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ORACLE : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

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09/18/2017 | 11:24pm CEST
We begin Management's Discussion and Analysis of Financial Condition and Results
of Operations with an overview of our businesses and significant trends. This
overview is followed by a summary of our critical accounting policies and
estimates that we believe are important to understanding the assumptions and
judgments incorporated in our reported financial results. We then provide a more
detailed analysis of our results of operations and financial condition.

Business Overview

Oracle Corporation provides products and services that address all aspects of
corporate information technology (IT) environments-applications, platform and
infrastructure. Our products are delivered to over 400,000 worldwide customers
through a variety of flexible and interoperable IT deployment models including
on-premise, cloud-based or hybrid that enable customer choice and that best meet
customer IT needs.

Our Oracle Cloud offerings provide a comprehensive and fully integrated stack of
applications, platform, compute, storage and networking services in all three
primary layers of the cloud: Software as a Service (SaaS), Platform as a Service
(PaaS) and Infrastructure as a Service (IaaS). Our on-premise IT offerings
include Oracle Applications, Oracle Database and Oracle Fusion Middleware
software, among others; hardware products including Oracle Engineered Systems,
servers, storage and industry-specific products, among others; and related
support and services. We provide our cloud and on-premise offerings to
businesses of many sizes, government agencies, educational institutions and
resellers with a sales force positioned to offer the combinations that best suit
customer needs.

Our comprehensive and fully integrated stack of Oracle Cloud SaaS, PaaS and IaaS
offerings integrate the software, hardware and services on the customers' behalf
in IT environments that we deploy, support and manage for the customer. Our
integrated Oracle Cloud offerings are designed to be rapidly deployable to
enable customers shorter time to innovation; easily maintainable to reduce
integration and testing work; connectable among differing deployment models to
enable interchangeability and extendibility between cloud and on-premise IT
environments; compatible to easily move workloads between on-premise IT
environments and the Oracle Cloud; cost-effective by requiring lower upfront
customer investment; and to be secure, standards-based and reliable. 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 providing a broad spectrum of cloud offerings, we develop and
sell our applications, platform and infrastructure products and services to our
customers worldwide for use in their global data centers and on-premise IT
environments. An important element of our corporate strategy is to continue our
investments in, and innovation with respect to, our products and services that
we offer through our cloud and on-premisesoftware, hardware and services
businesses. We have a deep understanding as to how applications, platform and
infrastructure technologies interact and function with one another within IT
environments. We focus our development efforts on improving the performance,
security, 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
the initial purchase of Oracle products and services, our customers can continue
to benefit from our research and development efforts and deep IT expertise by
purchasing and renewing Oracle support offerings for their on-premise
deployments, which may include unspecified product enhancements that we
periodically deliver to our products, and by renewing their cloud SaaS, PaaS and
IaaS contracts with us.

As customers deploy with the Oracle Cloud, many are adopting a hybrid IT model
whereby certain of their IT instances are deployed using the Oracle Cloud, while
other of their IT instances are deployed using Oracle on-premise offerings, with
both instances designed with capabilities to be managed as a single instance.
Our Oracle Cloud at Customer program provides another deployment option for
customers to utilize the Oracle Cloud Machine and Oracle Database Exadata Cloud
Machine to bring certain Oracle Cloud SaaS, PaaS and IaaS offerings to a
customer's on-premise IT environment to meet data sovereignty, data residency,
data protection



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and regulatory business policy requirements, among others, while benefiting from the many advantages of a cloud service.

A selective and active acquisition program is another important element of our
corporate strategy. We believe that our acquisitions enhance the products and
services that we can offer to customers, expand our customer base, provide
greater scale to accelerate innovation, grow our revenues and earnings, and
increase 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.

In recent periods, customer demand has increased at a greater rate for
cloud-based IT deployment models relative to on-premise IT deployment models. To
address this demand, we have increased our investments in and focus on the
development, marketing and sale of our cloud-based applications, platform and
infrastructure technologies resulting in higher growth of our cloud SaaS and
cloud PaaS and IaaS revenues as customer preferences have pivoted to the Oracle
Cloud for new deployments and as customers migrate to and expand with the Oracle
Cloud for their existing on-premise workloads. We expect these trends to
continue. We believe that offering customers broad, comprehensive, flexible and
interoperable deployment models for our applications, platform and
infrastructure technologies is important to our growth strategy and better
addresses customer needs relative to our competitors, many of whom provide fewer
offerings and more restrictive deployment models. We enable our customers to
evolve and transform to substantially any IT deployment model at whatever pace
is most appropriate for them.

