a registered offer to exchange the Original Senior Notes for new freely tradable notes having terms substantially identical to the Original Senior Notes. An aggregate of $994 million principal amount of the 2020 Notes and an aggregate of $2.24 billion principal amount of the 2040 Notes were tendered and exchanged in the offer.
In July 2009, we issued $4.5 billion of fixed rate senior notes comprised of which $1.5 billion of 3.75% notes (2014 Notes) was due and paid in July 2014 (2014(we also settled the fixed to variable interest rate swap agreements associated with the 2014 Notes), and $1.75 billion of 5.00% notes due July 2019 (2019(July 2019 Notes) and $1.25 billion of 6.125% notes due July 2039 (2039 Notes). We issued these senior notes for general corporate purposes and for our acquisition remained outstanding as of Sun and acquisition related expenses.May 31, 2015.
In April 2008, we issued $5.0 billion of fixed rate senior notes, of which $1.25 billion of 4.95% senior notes iswas due and paid in April 2013, (2013 Notes),and $2.5 billion of 5.75% senior notes is due April 2018 (2018 Notes) and $1.25 billion of 6.50% senior notes is due April 2038 (2038 Notes). We issued these senior notes for general corporate purposes and for acquisitions and acquisition related expenses.
In May 2007, we issued $2.0 billion of floating rate senior notes, of which $1.0 billion was due and paid in May 2009 and $1.0 billion was due and paid in May 2010. We had also entered into certain variable to fixed interest rate swap agreements related to these senior notes, which settled remained outstanding as of the same dates the notes were repaid (see Note 11).May 31, 2015.
In January 2006, we issued $5.75 billion of senior notes, of which $2.25 billion of 5.00% senior notes was due and paid in January 2011 and $2.0 billion of 5.25% senior notes due January 2016 (2016 Notes) remained outstanding as of May 31, 2012.2015.
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 2015
The effective interest yields of the 2013 Notes, 2014 Notes, 2016 Notes, 2017 Notes, 2018 Notes, January 2019 Notes, July 2019 Notes, 2019 Notes, 2020 Notes, 2021 Notes, 2022 Notes, October 2022 Notes, 2023 Notes, 2024 Notes, 2025 Notes, July 2025 Notes, 2030 Notes, 2034 Notes, 2035 Notes, 2038 Notes, 2039 Notes, and 2040 Notes, 2044 Notes, 2045 Notes and 2055 Notes (collectively and together with the January 2021 Notes, the Senior Notes) at May 31, 20122015 were 4.96%5.32%, 3.75%, 5.32%1.24%, 5.76%, 2.44%, 5.05%, 3.90%2.27%, 3.93%, 2.82%, 2.56%, 2.51%, 3.73%, 3.43%, 3.00%, 3.17%, 3.30%, 4.30%, 3.95%, 6.52%, 6.19%, 5.45%, 4.50%, 4.15%, and 5.45%4.40%, respectively. Interest is payable semi-annually for the Senior Notes. In September 2009,July 2014 and July 2013, we entered into certain interest rate swap agreements that have the economic effecteffects of modifying the fixed interest obligations associated with the 20142019 Notes, January 2019 Notes and 2021 Notes so that the interest payable on these notes effectively became variable (1.39%based on LIBOR (0.76%, 0.93% and 0.91%, respectively, at May 31, 2012;2015; and 0.88% for the January 2019 Notes at May 31, 2014; see Note 11 for additional information). AllThe effective interest yield of the January 2021 Notes was 2.33% (3.53% after the economic effects of the cross-currency swap agreements described above and in Note 11). Interest is payable semi-annually for the Senior Notes except for the Euro Notes for which interest is payable 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. The 2017 Floating Rate Notes, January 2019 Floating Rate Notes and 2019 Floating Rate Notes (collectively the Floating Rate Notes) may not be redeemed at any time, subjectprior to payment of make-whole premiums for each series.their maturity.
The Original Senior Notes and Seniorthe Floating Rate 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 Original Senior Notes, Senior Notes and the Floating Rate Notes and any future issuances of our commercial paper notes.
In the third quarter of fiscal 2012, shortly after the closing of our acquisition of RightNow, we repaid, We were in full, $255 million of RightNow’s legacy convertible notes.
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
compliance with all debt-related covenants at May 31, 2012
In the third quarter of fiscal 2010, shortly after the closing of our acquisition of Sun we repaid, in full, $700 million of Sun’s legacy convertible notes.2015.
Future principal payments for all of our borrowings at May 31, 20122015 were as follows (in millions):
Fiscal 2013 | $ | 2,950 | ||||||
Fiscal 2014 | — | |||||||
Fiscal 2015 | 1,500 | |||||||
Fiscal 2016 | 2,000 | $ | 2,000 | |||||
Fiscal 2017 | — | — | ||||||
Fiscal 2018 | 6,000 | |||||||
Fiscal 2019 | 2,000 | |||||||
Fiscal 2020 | 4,500 | |||||||
Thereafter | 10,000 | 27,966 | ||||||
|
| |||||||
Total | $ | 16,450 | $ | 42,466 | ||||
|
|
Commercial Paper Program &and Commercial Paper Notes
We entered into aOn April 22, 2013, pursuant to our existing $3.0 billion commercial paper program in February 2006 (amended in May 2008) viawhich 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 Banc of America Securities LLCvarious banks and JP Morgan Securities, Inc. and ana new Issuing and Paying Agency Agreement entered into in February 2006 with JPMorganJP Morgan Chase Bank, National Association (CP Program). On May 11, 2010, we reduced the overall capacity of our CP Program from $5.0 billion to $3.0 billion. Our ability to issue commercial paper notes in the future is highly dependent upon our ability to provide a “back-stop” by means of a revolving credit facility or other debt facility for amounts equal to or greater than the amounts of commercial paper notes we intend to issue. While presently we have no such facilities in place that may provide a back-stop to such commercial paper notes (see additional discussion under “Revolving Credit Agreements” below), we currently believe that, if needed, we could put in place one or more additional revolving credit facilities or other debt facility in a timely manner and on commercially reasonable terms.
During fiscal 2010, we issued $2.8 billion of unsecured short-term commercial paper notes pursuant to the CP Program (none issued in fiscal 2012 and 2011).N.A. As of May 31, 20122015 and 2011,2014, we had nodid not have any outstanding commercial paper notes. We intend to back-stop any commercial paper notes outstanding.that we may issue in the future with the 2013 Credit Agreement (see additional details below).
Revolving Credit Agreements
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 provides 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. Subject to certain conditions stated in the 2013 Credit Agreement, we may borrow, prepay and re-borrow amounts under the
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 2015
2013 Credit Agreement at any time during the term of the 2013 Credit Agreement. Interest under the 2013 Credit Agreement is based on either (a) a LIBOR-based formula or (b) the Base Rate formula, each as set forth in the 2013 Credit Agreement. Any amounts drawn pursuant to the 2013 Credit Agreement are due on April 20, 2018. No amounts were outstanding pursuant to the 2013 Credit Agreement as of May 31, 2015 and 2014.
The 2013 Credit Agreement contains certain customary representations and warranties, covenants and events of default, including the requirement that our total net debt to total capitalization ratio not exceed 45% on a consolidated basis. If any of the events of default occur and are not cured within applicable grace periods or waived, any unpaid amounts under the 2013 Credit Agreement may be declared immediately due and payable and the 2013 Credit Agreement may be terminated. We were in compliance with the 2013 Credit Agreement’s covenants as of May 31, 2015.
On May 29, 2012, we borrowed $1.7 billion pursuant to a revolving credit agreement with JPMorgan Chase Bank, N.A., as initial lender and administrative agent; and J.P. Morgan Securities, LLC, as sole lead arranger and sole bookrunner (the 2012 Credit Agreement). Interest forDuring fiscal 2013, we repaid the 2012 Credit Agreement is based on either (x) a “base rate” calculated as the highest of (i) JPMorgan’s prime rate, (ii) the federal funds effective rate plus 0.50% and (iii) the LIBOR for deposits in U.S. Dollars plus 1%, or (y) LIBOR for deposits made in U.S. Dollars plus 0.35%, depending on the type of borrowings made by us. The effective interest rate of our borrowing under the 2012 Credit Agreement is 0.24% at May 31, 2012. This borrowing is due on July 2, 2012, which is the termination date of the 2012 Credit Agreement.
The 2012 Credit Agreement contains certain customary representations, warranties and guarantees, and a capitalization covenant. Events of default result in the requirement to pay additional interest. If any of the events of default occur and are not cured, any unpaid amounts under the 2012 Credit Agreement may be declared immediately due and payable$1.7 billion and the 2012 Credit Agreement may be terminated. We were in compliance with the 2012 Credit Agreement’s covenants as of May 31, 2012.
On May 27, 2011, we entered into two revolving credit agreements with BNP Paribas, as initial lender and administrative agent, and BNP Paribas Securities Corp., as sole lead arranger and sole bookrunner (the 2011 Credit Agreements), and borrowed $1.15 billion pursuant to these agreements. During fiscal 2012, we repaid the $1.15 billion and the 2011 Credit Agreements expired pursuant to theirits terms.
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 2012
9. | RESTRUCTURING ACTIVITIES |
SunFiscal 2015 Oracle Restructuring Plan
During the thirdsecond quarter of fiscal 2010,2015, our management approved, committed to and initiated a planplans to restructure and further improve efficiencies in our operations due to our acquisition of Sun (the SunMICROS and certain other operational activities (2015 Restructuring Plan) in order to improve the cost efficiencies in our merged operations. Our management subsequently amended the Sun Restructuring Plan to reflect additional actions that we expect to take to improve the cost efficiencies in our merged operations.. The total estimated restructuring costs associated with the Sun2015 Restructuring Plan consisted primarilyare up to $626 million and will be recorded to the restructuring expense line item within our consolidated statements of employee severanceoperations as they are incurred. We recorded $100 million of restructuring expenses abandoned facilities obligationsin connection with the 2015 Restructuring Plan in fiscal 2015 and contract terminationwe expect to incur the majority of the estimated remaining $526 million through the end of fiscal 2016. Any changes to the estimates of executing the 2015 Restructuring Plan will be reflected in our future results of operations.
Fiscal 2013 Oracle Restructuring Plan
During the first quarter of fiscal 2013, our management approved, committed to and initiated plans to restructure and further improve efficiencies in our operations (2013 Restructuring Plan). Restructuring costs andassociated with the 2013 Restructuring Plan were recorded to the restructuring expense line item within our consolidated statements of operations as they were recognized.incurred. We recorded $215$119 million, $439$174 million and $342$325 million of net restructuring expenses in connection with the Sun2013 Restructuring Plan in fiscal 2012, 20112015, 2014 and 2010,2013, respectively. The execution ofActions pursuant to the Sun2013 Restructuring Plan iswere substantially complete as of the end of fiscal 2012. Any changes to the estimates of executing the Sun Restructuring Plan will be reflected in our future results of operations.May 31, 2015.
Summary of All Plans
Fiscal 2012 Activity
(in millions) | Accrued May 31, 2011(2) | Year Ended May 31, 2012 | Accrued May 31, 2012(2) | |||||||||||||||||||||
Initial Costs(3) | Adj. to Cost(4) | Cash Payments | Others(5) | |||||||||||||||||||||
Sun Restructuring Plan(1) | ||||||||||||||||||||||||
New software licenses | $ | 14 | $ | 46 | $ | (8 | ) | $ | (41 | ) | $ | (2 | ) | $ | 9 | |||||||||
Software license updates and product support | 19 | 31 | (2 | ) | (35 | ) | (1 | ) | 12 | |||||||||||||||
Hardware systems business | 10 | 34 | 1 | (33 | ) | — | 12 | |||||||||||||||||
Services | 9 | 32 | (2 | ) | (25 | ) | (2 | ) | 12 | |||||||||||||||
General and administrative and other | 100 | 92 | (9 | ) | (129 | ) | (1 | ) | 53 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total Sun Restructuring | $ | 152 | $ | 235 | $ | (20 | ) | $ | (263 | ) | $ | (6 | ) | $ | 98 | |||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total other restructuring plans(6) | $ | 297 | $ | 65 | $ | 15 | $ | (122 | ) | $ | (16 | ) | $ | 239 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total restructuring plans | $ | 449 | $ | 300 | $ | (5 | ) | $ | (385 | ) | $ | (22 | ) | $ | 337 | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2011 Activity
(in millions) | Accrued May 31, 2010 | Year Ended May 31, 2011 | Accrued May 31, 2011(2) | |||||||||||||||||||||
Initial Costs(3) | Adj. to Cost(4) | Cash Payments | Others(5) | |||||||||||||||||||||
Sun Restructuring Plan(1) | ||||||||||||||||||||||||
New software licenses | $ | 5 | $ | 67 | $ | (4 | ) | $ | (55 | ) | $ | 1 | $ | 14 | ||||||||||
Software license updates and product support | 3 | 52 | (1 | ) | (34 | ) | (1 | ) | 19 | |||||||||||||||
Hardware systems business | 42 | 53 | (3 | ) | (83 | ) | 1 | 10 | ||||||||||||||||
Services | 8 | 49 | (4 | ) | (43 | ) | (1 | ) | 9 | |||||||||||||||
General and administrative and other | 29 | 226 | 4 | (154 | ) | (5 | ) | 100 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total Sun Restructuring | $ | 87 | $ | 447 | $ | (8 | ) | $ | (369 | ) | $ | (5 | ) | $ | 152 | |||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total other restructuring plans(6) | $ | 459 | $ | 57 | $ | (17 | ) | $ | (223 | ) | $ | 21 | $ | 297 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total restructuring plans | $ | 546 | $ | 504 | $ | (25 | ) | $ | (592 | ) | $ | 16 | $ | 449 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 20122015
Summary of All Plans
Fiscal 2015 Activity
Accrued May 31, 2014(2) |
Year Ended May 31, 2015 | Accrued May 31, 2015(2) | Total Costs Accrued to Date | Total Expected Program Costs | ||||||||||||||||||||||||||||
(in millions) | Initial Costs(3) | Adj. to Cost(4) | Cash Payments | Others(5) | ||||||||||||||||||||||||||||
Fiscal 2015 Oracle Restructuring Plan(1) | ||||||||||||||||||||||||||||||||
New software licenses and cloud software subscriptions | $ | — | $ | 26 | $ | 1 | $ | (16 | ) | $ | — | $ | 11 | $ | 27 | $ | 110 | |||||||||||||||
Software license updates and product support | — | 7 | — | (2 | ) | — | 5 | 7 | 209 | |||||||||||||||||||||||
Hardware systems business | — | 22 | (2 | ) | (13 | ) | (1 | ) | 6 | 20 | 65 | |||||||||||||||||||||
Services | — | 21 | — | (12 | ) | — | 9 | 21 | 101 | |||||||||||||||||||||||
General and administrative and other | — | 27 | (2 | ) | (20 | ) | — | 5 | 25 | 141 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total Fiscal 2015 Oracle Restructuring Plan | $ | — | $ | 103 | $ | (3 | ) | $ | (63 | ) | $ | (1 | ) | $ | 36 | $ | 100 | $ | 626 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total Fiscal 2013 Oracle Restructuring Plan(6) | $ | 61 | $ | 128 | $ | (9 | ) | $ | (138 | ) | $ | (11 | ) | $ | 31 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Total other restructuring plans(6) | $ | 108 | $ | 7 | $ | (19 | ) | $ | (43 | ) | $ | — | $ | 53 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Total restructuring plans | $ | 169 | $ | 238 | $ | (31 | ) | $ | (244 | ) | $ | (12 | ) | $ | 120 | |||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
Fiscal 2014 Activity
Accrued May 31, 2013 | Year Ended May 31, 2014 | Accrued May 31, 2014(2) | ||||||||||||||||||||||
(in millions) | Initial Costs(3) | Adj. to Cost(4) | Cash Payments | Others(5) | ||||||||||||||||||||
Fiscal 2013 Oracle Restructuring Plan(1) | ||||||||||||||||||||||||
New software licenses and cloud software subscriptions | $ | 16 | $ | 57 | $ | (8 | ) | $ | (55 | ) | $ | 2 | $ | 12 | ||||||||||
Software license updates and product support | 1 | 11 | — | (10 | ) | 3 | 5 | |||||||||||||||||
Hardware systems business | 24 | 48 | (3 | ) | (52 | ) | 1 | 18 | ||||||||||||||||
Services | 18 | 39 | (7 | ) | (39 | ) | — | 11 | ||||||||||||||||
General and administrative and other | 12 | 42 | (5 | ) | (39 | ) | 5 | 15 | ||||||||||||||||
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Total Fiscal 2013 Oracle Restructuring Plan | $ | 71 | $ | 197 | $ | (23 | ) | $ | (195 | ) | $ | 11 | $ | 61 | ||||||||||
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Total other restructuring plans(6) | $ | 179 | $ | 24 | $ | (15 | ) | $ | (58 | ) | $ | (22 | ) | $ | 108 | |||||||||
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Total restructuring plans | $ | 250 | $ | 221 | $ | (38 | ) | $ | (253 | ) | $ | (11 | ) | $ | 169 | |||||||||
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ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 2015
Fiscal 20102013 Activity
Accrued May 31, 2012 | Year Ended May 31, 2013 | Accrued May 31, 2013 | ||||||||||||||||||||||||||||||||||||||||||||||
(in millions) | Accrued May 31, 2009 | Year Ended May 31, 2010 | Accrued May 31, 2010 | Initial Costs(3) | Adj. to Cost(4) | Cash Payments | Others(5) | |||||||||||||||||||||||||||||||||||||||||
Initial Costs(3) | Adj. to Cost(4) | Cash Payments | Others(5) | |||||||||||||||||||||||||||||||||||||||||||||
Sun Restructuring Plan(1) | ||||||||||||||||||||||||||||||||||||||||||||||||
New software licenses | $ | — | $ | 6 | $ | — | $ | (1 | ) | $ | — | $ | 5 | |||||||||||||||||||||||||||||||||||
Fiscal 2013 Oracle Restructuring Plan(1) | ||||||||||||||||||||||||||||||||||||||||||||||||
New software licenses and cloud software subscriptions | $ | — | $ | 85 | $ | (8 | ) | $ | (60 | ) | $ | (1 | ) | $ | 16 | |||||||||||||||||||||||||||||||||
Software license updates and product support | — | 6 | — | (3 | ) | — | 3 | — | 13 | (6 | ) | (11 | ) | 5 | 1 | |||||||||||||||||||||||||||||||||
Hardware systems business | — | 61 | — | (19 | ) | — | 42 | — | 99 | (5 | ) | (68 | ) | (2 | ) | 24 | ||||||||||||||||||||||||||||||||
Services | — | 11 | — | (3 | ) | — | 8 | — | 72 | (5 | ) | (50 | ) | 1 | 18 | |||||||||||||||||||||||||||||||||
General and administrative and other | — | 258 | — | (222 | ) | (7 | ) | 29 | — | 81 | (1 | ) | (52 | ) | (16 | ) | 12 | |||||||||||||||||||||||||||||||
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Total Sun Restructuring | $ | — | $ | 342 | $ | — | $ | (248 | ) | $ | (7 | ) | $ | 87 | ||||||||||||||||||||||||||||||||||
Total Fiscal 2013 Oracle Restructuring Plan | $ | — | $ | 350 | $ | (25 | ) | $ | (241 | ) | $ | (13 | ) | $ | 71 | |||||||||||||||||||||||||||||||||
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Total other restructuring plans(6) | $ | 389 | $ | 292 | $ | (84 | ) | $ | (397 | ) | $ | 259 | $ | 459 | $ | 337 | $ | 53 | $ | (26 | ) | $ | (185 | ) | $ | — | $ | 179 | ||||||||||||||||||||
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Total restructuring plans | $ | 389 | $ | 634 | $ | (84 | ) | $ | (645 | ) | $ | 252 | $ | 546 | $ | 337 | $ | 403 | $ | (51 | ) | $ | (426 | ) | $ | (13 | ) | $ | 250 | |||||||||||||||||||
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(1) | Restructuring costs recorded for individual line items |
(2) | The balances at May 31, |
(3) | Costs recorded for the respective restructuring plans during the current period 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) | Other restructuring plans presented in the |
10. | DEFERRED REVENUES |
Deferred revenues consisted of the following:
May 31, | May 31, | |||||||||||||||
(in millions) | 2012 | 2011 | 2015 | 2014 | ||||||||||||
Software license updates and product support | $ | 5,565 | $ | 5,386 | $ | 5,635 | $ | 5,909 | ||||||||
Hardware systems support | 694 | 687 | ||||||||||||||
Hardware systems support and other | 703 | 664 | ||||||||||||||
Services | 403 | 438 | 379 | 364 | ||||||||||||
Cloud SaaS, PaaS and IaaS | 404 | 248 | ||||||||||||||
New software licenses | 353 | 263 | 124 | 84 | ||||||||||||
Hardware systems products | 20 | 28 | ||||||||||||||
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Deferred revenues, current | 7,035 | 6,802 | 7,245 | 7,269 | ||||||||||||
Deferred revenues, non-current (in other non-current liabilities) | 296 | 316 | 393 | 404 | ||||||||||||
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Total deferred revenues | $ | 7,331 | $ | 7,118 | $ | 7,638 | $ | 7,673 | ||||||||
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Deferred software license updates and product support revenues and deferred hardware systems support revenues represent customer payments made in advance for support contracts that are typically billed on a per annum basis in advance with corresponding revenues being recognized ratably over the support periods. Deferred services revenues include prepayments for our services business and revenues for these services are generally recognized
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 20122015
as the services are performed. Deferred cloud software as a service (SaaS), platform as a service (PaaS) and infrastructure as a service (IaaS) revenues generally result from customer payments made in advance for our cloud-based offerings that are recognized over the corresponding contractual term. Deferred new software licenselicenses revenues typically result from undelivered products or specified enhancements, customer specific acceptance provisions, customer payments made in advance for time-based license arrangements including cloud software subscription offerings and software license transactions that cannot be segmented from undelivered consulting or other services. Deferred hardware systems products revenues typically result from sales to customers, including channel partners and resellers, where revenue recognition criteria have not been met and transactions that cannot be segmentedseparated from undelivered consulting or other services.
In connection with our acquisitions, we have estimated the fair values of the cloud software subscription,SaaS and PaaS, software license updates and product support, and hardware systems support obligations, among others, assumed from our acquired companies. We generally have estimated the fair values of thethese obligations assumed using a cost build-up approach. The cost build-up approach determines fair value by estimating the costs relatingrelated 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 thethese acquired obligations. TheThese aforementioned fair value adjustments recorded for obligations assumed from our acquisitions reduced the new software licenses,cloud SaaS and PaaS, software license updates and product support and hardware systems support deferred revenuerevenues 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.
11. | DERIVATIVE FINANCIAL INSTRUMENTS |
Fair Value Hedges—Interest Rate Swap Agreements
Fair Value Hedges
In September 2009,July 2014, we entered into certain interest rate swap agreements that have the economic effect of modifying the fixed interest obligations associated with our 3.75% 20142019 Notes and 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 interest rate swap agreements match the critical terms of the 2019 Notes, 2021 Notes and the 2014January 2019 Notes match,that the interest rate swap agreements pertain to, including the notional amounts and maturity dates. Accordingly, we
We have designated thesethe aforementioned interest rate 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 valuevalues of certain of our fixed rate borrowings due to benchmark interest rate movements. The changes in fair values of these interest rate swap agreements are recognized as interest expense in our consolidated statements of operations with the corresponding amounts included in other assets or other non-current liabilities in our consolidated balance sheets. The amount of net gain (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, and other non-current borrowings.non-current. The periodic interest settlements which occur atfor the same interval asinterest rate swap agreements for the 20142019 Notes, 2021 Notes and the January 2019 Notes are recorded as interest expense. The fair valuesexpense and are included as a part of thesecash flows from operating activities.
In July 2014, we settled the fixed to variable interest rate swap agreements recorded as other assets in our consolidated balance sheets were $69 million each as of May 31, 2012 and 2011.
associated with the 2014 Notes. We do not use any interest rate swap agreements for trading purposes.
Cash Flow Hedges—Cross Currency Swap Agreements
In relation toconnection with the variable interest obligations associated withissuance of our floating rate senior notes that were due and repaid in May 2010 (Floating Rate Notes),January 2021 Notes, we had entered into certain variable to fixed interest ratecross-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 maturity, to fixed-rate, U.S. Dollar denominated debt. The economic effectseffect of the variable interest obligations and designated theseswap agreements as qualifying cash flow hedges. Upon repaymentwas to eliminate the uncertainty of the Floating Rate Notescash flows in May 2010, we settled the interest rate swap agreementsU.S. Dollars associated with the Floating RateJanuary 2021 Notes and no other arrangements were outstanding as of May 31, 2012 and 2011.by fixing the
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 20122015
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 (expense), net in the same period that the carrying value of the Euro denominated January 2021 Notes is remeasured and the interest expense is recognized. The ineffective portion of the unrealized gains and losses on these cross-currency swaps, if any, is recorded immediately to non-operating income (expense), net. We evaluate the effectiveness of our cross-currency swap agreements on a quarterly basis. We did not record any ineffectiveness for fiscal 2015 or 2014. 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 HedgesHedge—Foreign Currency Borrowings
Periodically,In July 2013, we designated our July 2025 Notes as a net investment hedge net assets of our investments in certain of our international subsidiaries usingthat use the Euro as their functional currency in order to reduce the volatility in stockholders’ equity caused by the changes in foreign currency forward contractsexchange rates of the Euro with respect to offset the translation and economic exposures relatedU.S. Dollar.
We used the spot method to measure the effectiveness of our foreign currency-based investments in these subsidiaries. These contracts have been designated as net investment hedges pursuanthedge. Under this method, for each reporting period, the change in the carrying value of the Euro denominated July 2025 Notes due to ASC 815. We entered into these net investment hedges forremeasurement of the majority of fiscal 2010. We suspended this program during our fourth quarter of fiscal 2010 and, as of May 31, 2012 and 2011, we have no contracts of this nature outstanding. For fiscal 2010, a $37 million net loss was recognized toeffective portion is reported in accumulated other comprehensive income forloss on our consolidated balance sheet and the effective portion and a $1 million net gain was recognized to non-operating expense, net forremaining change in the portioncarrying value of the hedges that was ineffective and excluded fromportion, if any, is recognized in non-operating income (expense), net in our consolidated statements of operations. We evaluate the effectiveness testing related to these contracts.of our net investment hedge at the beginning of every quarter. We did not record any ineffectiveness for fiscal 2015 or 2014.
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 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.
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 2015
We neither 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 our reporting period to our consolidated balance sheet with changes in fair values recorded to our consolidated statement of operations. The balance sheet classification for the fair values of these forward contracts is prepaid expenses and other current assets for a net unrealized gain position and other current liabilities for a net unrealized loss position. The statement of operations classification for changes in fair values of these forward contracts is non-operating income (expense), net, for both realized and unrealized gains and losses.
As of May 31, 20122015 and 2011,2014, respectively, the notional amounts of the forward contracts we held to purchase U.S. Dollars in exchange for other major international currencies were $3.0$2.2 billion and $2.5$3.6 billion, respectively, and the notional amounts of forward contracts we held to sell U.S. Dollars in exchange for other major international currencies were $873 million$1.2 billion and $1.6$2.0 billion, respectively. The fair values of our outstanding foreign currency forward contracts were nominal at May 31, 20122015 and 2011.2014.
Included in our non-operating income (expense), net were $43$60 million, $(39)$(69) million and $(35)$(64) million of net gains (losses) related to these forward contracts for the years ended May 31, 2012, 20112015, 2014 and 2010,2013, respectively. The cash flows related to these foreign currency contracts are classified as operating activities.
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
May 31, 2015 | May 31, 2014 | |||||||||||
(in millions) | Balance Sheet Location | Fair Value | Balance Sheet Location | Fair Value | ||||||||
Interest rate swap agreements designated as fair value hedges | Other assets | $ | 74 | Other assets | $ | 15 | ||||||
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Interest rate swap agreements designated as fair value hedges | Not applicable | $ | — | Prepaid expenses and other current assets | $ | 8 | ||||||
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Cross-currency swap agreements designated as cash flow hedges | Other non-current liabilities | $ | (244 | ) | Other assets | $ | 74 | |||||
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Foreign currency borrowings designated as net investment hedge | Notes payable, non-current | $ | (981 | ) | Notes payable, non-current | $ | (1,116 | ) | ||||
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Effects of Derivative and Non-Derivative Instruments Designated as Hedges on Income and Other Comprehensive Income (OCI) or Loss (OCL)
Amount of (Loss) Gain Recognized in Accumulated OCI or OCL (Effective Portion) | Location and Amount of (Loss) Gain Reclassified from | |||||||||||||||||
Year Ended May 31, | Year Ended May 31, | |||||||||||||||||
(in millions) | 2015 | 2014 | 2015 | 2014 | ||||||||||||||
Cross-currency swap agreements designated as cash flow hedges | $ | (318 | ) | $ | 74 | Non-operating income (expense), net | $ | (348 | ) | $ | 69 | |||||||
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Foreign currency borrowings designated as net investment hedge | $ | 208 | $ | (34 | ) | Not applicable | $ | — | $ | — | ||||||||
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ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 20122015
Location and Amount of Gain (Loss) Recognized in Income on Derivative | Location and Amount of (Loss) Gain on Hedged Item Recognized in Income Attributable to Risk Being Hedged | |||||||||||||||||||||
Year Ended May 31, | Year Ended May 31, | |||||||||||||||||||||
(in millions) | 2015 | 2014 | 2015 | 2014 | ||||||||||||||||||
Interest rate swap agreements designated as fair value hedges | Interest expense | $ | 51 | $ | (18 | ) | Interest expense | $ | (51 | ) | $ | 18 | ||||||||||
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12. | COMMITMENTS AND CERTAIN CONTINGENCIES |
Lease Commitments
We lease certain facilities, furniture and equipment under operating leases. As of May 31, 2012,2015, future minimum annual operating lease payments and future minimum payments to be received from non-cancelable subleases were as follows:
(in millions) | ||||||||
Fiscal 2013 | $ | 406 | ||||||
Fiscal 2014 | 307 | |||||||
Fiscal 2015 | 227 | |||||||
Fiscal 2016 | 172 | $ | 330 | |||||
Fiscal 2017 | 129 | 270 | ||||||
Fiscal 2018 | 209 | |||||||
Fiscal 2019 | 156 | |||||||
Fiscal 2020 | 107 | |||||||
Thereafter | 294 | 175 | ||||||
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Future minimum operating lease payments | 1,535 | 1,247 | ||||||
Less: minimum payments to be received from non-cancelable subleases | (125 | ) | (71 | ) | ||||
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Total future minimum operating lease payments, net | $ | 1,410 | $ | 1,176 | ||||
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Lease commitments included future minimum rent payments for facilities that we have vacated pursuant to our restructuring and merger integration activities, as discussed in Note 9. We have approximately $249$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, 2012.2015.
Rent expense was $329$290 million, $406$278 million and $318$313 million for fiscal 2012, 20112015, 2014 and 2010,2013, respectively, net of sublease income of approximately $89$45 million, $85$55 million and $73$69 million, 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, legally binding and specify terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the payment. We utilize several external manufacturers to manufacture sub-assemblies for our hardware products and to perform final assembly and testing of finished hardware products. We also obtain individual components for our hardware systems 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.
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 2015
As of May 31, 2012,2015, our unconditional purchase and certain other obligations were as follows (in millions):
Fiscal 2013 | $ | 523 | ||
Fiscal 2014 | 49 | |||
Fiscal 2015 | 4 | |||
Fiscal 2016 | 3 | |||
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Total | $ | 579 | ||
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Fiscal 2016 | $ | 713 | ||
Fiscal 2017 | 195 | |||
Fiscal 2018 | 124 | |||
Fiscal 2019 | 85 | |||
Fiscal 2020 | 64 | |||
Thereafter | — | |||
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Total | $ | 1,181 | ||
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ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 2012
As described in Note 2 of Notes to Consolidated Financial Statements included elsewhere in this Annual Report, we have contingent consideration payable as a result of our acquisition of Pillar Data that will settle in fiscal 2015.
As described in Note 2, we also have a commitment to acquire certain companies for cash consideration that we expect to pay upon the closing of these acquisitions. As described in Note 8 and Note 11 above, as of May 31, 2015 we have senior notes payable and other borrowings outstanding of $16.5$42.0 billion that mature at various future dates.dates and derivative financial instruments outstanding that we leverage to manage certain risks and exposures.
Guarantees
Our software, cloud and hardware systems product 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 product 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 software license and hardware systems products 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. Our software as a service, platform as a service and infrastructure as a service 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. 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 service.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 foreign exchange trades, 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.
13. | STOCKHOLDERS’ EQUITY |
Stock Repurchases
Our Board of Directors has approved a program for us to repurchase shares of our common stock. On December 20, 2011,September 18, 2014, we announced that our Board of Directors approved an expansion of our stock repurchase program by an additional $5.0$13.0 billion. On June 18, 2012, we announced that our Board of Directors approved a further expansion by an additional $10.0 billion. As of May 31, 2012, approximately $3.1Approximately $9.2 billion remained available for stock repurchases under theas of May 31, 2015, pursuant to our stock repurchase program prior to the June 2012 additional amount authorized.program. We repurchased 207.3193.7 million shares for $6.0$8.1 billion (including 5.22.2 million shares for $136$95 million that were repurchased but not settled), 40.4280.4 million shares for $1.2$9.8 billion and 43.3346.1 million shares for $1.0$11.0 billion in fiscal 2012, 20112015, 2014 and 2010,2013, 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 repurchase of our debt, our stock price, and economic and market
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 2015
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.
Dividends on Common Stock
During fiscal 2012, 20112015, 2014 and 2010,2013, our Board of Directors declared cash dividends of $0.24, $0.21,$0.51, $0.48 and $0.20$0.30 per share of our outstanding common stock, respectively, which we paid during the same period.
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 2012
In June 2012,2015, our Board of Directors declared a quarterly cash dividend of $0.06$0.15 per share of our outstanding common stock payable on August 3, 2012July 29, 2015 to stockholders of record as of the close of business on July 13, 2012.8, 2015. 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 IncomeLoss
The following table summarizes, as of each balance sheet date, the components of our accumulated other comprehensive income,loss, net of income taxes:
May 31, | May 31, | |||||||||||||||
(in millions) | 2012 | 2011 | 2015 | 2014 | ||||||||||||
Foreign currency translation gains, net | $ | 251 | $ | 649 | ||||||||||||
Unrealized losses on derivative financial instruments, net | (131 | ) | (131 | ) | ||||||||||||
Foreign currency translation losses and other, net | $ | (851 | ) | $ | (81 | ) | ||||||||||
Unrealized losses on defined benefit plans, net | (304 | ) | (153 | ) | ||||||||||||
Unrealized gains on marketable securities, net | 100 | 30 | 124 | 65 | ||||||||||||
Unrealized losses on defined benefit plans, net | (108 | ) | (6 | ) | ||||||||||||
Unrealized gains on cash flow hedges, net | 35 | 5 | ||||||||||||||
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Total accumulated other comprehensive income | $ | 112 | $ | 542 | ||||||||||||
Total accumulated other comprehensive loss | $ | (996 | ) | $ | (164 | ) | ||||||||||
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14. | EMPLOYEE BENEFIT PLANS |
Stock-based Compensation Plans
Stock Option Plans
In fiscal 2001, we adopted the 2000 Long-Term Equity Incentive Plan, which provides for the issuance of non-qualified stock options and incentive stock options, as well as stock purchase rights, stock appreciation rights, and long-term performance awards, including restricted stock-based awards, to our eligible employees, officers and directors who are also employees or consultants, independent consultants and advisers. During the second quarter ofIn 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). Upon approval,, which extended the termination date of the 2000 Plan was extended by ten 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 our Board, approved a further increase in the number of authorized shares of stock that may be issued under the 2000 Plan was increased by 388,313,015305,000,000 shares.
Under the terms of the 2000 Plan, options to purchase common stock are granted at not less than fair market value, become exercisable as established by the Compensation Committee of the Board (generally 25% annually over four years under our current practice) and generally expire no more than ten years from the date of grant. Long-term full value awards are granted in the form of restricted stock units (RSUs) and performance stock units (PSUs). The vesting schedule for RSUs is established by the Compensation Committee and generally requires vesting 25% annually over four years. The vesting schedule for PSUs is also established by the Compensation Committee and currently requires vesting over four fiscal years, if at all, based on relative performance. 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. As of May 31, 2012,2015, the 2000 Plan had stock options to purchase 399401 million shares of common stock were outstanding under the 2000 Plan, of which 177215 million shares were vested.vested, 24 million unvested RSUs outstanding and
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 2015
3 million unvested PSUs outstanding. As of May 31, 2012,2015, approximately 398409 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 restricted stock-based awards or long-term performance awards under the 2000 Plan.
In fiscal 1993, the Board adopted the 1993 Directors’ Stock Option Plan (the Directors’ Plan), which provides for the issuance of non-qualified stock options and other stock-based awards, including RSUs, to non-employee directors. The Director’sDirectors’ Plan has from time to time been amended and restated, most recently in fiscal 2010.restated. Under the terms of the Directors’ Plan, options to purchase 810 million shares of common stock wereare reserved for issuance options(including a fiscal 2013 amendment to increase the number of shares of our common stock reserved for issuance by 2 million shares). Options are granted at not less than fair market value, become exercisablevest over four years, and expire no more than ten years from the date of grant. RSUs granted under the Directors’ Plan also vest over four years. The Directors’ Plan provides for automatic grants of optionsstock 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 or vice chairing certain Board committees. The Board will determine the particular terms of any such stock awards at the time of grant, but the terms will be consistent with those of optionsstock awards granted under the Directors’ Plan with respect to vesting or forfeiture schedules and treatment on termination of status as a director. AtAs of May 31, 2012,2015, options to purchase approximately 34 million shares of common stock (of which approximately 2 million were vested) and 64,000 unvested RSUs were outstanding under the 1993 Directors’ Plan, of which approximately 2 million were vested.Plan. As of May 31, 2012,2015, approximately 12 million shares were available for future optionstock awards under this plan.
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 2012
In connection with certain of our acquisitions, we assumed certain outstanding stock options and other restricted stock-based awards ofunder each acquiree’sacquired company’s respective stock plans. These stock options and other restricted stock-based awards generally retain all of the rights, terms and conditions of the respective plans under which they were originally granted. As of May 31, 2012,2015, stock options to purchase 208 million shares of common stock and 31 million shares of restricted stock-based awards were outstanding under these plans.
The following table summarizes stock option activity and includes awards granted pursuant to Oracle-based stock plans and stock plans assumed from our acquisitions for our last three fiscal years ended May 31, 2012:2015:
Options Outstanding | Options Outstanding | |||||||||||||||
(in millions, except exercise price) | Shares Under Option | Weighted Average Exercise Price | Shares Under Option | Weighted Average Exercise Price | ||||||||||||
Balance, May 31, 2009 | 359 | $ | 18.32 | |||||||||||||
Balance, May 31, 2012 | 422 | $ | 22.66 | |||||||||||||
Granted | 72 | $ | 21.23 | 119 | $ | 29.90 | ||||||||||
Assumed | 23 | $ | 55.77 | 9 | $ | 32.52 | ||||||||||
Exercised | (60 | ) | $ | 14.03 | (83 | ) | $ | 17.38 | ||||||||
Canceled | (42 | ) | $ | 43.93 | (20 | ) | $ | 28.94 | ||||||||
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Balance, May 31, 2010 | 352 | $ | 18.84 | |||||||||||||
Balance, May 31, 2013 | 447 | $ | 25.48 | |||||||||||||
Granted | 110 | $ | 22.58 | 131 | $ | 31.02 | ||||||||||
Assumed | 1 | $ | 16.38 | 5 | $ | 9.02 | ||||||||||
Exercised | (78 | ) | $ | 16.73 | (95 | ) | $ | 21.51 | ||||||||
Canceled | (31 | ) | $ | 29.17 | (26 | ) | $ | 30.60 | ||||||||
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Balance, May 31, 2011 | 354 | $ | 19.53 | |||||||||||||
Balance, May 31, 2014 | 462 | $ | 27.37 | |||||||||||||
Granted | 112 | $ | 32.05 | 34 | $ | 40.54 | ||||||||||
Assumed | 8 | $ | 12.17 | 3 | $ | 21.98 | ||||||||||
Exercised | (39 | ) | $ | 16.61 | (70 | ) | $ | 24.49 | ||||||||
Canceled | (13 | ) | $ | 29.31 | (16 | ) | $ | 33.76 | ||||||||
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| |||||||||||||||
Balance, May 31, 2012 | 422 | $ | 22.66 | |||||||||||||
Balance, May 31, 2015 | 413 | $ | 28.64 | |||||||||||||
|
|
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 2015
Options outstanding that have vested and that are expected to vest as of May 31, 20122015 were as follows:
Outstanding Options (in millions) | Weighted Average Exercise Price | Weighted Average Remaining Contract Term (in years) | In-the-Money Options as of May 31, 2012 (in millions) | Aggregate Intrinsic Value(1) (in millions) | Outstanding Options (in millions) | Weighted Average Exercise Price | Weighted Average Remaining Contract Term (in years) | In-the-Money Options as of May 31, 2015 (in millions) | Aggregate Intrinsic Value(1) (in millions) | |||||||||||||||||||||||||||||||
Vested | 194 | $ | 18.00 | 4.84 | 188 | $ | 1,718 | 223 | $ | 25.53 | 5.07 | 222 | $ | 4,034 | ||||||||||||||||||||||||||
Expected to vest(2) | 204 | $ | 26.44 | 8.30 | 106 | 556 | 175 | $ | 32.17 | 7.77 | 175 | 1,986 | ||||||||||||||||||||||||||||
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Total | 398 | $ | 22.33 | 6.61 | 294 | $ | 2,274 | 398 | $ | 28.45 | 6.26 | 397 | $ | 6,020 | ||||||||||||||||||||||||||
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(1) | The aggregate intrinsic value was calculated based on the gross difference between our closing stock price on the last trading day of fiscal |
(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, |
Restricted stock-based award activity and the number of restricted stock-based awards outstanding were not significant prior to fiscal 2015. The following table summarizes restricted stock-based awards activity, including service-based awards and performance-based awards and including awards granted pursuant to Oracle-based stock plans and stock plans assumed from our acquisitions for our fiscal year ended May 31, 2015:
Restricted Stock-Based Awards Outstanding | ||||||||
(in millions, except fair value) | Number of Shares | Weighted Average Grant Date Fair Value | ||||||
Balance, May 31, 2014 | 1 | $ | 35.29 | |||||
Granted | 28 | $ | 40.73 | |||||
Canceled | (1 | ) | $ | 39.52 | ||||
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Balance, May 31, 2015 | 28 | $ | 40.63 | |||||
|
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The total grant date fair value of restricted stock-based awards that vested in fiscal 2015 was $28 million. As of May 31, 2015, total unrecognized stock compensation expense related to non-vested restricted stock-based awards was $774 million and is expected to be recognized over the remaining weighted-average vesting period of 3.22 years.
In fiscal 2015, 3 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” 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. As of May 31, 2015, no PSUs had vested and 3 million remained outstanding.
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 20122015
Stock-Based Compensation Expense and Valuation of Stock OptionsAwards
Stock-based compensation is included in the following operating expense line items in our consolidated statements of operations:
Year Ended May 31, | ||||||||||||
(in millions) | 2012 | 2011 | 2010 | |||||||||
Sales and marketing | $ | 122 | $ | 87 | $ | 81 | ||||||
Software license updates and product support | 18 | 14 | 17 | |||||||||
Hardware systems products | 1 | 2 | 3 | |||||||||
Hardware systems support | 5 | 5 | 2 | |||||||||
Services | 23 | 16 | 14 | |||||||||
Research and development | 295 | 231 | 172 | |||||||||
General and administrative | 162 | 145 | 132 | |||||||||
Acquisition related and other | 33 | 10 | 15 | |||||||||
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| |||||||
Total stock-based compensation | 659 | 510 | 436 | |||||||||
Estimated income tax benefit included in provision for income taxes | (216 | ) | (170 | ) | (146 | ) | ||||||
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Total stock-based compensation, net of estimated income tax benefit | $ | 443 | $ | 340 | $ | 290 | ||||||
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We estimateestimated the fair values of our share-based paymentsstock options 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 materially 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 date of grant dates or date ofat the acquisition dates for options and restricted stock-based awards assumed in a business combination. The weighted average input assumptions used and resulting fair values of our stock options were as follows for fiscal 2012, 20112015, 2014 and 2010:2013:
Year Ended May 31, | Year Ended May 31, | |||||||||||||||||||||||
2012 | 2011 | 2010 | 2015 | 2014 | 2013 | |||||||||||||||||||
Expected life (in years) | 5.1 | 5.1 | 4.7 | 5.1 | 4.9 | 5.0 | ||||||||||||||||||
Risk-free interest rate | 1.6% | 1.8% | 2.1% | 1.7% | 1.3% | 0.7% | ||||||||||||||||||
Volatility | 30% | 33% | 31% | 23% | 27% | 31% | ||||||||||||||||||
Dividend yield | 0.8% | 0.9% | 0.9% | 1.2% | 1.5% | 0.8% | ||||||||||||||||||
Weighted-average fair value per share | $ | 9.30 | $ | 6.61 | $ | 5.21 | $ | 9.62 | $ | 7.47 | $ | 7.99 |
The expected life input is based on historical exercise patterns and post-vesting termination behavior, the risk-free interest rate input is based on United StatesU.S. Treasury instruments, the annualized dividend yield input is based on the per share dividend declared by our Board of Directors and the volatility input is calculated based on the implied volatility of our publicly traded options.
We estimated the fair values of our restricted stock-based awards that are solely subject to service-based vesting requirements based upon their intrinsic values as of the grant dates.
The fair values of our PSUs were also measured at their intrinsic values as of their respective grant dates. 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 meet the performance-based award classification criteria as defined within ASC 718.
Stock-based compensation is included in the following operating expense line items in our consolidated statements of operations:
Year Ended May 31, | ||||||||||||
(in millions) | 2015 | 2014 | 2013 | |||||||||
Sales and marketing | $ | 180 | $ | 165 | $ | 137 | ||||||
Cloud software as a service and platform as a service | 10 | 8 | 10 | |||||||||
Cloud infrastructure as a service | 5 | 4 | 8 | |||||||||
Software license updates and product support | 21 | 22 | 20 | |||||||||
Hardware systems products | 6 | 5 | 3 | |||||||||
Hardware systems support | 6 | 6 | 5 | |||||||||
Services | 30 | 29 | 23 | |||||||||
Research and development | 522 | 385 | 352 | |||||||||
General and administrative | 148 | 171 | 164 | |||||||||
Acquisition related and other | 5 | 10 | 33 | |||||||||
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Total stock-based compensation | 933 | 805 | 755 | |||||||||
Estimated income tax benefit included in provision for income taxes | (294 | ) | (260 | ) | (243 | ) | ||||||
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Total stock-based compensation, net of estimated income tax benefit | $ | 639 | $ | 545 | $ | 512 | ||||||
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ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 2015
Tax Benefits from Exercise of Stock Options and Vesting of Restricted Stock-Based Awards
Total cash received as a result of option exercises was approximately $622 million, $1.3$1.7 billion, $2.0 billion and $812 million$1.4 billion for fiscal 2012, 20112015, 2014 and 2010,2013, respectively. The aggregate intrinsic value of options exercised and vesting of restricted stock-based awards was $587 million, $1.1$1.3 billion, $1.5 billion and $647 million$1.3 billion for fiscal 2012, 20112015, 2014 and 2010,2013, respectively. In connection with these exercises and vesting of restricted stock-based awards, the tax benefits realized by us were $182$396 million, $325$480 million and $203$410 million for fiscal 2012, 20112015, 2014 and 2010,2013, respectively. Of the total tax benefits received, we classified excess tax benefits from stock-based compensation of $97$244 million, $215$250 million and $110$241 million as cash flows from financing activities rather than cash flows from operating activities for fiscal 2012, 20112015, 2014 and 2010,2013, respectively.
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 2012
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, 2012, 672015, 57 million shares were reserved for future issuances under the Purchase Plan. We issued 43 million shares under the Purchase Plan in each of fiscal 20122015, fiscal 2014 and 2011 and 3 million shares in fiscal 2010.2013.
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 $344$362 million, $312$357 million and $253$353 million for fiscal 2012, 20112015, 2014 and 2010,2013, respectively. The number of plan participants in our benefit plans has generally increased in recent years primarily as a result of additional 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 United States 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 $125$144 million, $119$134 million and $90$129 million in fiscal 2012, 20112015, 2014 and 2010,2013, respectively.
We also offer non-qualified deferred compensation plans to certain key 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 $264$408 million as of May 31, 20122015 and were each approximately $260$367 million as of May 31, 20112014 and arewere 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 $55$69 million, $76$64 million and $29$81 million for fiscal 2012, 20112015, 2014 and 2010,2013, respectively. The aggregate projected benefit obligation and aggregate net liability (funded status) of our defined benefit plans were $691 million and $297 million as of May 31, 2012,2015 was $1.0 billion and $599 million, respectively, and $584 million and $181 million as of May 31, 2011,2014 was $853 million and $436 million, respectively.
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 2015
15. | INCOME TAXES |
The following is a geographical breakdown of income before the provision for income taxes:
Year Ended May 31, | ||||||||||||
(in millions) | 2012 | 2011 | 2010 | |||||||||
Domestic | $ | 6,284 | $ | 6,378 | $ | 4,282 | ||||||
Foreign | 6,678 | 5,033 | 3,961 | |||||||||
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Income before provision for income taxes | $ | 12,962 | $ | 11,411 | $ | 8,243 | ||||||
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ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 2012
Year Ended May 31, | ||||||||||||
(in millions) | 2015 | 2014 | 2013 | |||||||||
Domestic | $ | 5,136 | $ | 5,397 | $ | 6,614 | ||||||
Foreign | 7,698 | 8,307 | 7,284 | |||||||||
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Income before provision for income taxes | $ | 12,834 | $ | 13,704 | $ | 13,898 | ||||||
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The provision for income taxes consisted of the following:
Year Ended May 31, | Year Ended May 31, | |||||||||||||||||||||||
(Dollars in millions) | 2012 | 2011 | 2010 | 2015 | 2014 | 2013 | ||||||||||||||||||
Current provision: | ||||||||||||||||||||||||
Federal | $ | 1,611 | $ | 1,817 | $ | 1,307 | $ | 2,153 | $ | 1,613 | $ | 1,720 | ||||||||||||
State | 257 | 263 | 299 | 310 | 337 | 254 | ||||||||||||||||||
Foreign | 1,104 | 1,037 | 1,013 | 981 | 1,047 | 1,116 | ||||||||||||||||||
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Total current provision | 2,972 | 3,117 | 2,619 | $ | 3,444 | $ | 2,997 | $ | 3,090 | |||||||||||||||
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Deferred provision (benefit): | ||||||||||||||||||||||||
Deferred benefit: | ||||||||||||||||||||||||
Federal | 267 | (179 | ) | (380 | ) | $ | (408 | ) | $ | (68 | ) | $ | (179 | ) | ||||||||||
State | 14 | 14 | (76 | ) | (46 | ) | (100 | ) | 82 | |||||||||||||||
Foreign | (272 | ) | (88 | ) | (55 | ) | (94 | ) | (80 | ) | (20 | ) | ||||||||||||
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Total deferred provision (benefit) | 9 | (253 | ) | (511 | ) | |||||||||||||||||||
Total deferred benefit | $ | (548 | ) | $ | (248 | ) | $ | (117 | ) | |||||||||||||||
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Total provision for income taxes | $ | 2,981 | $ | 2,864 | $ | 2,108 | $ | 2,896 | $ | 2,749 | $ | 2,973 | ||||||||||||
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Effective income tax rate | 23.0% | 25.1% | 25.6% | 22.6% | 20.1% | 21.4% |
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, | Year Ended May 31, | |||||||||||||||||||||||
(in millions) | 2012 | 2011 | 2010 | 2015 | 2014 | 2013 | ||||||||||||||||||
Tax provision at statutory rate | $ | 4,537 | $ | 3,994 | $ | 2,885 | $ | 4,492 | $ | 4,796 | $ | 4,865 | ||||||||||||
Foreign earnings at other than United States rates | (1,474 | ) | (1,125 | ) | (672 | ) | (1,627 | ) | (1,790 | ) | (1,637 | ) | ||||||||||||
State tax expense, net of federal benefit | 171 | 188 | 161 | 176 | 154 | 299 | ||||||||||||||||||
Settlements and releases from judicial decisions and statute expirations, net | (132 | ) | (53 | ) | (315 | ) | (85 | ) | (168 | ) | (144 | ) | ||||||||||||
Domestic production activity deduction | (178 | ) | (206 | ) | (95 | ) | (188 | ) | (174 | ) | (155 | ) | ||||||||||||
Other, net | 57 | 66 | 144 | 128 | (69 | ) | (255 | ) | ||||||||||||||||
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Total provision for income taxes | $ | 2,981 | $ | 2,864 | $ | 2,108 | $ | 2,896 | $ | 2,749 | $ | 2,973 | ||||||||||||
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ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 20122015
The components of our deferred tax liabilities and assets were as follows:
May 31, | May 31, | |||||||||||||||
(in millions) | 2012 | 2011 | 2015 | 2014 | ||||||||||||
Deferred tax liabilities: | ||||||||||||||||
Unrealized gain on stock | $ | (130 | ) | $ | (130 | ) | $ | (130 | ) | $ | (130 | ) | ||||
Acquired intangible assets | (1,974 | ) | (1,816 | ) | (1,879 | ) | (1,804 | ) | ||||||||
Unremitted earnings | (322 | ) | (44 | ) | (646 | ) | (510 | ) | ||||||||
Other | (11 | ) | — | |||||||||||||
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Total deferred tax liabilities | $ | (2,426 | ) | $ | (1,990 | ) | $ | (2,666 | ) | $ | (2,444 | ) | ||||
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Deferred tax assets: | ||||||||||||||||
Accruals and allowances | $ | 609 | $ | 543 | $ | 421 | $ | 440 | ||||||||
Employee compensation and benefits | 905 | 742 | 1,123 | 1,062 | ||||||||||||
Differences in timing of revenue recognition | 196 | 305 | 335 | 210 | ||||||||||||
Depreciation and amortization | 253 | 483 | 155 | 243 | ||||||||||||
Tax credit and net operating loss carryforwards | 2,537 | 2,675 | 2,649 | 2,810 | ||||||||||||
Other | 50 | 119 | — | 96 | ||||||||||||
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Total deferred tax assets | $ | 4,550 | $ | 4,867 | $ | 4,683 | $ | 4,861 | ||||||||
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Valuation allowance | $ | (728 | ) | $ | (772 | ) | $ | (1,024 | ) | $ | (1,053 | ) | ||||
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Net deferred tax assets | $ | 1,396 | $ | 2,105 | $ | 993 | $ | 1,364 | ||||||||
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Recorded as: | ||||||||||||||||
Current deferred tax assets | $ | 877 | $ | 1,189 | $ | 663 | $ | 914 | ||||||||
Non-current deferred tax assets | 595 | 1,076 | 795 | 837 | ||||||||||||
Current deferred tax liabilities (in other current liabilities) | (28 | ) | (101 | ) | (85 | ) | (129 | ) | ||||||||
Non-current deferred tax liabilities (in other non-current liabilities) | (48 | ) | (59 | ) | (380 | ) | (258 | ) | ||||||||
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Net deferred tax assets | $ | 1,396 | $ | 2,105 | $ | 993 | $ | 1,364 | ||||||||
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We provide for United States income 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. During the third quarter of fiscal 2012, we increased the number of foreign subsidiaries in countries with lower statutory rates than the United States, the earnings of which we consider to be indefinitely reinvested outside the United States. If these subsidiaries generate sufficient earnings in the future, our provision for income taxes may continue to be favorably affected to a meaningful extent, although any such favorable effects could be significantly reduced under a variety of circumstances. At May 31, 2012,2015, the amount of temporary differences related to undistributed earnings and other outside basis temporary differences of investments in foreign subsidiaries upon which United States income taxes have not been provided was approximately $20.9$38.0 billion and $4.3$8.4 billion, respectively. If these undistributed earnings were repatriated to the United States, or 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. AssumingAt May 31, 2015, assuming a full utilization of the foreign tax credits, the potential net deferred tax liability associated with these temporary differences of undistributed earnings and other outside basis temporary differences would be approximately $6.3$11.8 billion and $1.4$2.7 billion, respectively.
Our net deferred tax assets were $1.4 billion$993 million and $2.1$1.4 billion as of May 31, 20122015 and May 31, 2011,2014, respectively. We believe 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.
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 20122015
The valuation allowance was $728 million$1.0 billion and $1.1 billion at May 31, 20122015 and $772 million at May 31, 2011.2014, respectively. Substantially all of the valuation allowances as of May 31, 20122015 and 20112014 relate 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, 2012,2015, we had federal net operating loss carryforwards of approximately $726$958 million. These losses expire in various years between fiscal 2016 and fiscal 2031,2034, and are subject to limitations on their utilization. We had state net operating loss carryforwards of approximately $2.9 billion at May 31, 2015, which expire between fiscal 20132016 and fiscal 2031,2034, and are subject to limitations on their utilization. We had total foreign net operating loss carryforwards of approximately $1.8$1.6 billion at May 31, 2015, which are subject to limitations on their utilization. Approximately $1.5$1.4 billion of these foreign net operating losses are not currently subject to expiration dates. The remainder of the foreign net operating losses, approximately $302$216 million, expire between fiscal 20132016 and fiscal 2032.2035. We had tax credit carryforwards of approximately $1.0 billion,$904 million at May 31, 2015, which are subject to limitations on their utilization. Approximately $346$573 million of these tax credit carryforwards are not currently subject to expiration dates. The remainder of the tax credit carryforwards, approximately $691$331 million, expire in various years between fiscal 20132016 and fiscal 2029.2034.
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, | Year Ended May 31, | |||||||||||||||||||||||
(in millions) | 2012 | 2011 | 2010 | 2015 | 2014 | 2013 | ||||||||||||||||||
Gross unrecognized tax benefits as of June 1 | $ | 3,160 | $ | 2,527 | $ | 2,262 | $ | 3,838 | $ | 3,601 | $ | 3,276 | ||||||||||||
Increases related to tax positions from prior fiscal years | 99 | 128 | 94 | 119 | 94 | 279 | ||||||||||||||||||
Decreases related to tax positions from prior fiscal years | (169 | ) | (102 | ) | (491 | ) | (17 | ) | (116 | ) | (125 | ) | ||||||||||||
Increases related to tax positions taken during current fiscal year | 522 | 639 | 813 | 316 | 307 | 312 | ||||||||||||||||||
Settlements with tax authorities | (187 | ) | (23 | ) | (88 | ) | (30 | ) | (2 | ) | (71 | ) | ||||||||||||
Lapses of statutes of limitation | (84 | ) | (53 | ) | (48 | ) | (54 | ) | (53 | ) | (71 | ) | ||||||||||||
Other, net | (65 | ) | 44 | (15 | ) | |||||||||||||||||||
Cumulative translation adjustments and other, net | (134 | ) | 7 | 1 | ||||||||||||||||||||
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| |||||||||||||||||||
Total gross unrecognized tax benefits as of May 31 | $ | 3,276 | $ | 3,160 | $ | 2,527 | $ | 4,038 | $ | 3,838 | $ | 3,601 | ||||||||||||
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As of May 31, 2012, $3.32015, 2014 and 2013, $2.8 billion, $2.6 billion and $3.6 billion, respectively, of unrecognized 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 $46$102 million, $22$24 million and $3$31 million during fiscal 2012, 20112015, 2014 and 2010,2013, respectively. Interest and penalties accrued as of May 31, 20122015 and 20112014 were $683$756 million and $669$693 million, respectively.
During fiscal 2010, the provision for income taxes was reduced due to judicial decisions, including the March 2010 U.S. Court of Appeals Ninth Circuit ruling inXilinx v. Commissioner, and settlements with various worldwide tax authorities.
Domestically, U.S. federal and state taxing authorities are currently examining income tax returns of Oracle and various acquired entities for years through fiscal 2010.2013. Many issues are at an advanced stage in the examination process, the most significant of which include the deductibility of certain royalty payments, issues related to certain capital gains and losses,transfer pricing, extraterritorial income exemptions, domestic production activity, deductions, stewardship deductions, stock-based compensationforeign tax credits, and foreign taxresearch and development credits taken. Other issues are related to years with expiring statutes of limitation. With all of these domestic audit issues considered in the aggregate, we believe it was reasonably possible that, as of May 31, 2012,2015, 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 $518$426 million ($423358 million net of offsetting tax benefits). Our U.S. federal and, with some exceptions, our state income tax returns have been examined for all years prior to fiscal 20002003 and we are no longer subject to audit for those periods.
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 20122015
Internationally, tax authorities for numerous non-U.S. jurisdictions are also examining returns affecting our unrecognized tax benefits. We believe it was reasonably possible that, as of May 31, 2012,2015, the gross unrecognized tax benefits, could decrease (whether by payment, release, or a combination of both) by as much as $189$172 million ($12386 million net of offsetting tax benefits) in the next 12 months, related primarily to transfer pricing. Other issues are related to years with expiring statutes of limitation. With some exceptions, we are generally no longer subject to tax examinations in non-U.S. jurisdictions for years prior to fiscal 1998.1997.
We believe that we have adequately provided under U.S. GAAP for any reasonably foreseeable outcomes related to our tax audits and that any settlement will not have a material adverse effect on our consolidated financial position or results of operations.audits. However, there can be no assurances as to the possible outcomes.
We previously negotiated three successive unilateral Advance Pricing Agreements with the IRS that cover many of our intercompany transfer pricing issues and preclude the IRS from making a transfer pricing adjustment within the scope of these agreements. These agreements were effective for fiscal years through May 31, 2006. We have reached final agreement with the IRS for renewal of this Advance Pricing Agreement for the years ending May 31, 2007 through May 31, 2013. However, these agreements do not cover substantial elements of our transfer pricing and do not bind tax authorities outside the United States. We have finalized bilateral Advance Pricing Agreements, which are effective for the years ending May 31, 2002 through May 31, 2006 and May 31, 2007 through May 31, 2013.outcomes or any attendant financial statement effect thereof.
16. | 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 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 maker ismakers are our Chief Executive Officer.Officers. We are organized geographically and by line of business. While our Chief Executive Officer evaluatesOfficers evaluate results in a number of different ways, the line of business management structure is the primary basis for which the allocation of resources and financial results are assessed.
We have three businesses—software and cloud, hardware systems and services—which are further divided into certain operating segments. Our software and cloud business is comprised of twothree operating segments: (1) new software licenses and cloud software subscriptions, which includes our cloud SaaS and PaaS offerings, (2) cloud infrastructure as a service and (3) software license updates and product support. Our hardware systems business is comprised of two operating segments: (1) hardware systems products and (2) hardware systems support. All other operating segments are combined under our services business.
TheOur new software licenses and cloud software subscriptions line of business is engaged inmarkets, sells and delivers our application and platform technologies, including our SaaS and PaaS offerings (our SaaS and PaaS offerings are collectively referred to as cloud software subscriptions), which provide customers a choice of software applications and platforms that are delivered via a cloud-based IT environment that we host, manage and support, and the licensing of our databasesoftware products including Oracle Applications, Oracle Database, Oracle Fusion Middleware and middlewareJava, among others.
The cloud infrastructure as a service line of business provides comprehensive software and hardware management and maintenance services for customer IT infrastructure for a fee for a stated term that is hosted at our applicationsOracle data center facilities, select partner data centers or physically on-premises at customer facilities; deployment and management offerings for our software and our cloud software subscription offerings. Databasehardware and middleware software generally includes databaserelated IT infrastructure including virtual machine instances that are subscription-based and database management software; application serverdesigned for computing and cloud application software; Service-Oriented Architecturereliable and business process management software; business intelligence software; identitysecure object storage; and access management software; data integration software; web experience management, portals, content management and social network software; and development tools. Our database and middleware software product offerings also include Java, which is a global software development platform used in a wide range of computers, networks and devices. Applications software generally provides enterprise information that enables companies to manage their business cycles and provides intelligence and includes enterprise resource planning software including human capital management; customer relationship management; financials; governance, risk and compliance; procurement; supply chain management; enterprise portfolio project management; enterprise performance management; business intelligence analytic applications; web commerce and industry-specific applications. Our cloud software subscription offerings include Oracle Cloud, which is a family of our cloud-based software subscription offerings that provides our customers and partners subscription-based, self-service access to certain of our databaseOracle Engineered Systems and middleware, and applications software. Our cloud software subscriptionrelated support offerings also include Oracle RightNow Customer Experience and Oracle Taleo Talent Management Cloud Service, among others.
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 2012
that are deployed in our customers’ data centers for a monthly fee.
The software license updates and product support line of business provides customers with rights to unspecified software product upgrades and maintenance releases, patches released, internet access to technical content, as well as internet and telephone access to technical support personnel during the support period.
The hardware systems products line of business consists primarily of computer server,provides Oracle Engineered Systems, servers, storage, and networking, product offerings and hardware-relatedindustry specific hardware, virtualization software, operating systems including the Oracle Solaris Operating System. As a part of this line of business, we offer our Oracle Engineered Systems,System and management software to support diverse IT environments, including Oracle Exadata Database Machine, Oracle Exalogic Elastic Cloud, Oracle Exalytics In-Memory Machine, SPARC SuperCluster, Oracle Database Appliance, and Oracle Big Data Appliance, which are engineered to run certain of our hardware and software offerings to create performance and operational cost advantages for customers. Most of our computer servers are based on our SPARC family of microprocessors and on microprocessors from Intel Corporation. Our servers range from high performancecloud computing servers to cost efficient, entry-level servers, and run with Oracle Solaris, Oracle Linux and certain other operating systems environments. Our storage products are designed to securely manage, protect, archive and restore customers’ data assets and consist of tape, disk and networking solutions for open systems and mainframe server environments.
Our hardware systems support line of business offersprovides customers contracts that providewith software updates for the software components that are essential to the functionality of our hardware systemsproducts, such as Oracle Solaris and storagecertain other software products, and may alsocan include product repairs, maintenance services and technical support services.
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 2015
Our services business is comprised of the remainder of our operating segments and offers consulting, managed cloudadvanced customer support services and education services. Our consulting line of business primarily provides services to customers in business and IT strategy alignment, enterprise architecture planning and design, initial product implementation and integration and ongoing product enhancements and upgrades. Oracle managed cloud services provide comprehensive software and hardware management and maintenance services for customers hosted at our Oracle data center facilities, select partner data centers, or physically on-premise atAdvanced customer facilities. Additionally, we providesupport provides support services, both on-premiseon-premises and remote, to Oracleour customers to enable increased performance and higher availability of their products and services. Education services provide training to customers, partners and employees as a part of our mission to furtherof accelerating the adoption and usageuse of our software and hardware products by our customers and to create opportunities to grow our product revenues.
We do not track our assets by operating segments. Consequently, it is not practical to show assets by operating segment.
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 2012
The following table presents summary results for each of our three businesses and for the operating segments of our software and cloud and hardware systems businesses:
Year Ended May 31, | Year Ended May 31, | |||||||||||||||||||||||
(in millions) | 2012 | 2011 | 2010 | 2015 | 2014 | 2013 | ||||||||||||||||||
New software licenses: | ||||||||||||||||||||||||
New software licenses and cloud software subscriptions: | ||||||||||||||||||||||||
Revenues(1) | $ | 9,910 | $ | 9,220 | $ | 7,525 | $ | 10,025 | $ | 10,542 | $ | 10,350 | ||||||||||||
Cloud software as a service and platform as a service expenses | 742 | 437 | 313 | |||||||||||||||||||||
Sales and distribution expenses | 5,812 | 5,666 | 5,227 | |||||||||||||||||||||
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Margin(2) | $ | 3,471 | $ | 4,439 | $ | 4,810 | ||||||||||||||||||
Cloud infrastructure as a service: | ||||||||||||||||||||||||
Revenues | $ | 608 | $ | 456 | $ | 457 | ||||||||||||||||||
Cloud infrastructure as a service expenses | 329 | 304 | 296 | |||||||||||||||||||||
Sales and distribution expenses | 5,107 | 4,692 | 3,980 | 89 | 61 | 61 | ||||||||||||||||||
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Margin(2) | $ | 4,803 | $ | 4,528 | $ | 3,545 | $ | 190 | $ | 91 | $ | 100 | ||||||||||||
Software license updates and product support: | ||||||||||||||||||||||||
Revenues(1) | $ | 16,258 | $ | 14,876 | $ | 13,175 | $ | 18,858 | $ | 18,209 | $ | 17,156 | ||||||||||||
Software license update and product support expenses | 1,116 | 1,144 | 958 | |||||||||||||||||||||
Software license updates and product support expenses | 1,130 | 1,111 | 1,120 | |||||||||||||||||||||
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Margin(2) | $ | 15,142 | $ | 13,732 | $ | 12,217 | $ | 17,728 | $ | 17,098 | $ | 16,036 | ||||||||||||
Total software business: | ||||||||||||||||||||||||
Total software and cloud business: | ||||||||||||||||||||||||
Revenues(1) | $ | 26,168 | $ | 24,096 | $ | 20,700 | $ | 29,491 | $ | 29,207 | $ | 27,963 | ||||||||||||
Expenses | 6,223 | 5,836 | 4,938 | 8,102 | 7,579 | 7,017 | ||||||||||||||||||
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Margin(2) | $ | 19,945 | $ | 18,260 | $ | 15,762 | $ | 21,389 | $ | 21,628 | $ | 20,946 | ||||||||||||
Hardware systems products: | ||||||||||||||||||||||||
Revenues | $ | 3,827 | $ | 4,382 | $ | 1,493 | $ | 2,825 | $ | 2,976 | $ | 3,033 | ||||||||||||
Hardware systems products expenses | 1,841 | 2,061 | 850 | 1,465 | 1,516 | 1,498 | ||||||||||||||||||
Sales and distribution expenses | 1,050 | 960 | 307 | 864 | 940 | 885 | ||||||||||||||||||
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Margin(2) | $ | 936 | $ | 1,361 | $ | 336 | $ | 496 | $ | 520 | $ | 650 | ||||||||||||
Hardware systems support: | ||||||||||||||||||||||||
Revenues(1) | $ | 2,505 | $ | 2,710 | $ | 912 | $ | 2,384 | $ | 2,407 | $ | 2,327 | ||||||||||||
Hardware systems support expenses | 1,006 | 1,221 | 408 | 783 | 802 | 857 | ||||||||||||||||||
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Margin(2) | $ | 1,499 | $ | 1,489 | $ | 504 | $ | 1,601 | $ | 1,605 | $ | 1,470 | ||||||||||||
Total hardware systems business: | ||||||||||||||||||||||||
Revenues(1) | $ | 6,332 | $ | 7,092 | $ | 2,405 | $ | 5,209 | $ | 5,383 | $ | 5,360 | ||||||||||||
Expenses | 3,897 | 4,242 | 1,565 | 3,112 | 3,258 | 3,240 | ||||||||||||||||||
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Margin(2) | $ | 2,435 | $ | 2,850 | $ | 840 | $ | 2,097 | $ | 2,125 | $ | 2,120 | ||||||||||||
Total services business: | ||||||||||||||||||||||||
Revenues(1) | $ | 4,721 | $ | 4,662 | $ | 3,929 | $ | 3,553 | $ | 3,716 | $ | 3,930 | ||||||||||||
Services expenses | 3,662 | 3,643 | 3,245 | 2,818 | 2,822 | 3,051 | ||||||||||||||||||
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Margin(2) | $ | 1,059 | $ | 1,019 | $ | 684 | $ | 735 | $ | 894 | $ | 879 | ||||||||||||
Totals: | ||||||||||||||||||||||||
Revenues(1) | $ | 37,221 | $ | 35,850 | $ | 27,034 | $ | 38,253 | $ | 38,306 | $ | 37,253 | ||||||||||||
Expenses | 13,782 | 13,721 | 9,748 | 14,032 | 13,659 | 13,308 | ||||||||||||||||||
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Margin(2) | $ | 23,439 | $ | 22,129 | $ | 17,286 | $ | 24,221 | $ | 24,647 | $ | 23,945 | ||||||||||||
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ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 2015
(1) |
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ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 2012
(2) | The margins reported reflect only the direct controllable costs of each line of business and do not include allocations of product development, |
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, | Year Ended May 31, | |||||||||||||||||||||||
(in millions) | 2012 | 2011 | 2010 | 2015 | 2014 | 2013 | ||||||||||||||||||
Total revenues for operating segments | $ | 37,221 | $ | 35,850 | $ | 27,034 | $ | 38,253 | $ | 38,306 | $ | 37,253 | ||||||||||||
New software licenses revenues(1) | (22 | ) | — | — | ||||||||||||||||||||
Cloud software as a service and platform as a service revenues(1) | (12 | ) | (17 | ) | (45 | ) | ||||||||||||||||||
Software license updates and product support revenues(1) | (48 | ) | (80 | ) | (86 | ) | (11 | ) | (3 | ) | (14 | ) | ||||||||||||
Hardware systems support revenues(1) | (30 | ) | (148 | ) | (128 | ) | (4 | ) | (11 | ) | (14 | ) | ||||||||||||
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Total revenues | $ | 37,121 | $ | 35,622 | $ | 26,820 | $ | 38,226 | $ | 38,275 | $ | 37,180 | ||||||||||||
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Total margin for operating segments | $ | 23,439 | $ | 22,129 | $ | 17,286 | $ | 24,221 | $ | 24,647 | $ | 23,945 | ||||||||||||
New software licenses revenues(1) | (22 | ) | — | — | ||||||||||||||||||||
Cloud software as a service and platform as a service revenues(1) | (12 | ) | (17 | ) | (45 | ) | ||||||||||||||||||
Software license updates and product support revenues(1) | (48 | ) | (80 | ) | (86 | ) | (11 | ) | (3 | ) | (14 | ) | ||||||||||||
Hardware systems support revenues(1) | (30 | ) | (148 | ) | (128 | ) | (4 | ) | (11 | ) | (14 | ) | ||||||||||||
Hardware systems products expenses(2) | — | — | (29 | ) | ||||||||||||||||||||
Product development and information technology expenses | (4,630 | ) | (4,778 | ) | (3,479 | ) | ||||||||||||||||||
Product development | (4,812 | ) | (4,590 | ) | (4,321 | ) | ||||||||||||||||||
Marketing and partner program expenses | (581 | ) | (601 | ) | (503 | ) | (520 | ) | (564 | ) | (591 | ) | ||||||||||||
Corporate and general and administrative expenses | (945 | ) | (800 | ) | (755 | ) | ||||||||||||||||||
Corporate, general and administrative and information technology expenses | (1,496 | ) | (1,384 | ) | (1,421 | ) | ||||||||||||||||||
Amortization of intangible assets | (2,430 | ) | (2,428 | ) | (1,973 | ) | (2,149 | ) | (2,300 | ) | (2,385 | ) | ||||||||||||
Acquisition related and other | (56 | ) | (208 | ) | (154 | ) | (211 | ) | (41 | ) | 604 | |||||||||||||
Restructuring | (295 | ) | (487 | ) | (622 | ) | (207 | ) | (183 | ) | (352 | ) | ||||||||||||
Stock-based compensation | (626 | ) | (500 | ) | (421 | ) | (928 | ) | (795 | ) | (722 | ) | ||||||||||||
Interest expense | (766 | ) | (808 | ) | (754 | ) | (1,143 | ) | (914 | ) | (797 | ) | ||||||||||||
Other, net | (48 | ) | 120 | (139 | ) | |||||||||||||||||||
Non-operating income (expense), net | 106 | (141 | ) | 11 | ||||||||||||||||||||
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Income before provision for income taxes | $ | 12,962 | $ | 11,411 | $ | 8,243 | $ | 12,834 | $ | 13,704 | $ | 13,898 | ||||||||||||
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(1) | New software licenses and cloud software subscriptions revenues, software license updates and product support revenues and hardware systems support revenues for management reporting included revenues |
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ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 20122015
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 2012, 20112015, 2014 or 2010.2013.
As of and for the Year Ended May 31, | As of and for the Year Ended May 31, | |||||||||||||||||||||||||||||||||||||||||||||||
2012 | 2011 | 2010 | 2015 | 2014 | 2013 | |||||||||||||||||||||||||||||||||||||||||||
(in millions) | Revenues | Long Lived Assets(1) | Revenues | Long Lived Assets(1) | Revenues | Long Lived Assets(1) | Revenues | Long Lived Assets(1) | Revenues | Long Lived Assets(1) | Revenues | Long Lived Assets(1) | ||||||||||||||||||||||||||||||||||||
United States | $ | 15,767 | $ | 2,468 | $ | 15,274 | $ | 2,359 | $ | 11,472 | $ | 2,141 | $ | 17,325 | $ | 3,341 | $ | 16,809 | $ | 2,993 | $ | 16,003 | $ | 2,921 | ||||||||||||||||||||||||
United Kingdom | 2,302 | 171 | 2,200 | 168 | 1,685 | 136 | 2,388 | 309 | 2,309 | 236 | 2,165 | 203 | ||||||||||||||||||||||||||||||||||||
Germany | 1,466 | 33 | 1,483 | 35 | 1,308 | 44 | ||||||||||||||||||||||||||||||||||||||||||
Japan | 1,865 | 550 | 1,731 | 551 | 1,349 | 505 | 1,433 | 338 | 1,558 | 414 | 1,770 | 428 | ||||||||||||||||||||||||||||||||||||
Germany | 1,484 | 47 | 1,475 | 29 | 1,112 | 20 | ||||||||||||||||||||||||||||||||||||||||||
Canada | 1,234 | 37 | 1,174 | 16 | 888 | 10 | 1,286 | 58 | 1,190 | 31 | 1,232 | 34 | ||||||||||||||||||||||||||||||||||||
Australia | 1,163 | 38 | 1,041 | 34 | 687 | 28 | ||||||||||||||||||||||||||||||||||||||||||
France | 1,162 | 16 | 1,145 | 15 | 965 | 24 | 1,044 | 33 | 1,148 | 28 | 1,054 | 17 | ||||||||||||||||||||||||||||||||||||
Other countries | 12,144 | 741 | 11,582 | 661 | 8,662 | 632 | 13,284 | 1,007 | 13,778 | 879 | 13,648 | 868 | ||||||||||||||||||||||||||||||||||||
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Total | $ | 37,121 | $ | 4,068 | $ | 35,622 | $ | 3,833 | $ | 26,820 | $ | 3,496 | $ | 38,226 | $ | 5,119 | $ | 38,275 | $ | 4,616 | $ | 37,180 | $ | 4,515 | ||||||||||||||||||||||||
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(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. |
17. | 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 stock options, restricted stock-based awards 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, | Year Ended May 31, | |||||||||||||||||||||||
(in millions, except per share data) | 2012 | 2011 | 2010 | 2015 | 2014 | 2013 | ||||||||||||||||||
Net income | $ | 9,981 | $ | 8,547 | $ | 6,135 | $ | 9,938 | $ | 10,955 | $ | 10,925 | ||||||||||||
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Weighted average common shares outstanding | 5,015 | 5,048 | 5,014 | 4,404 | 4,528 | 4,769 | ||||||||||||||||||
Dilutive effect of employee stock plans | 80 | 80 | 59 | 99 | 76 | 75 | ||||||||||||||||||
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Dilutive weighted average common shares outstanding | 5,095 | 5,128 | 5,073 | 4,503 | 4,604 | 4,844 | ||||||||||||||||||
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Basic earnings per share | $ | 1.99 | $ | 1.69 | $ | 1.22 | $ | 2.26 | $ | 2.42 | $ | 2.29 | ||||||||||||
Diluted earnings per share | $ | 1.96 | $ | 1.67 | $ | 1.21 | $ | 2.21 | $ | 2.38 | $ | 2.26 | ||||||||||||
Shares subject to anti-dilutive stock options and restricted stock-based awards excluded from calculation(1) | 110 | 57 | 141 | 37 | 76 | 208 |
(1) | These weighted shares relate to anti-dilutive stock options and restricted stock-based awards as calculated using the treasury stock method |
18. | LEGAL PROCEEDINGS |
Hewlett-Packard Company Litigation
On June 15, 2011, Hewlett-Packard Company (“HP”) filed a complaint in the California Superior Court, County of Santa Clara against Oracle Corporation alleging numerous causes of action including breach of contract,
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 20122015
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 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. Oracle has announced that it is appealing this decision. The issues of breach, HP’s performance, causation and damages, HP’s tort claims, and Oracle’s cross-claims will all be tried before a jury. As of April 8, 2013, the trial is stayed pending Oracle’s appeal of the court’s denial of its anti-SLAPP motion, which is fully briefed, although oral argument has not yet been scheduled. We cannot currently estimate a reasonably possible range of loss for this action. We believe that we have meritorious defenses against this action, and we will continue to vigorously defend it.
SAP Intellectual Property Litigation
On March 22, 2007, Oracle Corporation, Oracle USA, Inc. and Oracle International Corporation (collectively, Oracle) filed a complaint in the United States District Court for the Northern District of California against SAP AG, its wholly-owned subsidiary, SAP America, Inc., and its wholly-owned subsidiary, TomorrowNow, Inc., (the SAP Subsidiary, and collectively, the SAP Defendants) alleging that SAP unlawfully accessed Oracle’s Customer Connection support website and improperly took and used Oracle’s intellectual property,property.
After lengthy judicial proceedings, including software code and knowledge management solutions. The claims allegeda jury verdict in the final operative complaint, Oracle’s Fourth Amended Complaint, filedfavor, on August 18, 2009, include infringement of the federal Copyright Act, breach of contract, violations of the Federal Computer Fraud and Abuse Act and the California Computer Data Access and Fraud Act, civil conspiracy, trespass, violation of the California Unfair Business Practices Act and intentional and negligent interference with prospective economic advantage. The SAP Defendants filed an Answer on August 26, 2009.
On September 13, 2010, the court approved a stipulation by the parties whereby the SAP Subsidiary stipulated to all liability on all claims and SAP AG and SAP America, Inc. stipulated to vicarious liability on the copyright claims against the SAP Subsidiary,2, 2012, Oracle and the SAP Defendants retained all defenses relatedstipulated to damages.
Trial commenceda judgment of $306 million against the SAP Defendants. We recorded a $306 million receivable in our consolidated balance sheet and we recognized a corresponding benefit to our results of operations for the first quarter of fiscal 2013. After further proceedings, including an appeal, on November 1, 2010. On November 2, 2010, the court approved a stipulation by the parties, pursuant to which SAP AG and SAP America, Inc. stipulated to liability for its own contributory infringement of 120 of14, 2014, final judgment was entered in Oracle’s copyrights. Following trial on the sole issue offavor in the amount of damages$356.7 million plus post-judgment interest of approximately $2.5 million. During the SAP Defendants should pay tosecond quarter of fiscal 2015, Oracle forreceived the admitted infringement,total payment of approximately $359.2 million, of which $306 million was applied against the jury awarded Oraclereceivable recorded in the sumfirst quarter of $1.3 billion. The amount has not been receivedfiscal 2013 and has not beenthe excess of $53 million was recorded as a benefit to our results of operations.
On February 23, 2011, the SAP Defendants filed a motion for judgment as a matter of law and for new trial, and on September 1, 2011, the court granted the SAP Defendants’ motion. The court vacated the $1.3 billion award and held that the maximum amount of damages sustainable by the proof presented at trial This action is $272 million. The court further held that Oracle may accept a remittitur of $272 million or, alternatively, the court will order a new trial as to the amount of actual damages in the form of lost profits and infringer’s profits.now concluded.
On September 23, 2011, Oracle filed a motion for certification of the order for immediate appeal, which the court denied on January 6, 2012. On February 6, 2012, Oracle rejected the remittitur and requested a new trial. The new trial, which will be to determine the amount of damages, is currently scheduled to commence on August 27, 2012, or as soon thereafter as the court is available.
On September 14, 2011, the SAP Subsidiary pled guilty to criminal copyright infringement and unauthorized access to a protected computer with intent to defraud. Under a plea agreement reached with the U.S. Attorney’s office, the SAP Subsidiary is required to pay a fine of $20 million to the United States, to pay restitution to Oracle in an amount to be determined through the pending civil action and to remain on probation for a term of three years.
Derivative Litigations and Related Action
On August 2, 2010, a stockholder derivative lawsuit was filed in the United States District Court for the Northern District of California. On August 19, 2010, a similar stockholder derivative lawsuit was filed in the Superior Court of the State of California, County of San Mateo. The derivative suits were brought by alleged stockholders of Oracle, purportedly on our behalf, against some of our current officers and directors and one officer and director who has since left the company. Plaintiffs allege that the officer and director defendants are responsible for certain alleged conduct in a qui tam action that had been filed against Oracle in the United States District Court for the Eastern District of Virginia. On July 29, 2010, the United States government filed a Complaint in
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 2012
Intervention in the qui tam action, alleging that Oracle made false and fraudulent statements to the General Services Administration (GSA) in 1997-98 regarding Oracle’s commercial pricing practices, discounts provided to Oracle’s commercial customers and discounts provided to government purchasers. On October 6, 2011, the parties signed a settlement agreement, which resolved the qui tam action without any admission of liability on the part of Oracle. Under the terms of the settlement, Oracle paid the United States $199.5 million and paid relator’s counsel $2 million for attorneys’ fees in exchange for a release of claims as set forth in the agreement. The court dismissed the qui tam action with prejudice on October 11, 2011.
Although the qui tam action has been dismissed, plaintiffs in the derivative suits allege that the officer and director defendants have exposed Oracle to reputational damage, potential monetary damages and costs relating to the investigation, defense and remediation of the underlying claims. Plaintiffs bring claims for breach of fiduciary duty, abuse of control and unjust enrichment. Following consolidation of the actions and plaintiffs’ filing of a consolidated complaint on February 10, 2011, Oracle moved to dismiss the complaint. On November 9, 2011, the court granted Oracle’s motion to dismiss and granted plaintiffs leave to file an amended complaint. The parties have agreed to mediate all disputes relating to this matter. Accordingly, the parties entered into a stipulated stay of this action, which the court signed on February 8, 2012.
On September 8, 2011, another stockholder derivative lawsuit based on the qui tam action was filed in the United States District Court for the Northern District of California, alleging similar theories and seeking similar relief as the consolidated cases mentioned above. This derivative suit was brought by an alleged stockholder of Oracle, purportedly on our behalf, against some of our current officers and directors. On October 4, 2011, and again on April 9, 2012, the court approved a stipulated stay of this action. The parties have agreed to mediate all disputes relating to this matter. Oracle believes that the claims in the qui tam action were meritless, that there are additional defenses to plaintiff’s bringing this action on Oracle’s behalf and that there are additional defenses to plaintiffs’ in the consolidated cases bringing that action on Oracle’s behalf.
On September 12, 2011, two alleged stockholders of Oracle filed a Verified Petition for Writ of Mandate for Inspection of Corporate Books and Records in the Superior Court of the State of California, County of San Mateo. The petition names as respondents Oracle and two of our officers. Citing the claims in a qui tam action (discussed above), the alleged stockholders claim that they are investigating alleged corporate mismanagement and alleged improper and fraudulent practices relating to the pricing of Oracle’s products supplied to the United States government. The alleged stockholders request that the court issue a writ of mandate compelling the inspection of certain of the company’s accounting books and records and minutes of meetings of the stockholders, the Board of Directors and the committees of the Board of Directors, related to those allegations, plus expenses of the audit and attorneys’ fees. On October 5, 2011, the alleged stockholders dismissed their claims against the two company officers and filed an Application for a Writ of Mandate in support of their previously filed Verified Petition. At a hearing on November 10, 2011, the court granted the alleged stockholders’ Application, which was confirmed in a judgment on December 12, 2011. Oracle filed a notice of appeal on February 2, 2012. The parties have agreed to mediate all disputes relating to this matter. Accordingly, the parties entered into a stipulated stay of further proceedings in the San Mateo Superior Court, which the court signed on February 6, 2012. Oracle believes that the claims in the qui tam action were meritless.
On June 5, 2012, the parties in the derivative actions discussed above and the Writ of Mandate action met with a mediator and, at the end of the mediation session, the parties agreed to continue discussing a potential resolution of these matters.
On September 30, 2011, a stockholder derivative lawsuit was filed in the Court of Chancery of the State of Delaware and a second stockholder was permitted to intervene as a plaintiff on November 15, 2011. The derivative suit is brought by two alleged stockholders of Oracle, purportedly on Oracle’s behalf, against our current directors, including against our Chief Executive Officer as an alleged controlling stockholder. Plaintiffs allege that Oracle’s directors breached their fiduciary duties in agreeing to purchase Pillar Data Systems, Inc. at
ORACLE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
May 31, 2012
an excessive price. Plaintiffs allege breach of fiduciary duty, aiding and abetting breach of fiduciary duty, waste of corporate assets and unjust enrichment. Plaintiffs seek an injunction of the Pillar Data transaction, rescission of the Pillar Data transaction, disgorgement of our Chief Executive Officer’s alleged profits and other declaratory and monetary relief. On January 13, 2012, plaintiffs filed an amended complaint. On February 29, 2012, defendants filed a motion to dismiss the amended complaint; plaintiffs filed an opposition on April 27, 2012; and defendants filed a reply on May 18, 2012. A hearing on this motion is scheduled for August 22, 2012.
While the outcome of the derivative litigations and the related action noted above 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.
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.
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 | Beginnning 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, 2010 | $ | 270 | $ | 143 | $ | (92 | ) | $ | (16 | ) | $ | 305 | ||||||||||||||||||||||||||||
May 31, 2013 | $ | 323 | $ | 118 | $ | (167 | ) | $ | 22 | $ | 296 | |||||||||||||||||||||||||||||
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May 31, 2011 | $ | 305 | $ | 164 | $ | (113 | ) | $ | 16 | $ | 372 | |||||||||||||||||||||||||||||
May 31, 2014 | $ | 296 | $ | 122 | $ | (120 | ) | $ | 8 | $ | 306 | |||||||||||||||||||||||||||||
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May 31, 2012 | $ | 372 | $ | 92 | $ | (107 | ) | $ | (34 | ) | $ | 323 | ||||||||||||||||||||||||||||
May 31, 2015 | $ | 306 | $ | 56 | $ | (86 | ) | $ | 9 | $ | 285 | |||||||||||||||||||||||||||||
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Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ORACLE CORPORATION | ||||||
Date: June | By: | / | ||||
Chief Executive Officer and Director | ||||||
(Principal Executive and Financial Officer) | ||||||
Date: June 25, 2015 | By: | /S/ MARK V. HURD | ||||
Mark V. Hurd | ||||||
Chief Executive Officer and Director | ||||||
(Principal Executive Officer) |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
Name | Title | Date | ||
/
| Chief Executive Officer and Director (Principal Executive and Financial Officer) | June 25, 2015 | ||
/S/ MARK V. HURD Mark V. Hurd | Chief Executive Officer and Director (Principal Executive Officer) | June | ||
| ||||
/S/ WILLIAM COREY WEST William Corey West | June | |||
/S/ LAWRENCE J. ELLISON Lawrence J. Ellison | Executive Chairman of the Board of Directors, Chief Technology Officer and Director | June 25, 2015 | ||
/S/ JEFFREY O. HENLEY Jeffrey O. Henley | Executive Vice Chairman of the Board of Directors | June | ||
/S/ JEFFREY S. BERG Jeffrey S. Berg | Director | June | ||
/S/ H. RAYMOND BINGHAM H. Raymond Bingham | Director | June | ||
/S/ MICHAEL J. BOSKIN Michael J. Boskin | Director | June | ||
/S/ BRUCE R. CHIZEN Bruce R. Chizen | Director | June | ||
/S/ GEORGE H. CONRADES George H. Conrades | Director | June | ||
/S/ HECTOR GARCIA-MOLINA Hector Garcia-Molina | Director | June | ||
/S/
| Director | June | ||
| ||||
/S/ NAOMI O. SELIGMAN Naomi O. Seligman | Director | June |
ORACLE CORPORATION
INDEX OF EXHIBITS
The following exhibits are filed herewith or are incorporated by reference to exhibits previously filed with the U.S. Securities and Exchange Commission.
Exhibit No. | Exhibit Description | Incorporated by Reference | Filed | |||||||||||
Form | File No. | Exhibit | Filing | Filed By | ||||||||||
3.01 | Amended and Restated Certificate of Incorporation of Oracle Corporation and Certificate of Amendment of Amended and Restated Certificate of Incorporation of Oracle Corporation | 8-K 12G3 | 000-51788 | 3.1 | 2/6/06 | Oracle Corporation | ||||||||
3.02 | Amended and Restated Bylaws of Oracle Corporation | 8-K | 000-51788 | 3.02 | 7/14/06 | Oracle Corporation | ||||||||
4.01 | Specimen Certificate of Registrant’s Common Stock | S-3 ASR | 333-166643 | 4.04 | 5/7/10 | Oracle Corporation | ||||||||
4.02 | Indenture dated January 13, 2006, among Ozark Holding Inc., Oracle Corporation and Citibank, N.A. | 8-K | 000-14376 | 10.34 | 1/20/06 | Oracle Systems Corporation | ||||||||
4.03 | Form of Old 2016 Note, together with the Officers’ Certificate issued January 13, 2006 pursuant to the Indenture dated January 13, 2006, among Oracle Corporation (formerly known as Ozark Holding Inc.) and Citibank, N.A. | 8-K | 000-14376 | 10.35 | 1/20/06 | Oracle Systems Corporation | ||||||||
4.04 | Form of New 5.25% Note due 2016 | S-4/A | 333-132250 | 4.4 | 4/14/06 | Oracle Corporation | ||||||||
4.05 | First Supplemental Indenture dated May 9, 2007 among Oracle Corporation, Citibank, N.A. and The Bank of New York Trust Company, N.A. | S-3 ASR | 333-142796 | 4.3 | 5/10/07 | Oracle Corporation | ||||||||
4.06 | Forms of 4.95% Note due 2013, 5.75% Note due 2018 and 6.50% Note due 2038, together with Officers’ Certificate issued April 9, 2008 setting forth the terms of the Notes | 8-K | 000-51788 | 4.09 | 4/8/08 | Oracle Corporation | ||||||||
4.07 | Forms of 3.75% Note due 2014, 5.00% Note due 2019 and 6.125% Note due 2039, together with Officers’ Certificate issued July 8, 2009 setting forth the terms of the Notes | 8-K | 000-51788 | 4.08 | 7/8/09 | Oracle Corporation | ||||||||
4.08 | Forms of Original 2020 Note and Original 2040 Note, together with Officers’ Certificate issued July 19, 2010 setting forth the terms of the Notes | 10-Q | 000-51788 | 4.08 | 9/20/10 | Oracle Corporation |
Exhibit | Exhibit Description | Incorporated by Reference | Filed Herewith | |||||||||||
Form | File No. | Exhibit | Filing Date | Filed By | ||||||||||
3.01 | Amended and Restated Certificate of Incorporation of Oracle Corporation and Certificate of Amendment of Amended and Restated Certificate of Incorporation of Oracle Corporation | 8-K 12G3 | 000-51788 | 3.1 | 2/6/06 | Oracle Corporation | ||||||||
3.02 | Amended and Restated Bylaws of Oracle Corporation | 8-K | 000-51788 | 3.02 | 7/14/06 | Oracle Corporation | ||||||||
4.01 | Specimen Certificate of Registrant’s Common Stock | S-3 ASR | 333-166643 | 4.04 | 5/7/10 | Oracle Corporation | ||||||||
4.02 | Indenture dated January 13, 2006, among Ozark Holding Inc., Oracle Corporation and Citibank, N.A. | 8-K | 000-14376 | 10.34 | 1/20/06 | Oracle Systems Corporation | ||||||||
4.03 | Form of Old 2016 Note, together with the Officers’ Certificate issued January 13, 2006 pursuant to the Indenture dated January 13, 2006, among Oracle Corporation (formerly known as Ozark Holding Inc.) and Citibank, N.A. | 8-K | 000-14376 | 10.35 | 1/20/06 | Oracle Systems Corporation | ||||||||
4.04 | Form of New 5.25% Note due 2016 | S-4/A | 333-132250 | 4.4 | 4/14/06 | Oracle Corporation | ||||||||
4.05 | First Supplemental Indenture dated May 9, 2007 among Oracle Corporation, Citibank, N.A. and The Bank of New York Trust Company, N.A. | S-3 ASR | 333-142796 | 4.3 | 5/10/07 | Oracle Corporation | ||||||||
4.06 | Forms of 5.75% Note due 2018 and 6.50% Note due 2038, together with Officers’ Certificate issued April 9, 2008 setting forth the terms of the Notes | 8-K | 000-51788 | 4.09 | 4/8/08 | Oracle Corporation | ||||||||
4.07 | Forms of 3.75% Note due 2014, 5.00% Note due 2019 and 6.125% Note due 2039, together with Officers’ Certificate issued July 8, 2009 setting forth the terms of the Notes | 8-K | 000-51788 | 4.08 | 7/8/09 | Oracle Corporation | ||||||||
4.08 | Forms of Original 2020 Note and Original 2040 Note, together with Officers’ Certificate issued July 19, 2010 setting forth the terms of the Notes | 10-Q | 000-51788 | 4.08 | 9/20/10 | Oracle Corporation | ||||||||
4.09 | Forms of New 2020 Note and New 2040 Note | S-4 | 333-176405 | 4.5 | 8/19/11 | Oracle Corporation |
Exhibit Description Incorporated by Reference Filed Form File No. Exhibit Filing Filed By Exhibit Exhibit Description Incorporated by Reference Filed Herewith Form File No. Exhibit Filing Date Filed By 4.10 4.11 4.12 4.13 4.14 10.01* 10.02* 10.03* 10.04* 10.05*Exhibit
No.
Here with
Date 4.09 Forms of New 2020 Note and New 2040 Note S-4 333-176405 4.5 8/19/11 Oracle Corporation 10.01* Oracle Corporation 1993 Deferred Compensation Plan, as amended and restated as of January 1, 2008 10-Q 000-51788 10.01 3/23/09 Oracle Corporation 10.02* Oracle Corporation Employee Stock Purchase Plan (1992), as amended and restated as of October 1, 2009 10-K 000-51788 10.02 7/1/10 Oracle Corporation 10.03* Oracle Corporation Amended and Restated 1993 Directors’ Stock Plan, as amended and restated on July 13, 2009 10-Q 000-51788 10.03 9/21/09 Oracle Corporation 10.04* Amended and Restated 2000 Long-Term Equity Incentive Plan, as approved on October 6, 2010 8-K 000-51788 10.30 10/13/10 Oracle Corporation 10.05* Form of Stock Option Agreements under the Amended and Restated 2000 Long-Term Equity Incentive Plan for U.S. Executive Vice Presidents and Section 16 Officers 10-Q 000-51788 10.05 12/23/11 Oracle Corporation 10.06* Form of Stock Option Agreement under the Oracle Corporation Amended and Restated 1993 Directors’ Stock Plan 10-Q 000-51788 10.06 12/23/11 Oracle Corporation 10.07* Form of Indemnity Agreement for Directors and Executive Officers 10-Q 000-51788 10.07 12/23/11 Oracle Corporation 10.08 Form of Commercial Paper Dealer Agreement relating to the $5,000,000,000 Commercial Paper Program 8-K 000-51788 10.2 2/9/06 Oracle Corporation 10.09 Issuing and Paying Agency Agreement between Oracle Corporation and JPMorgan Chase Bank, National Association dated as of February 3, 2006 8-K 000-51788 10.3 2/9/06 Oracle Corporation 10.10* Offer letter dated February 2, 2010 to John Fowler and employment agreement dated February 2, 2010 10-Q 000-51788 10.26 3/29/10 Oracle Corporation 10.11* Offer letter dated September 2, 2010 to Mark V. Hurd and employment agreement dated September 3, 2010 8-K 000-51788 10.28 9/8/10 Oracle Corporation 10.12* Oracle Corporation Executive Bonus Plan 8-K 000-51788 10.29 10/13/10 Oracle Corporation
No. Forms of 1.20% Note due 2017 and 2.50% Note due 2022, together with Officers’ Certificate issued October 25, 2012 setting forth the terms of the Notes 8-K 000-51788 4.10 10/25/12 Oracle Corporation Forms of 2.25% Note due 2021 and 3.125% Note due 2025, together with Officers’ Certificate issued July 10, 2013 setting forth the terms of the Notes 8-K 001-35992 4.11 7/10/13 Oracle Corporation Forms of Floating Rate Note due 2019, 2.375% Note due 2019 and 3.625% Note due 2023, together with Officers’ Certificate issued July 16, 2013 setting forth the terms of the Notes 8-K 001-35992 4.12 7/16/13 Oracle Corporation Forms of Floating Rate Note due 2017, Floating Rate Note due 2019, 2.25% Note due 2019, 2.80% Note due 2021, 3.40% Note due 2024, 4.30% Note due 2034 and 4.50% Note due 2044, together with Officers’ Certificate issued July 8, 2014 setting forth the terms of the Notes 8-K 001-35992 4.13 7/8/14 Oracle Corporation Forms of 2.50% Notes due 2022, 2.95% Notes due 2025, 3.25% Notes due 2030, 3.90% Notes due 2035, 4.125% Notes due 2045 and 4.375% Notes due 2055, together with Officers’ Certificate issued May 5, 2015 setting forth the terms of the Notes 8-K 001-35992 4.13 5/5/15 Oracle Corporation Oracle Corporation 1993 Deferred Compensation Plan, as amended and restated as of January 1, 2008 10-Q 000-51788 10.01 3/23/09 Oracle Corporation Oracle Corporation Employee Stock Purchase Plan (1992), as amended and restated as of October 1, 2009 10-K 000-51788 10.02 7/1/10 Oracle Corporation Oracle Corporation Amended and Restated 1993 Directors’ Stock Plan, as amended and restated on September 4, 2013 10-Q 001-35992 10.03 12/20/13 Oracle Corporation Amended and Restated 2000 Long-Term Equity Incentive Plan, as approved on October 31, 2013 10-Q 001-35992 10.04 12/20/13 Oracle Corporation Form of Stock Option Agreement under the Amended and Restated 2000 Long-Term Equity Incentive Plan for U.S. Executive Vice Presidents and Section 16 Officers 10-Q 000-51788 10.05 12/23/11 Oracle Corporation
Exhibit Exhibit Description Incorporated by Reference Filed Herewith Form File No. Exhibit Filing Date Filed By 10.06* 10.07* 10.08 10.09 10.10* 10.11* 10.12* 10.13* 10.14 10.15* 10.16* 10.17* 12.01 21.01 23.01 31.01
No. Form of Stock Option Agreement under the Oracle Corporation Amended and Restated 1993 Directors’ Stock Plan X Form of Indemnity Agreement for Directors and Executive Officers 10-Q 000-51788 10.07 12/23/11 Oracle Corporation Form of Commercial Paper Dealer Agreement relating to the $3,000,000,000 Commercial Paper Program 8-K 000-51788 10.2 2/9/06 Oracle Corporation Issuing and Paying Agency Agreement between Oracle Corporation and JPMorgan Chase Bank, National Association dated as of April 23, 2013 8-K 000-51788 10.09 4/26/13 Oracle Corporation Offer letter dated February 2, 2010 to John Fowler and employment agreement dated February 2, 2010 10-Q 000-51788 10.26 3/29/10 Oracle Corporation Offer letter dated September 2, 2010 to Mark V. Hurd and employment agreement dated September 3, 2010 8-K 000-51788 10.28 9/8/10 Oracle Corporation Oracle Corporation Executive Bonus Plan 8-K 000-51788 10.29 10/13/10 Oracle Corporation Sun Microsystems, Inc. 2007 Omnibus Incentive Plan 10-Q 000-15086 10.1 2/6/08 Sun Microsystems, Inc. $3,000,000,000 5-Year Revolving Credit Agreement dated as of April 22, 2013 among Oracle Corporation and the lenders and agents named therein 8-K 000-51788 10.14 4/26/13 Oracle Corporation Oracle Corporation Stock Unit Award Deferred Compensation Plan 10-Q 001-35992 10.15 9/23/14 Oracle Corporation Form of Performance-Based Stock Unit Award Agreement under the Amended and Restated 2000 Long-Term Equity Incentive Plan for Section 16 Officers 10-Q 001-35992 10.16 9/23/14 Oracle Corporation Form of Restricted Stock Unit Award Agreement under the Oracle Corporation Amended and Restated 1993 Directors’ Stock Plan X Consolidated Ratio of Earnings to Fixed Charges X Subsidiaries of the Registrant X Consent of Independent Registered Public Accounting Firm X Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer X
Exhibit | Exhibit Description | Incorporated by Reference | Filed Herewith | |||||||||||
Form | File No. | Exhibit | Filing | Filed By | ||||||||||
31.02 | ||||||||||||||
X | ||||||||||||||
32.01 | X | |||||||||||||
101 | Interactive Data Files Pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets as of May 31, | X |
* | Indicates management contract or compensatory plan or arrangement |
134141