We have three businesses: cloud and on-premise software; hardware; and services;
each of which comprises a single operating segment. Our chief operating decision
makers (CODMs), which include our Chief Executive Officers and Chief Technology
Officer, view the operating results of our three businesses and allocate
resources in a manner that is consistent with the changing market dynamics that
we have experienced in recent periods. As a result, during the fourth quarter of
fiscal 2017, we updated our operating segments. The discussion and analysis of
financial condition and results of operations presented below provides the
current view that is utilized by our CODMs to evaluate performance and determine
resource allocations and the prior period results presented below were recast to
conform to the current period's presentation. In addition to the discussion
below, Note 11 of Notes to Condensed Consolidated Financial Statements, included
elsewhere in this Quarterly Report, provides additional information related to
our businesses and operating segments, including the recasting of our segments'
financial information from prior periods to conform to the current year's
presentation.

Cloud and On-Premise Software Business

Our cloud and on-premise software line of business, which represented 80% of our
total revenues on a trailing 4-quarter basis, markets, sells and delivers a
broad spectrum of applications, platform and infrastructure technologies through
our cloud and on-premise software offerings.

Our Oracle Cloud SaaS, PaaS and IaaS offerings deliver applications, platform
and infrastructure technologies via cloud-based deployment models that we host,
manage and support and that customers access by entering into a subscription
agreement with us for a stated period. Our IaaS offerings also include Oracle
Managed Cloud Services, which are designed to provide comprehensive software and
hardware management, maintenance and security services for on-premise,
cloud-based, or hybrid IT infrastructure for a stated period. The majority of
our SaaS, PaaS and IaaS arrangements have an average duration of approximately
three years and we strive to renew these contracts when they are eligible for
renewal.

We offer customers the ability to license our software products including Oracle
Applications, Oracle Database, Oracle Fusion Middleware and Java, among others,
for on-premise and other IT environments. Our new software license transactions
are generally perpetual in nature and the timing of a few large software license
transactions can substantially affect our quarterly new software licenses
revenues, which is different than the typical revenue recognition pattern for
our cloud-based offerings in which revenues are generally recognized ratably
over the subscription period. New software license customers have the option to
purchase software license updates and product support contracts, which grant
rights to unspecified product upgrades and maintenance releases and patches
released during the term of the support period, as well as technical support
assistance. Our software



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license updates and product support contracts are generally one year in duration and are generally billed in advance of the service being performed and are generally recognized as revenues as the software support services are delivered.

Our cloud SaaS, cloud PaaS and IaaS revenues and new software licenses revenues
are affected by the strength of general economic and business conditions,
governmental budgetary constraints, the strategy for and competitive position of
our offerings, our acquisitions, our ability to deliver and renew our cloud
contracts with our existing customers and foreign currency rate fluctuations. In
recent periods, we have placed significant strategic emphasis on growing our
cloud SaaS and cloud PaaS and IaaS revenues, which represented 16% and 11% our
total consolidated revenues during the first quarter of fiscal 2018 and 2017,
respectively. This emphasis has affected the growth of our new software licenses
revenues and, to a lesser extent, has also affected the growth of our software
license updates and product support revenues. We expect these trends will
continue with the mix of this business' revenues continuing to shift toward
cloud-based services.

Our software license updates and product support revenues growth is primarily
influenced by four factors: (1) the percentage of our software support contract
customer base that renews its software support contracts; (2) the pricing of new
software support contracts sold in connection with the sale of new software
licenses; (3) the pricing of new software licenses sold; and (4) the amount of
software support contracts assumed from companies we have acquired.
Substantially all of our customers purchase software license updates and product
support contracts when they acquire on-premise new software licenses and renew
their software license updates and product support contracts when eligible in
order to benefit from Oracle's research and development investments that are
utilized as a part of unspecified periodic software updates that may be released
and that customers with current software support contracts are entitled to.

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

• expected growth in our cloud SaaS offerings and our cloud PaaS and IaaS

        offerings;




    •   continued demand for our on-premise software products and related software

support, including the high percentage of customers that purchase and renew

        their software license updates and product support contracts; and




  •   contributions from our acquisitions.


We believe all of these factors should contribute to future growth in our cloud
and on-premise software revenues, which should enable us to continue to make
investments in research and development to develop and improve our cloud and
on-premise software products and services.

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

Hardware Business

Our hardware business, which represented 11% of our total revenues on a trailing
4-quarter basis, provides a broad selection of hardware products and
hardware-related software products including Oracle Engineered Systems, servers,
storage, industry-specific hardware, virtualization software, operating systems,
and management software that are generally recognized as revenues upon delivery
to the customer provided all other revenue recognition criteria are met, and
also include related hardware support. We expect to make investments in research
and development to improve existing hardware products and services and to
develop new hardware products and services. The majority of our hardware
products are sold through indirect channels, including independent distributors
and value-added resellers. Our hardware support offerings provide customers with
software updates for software components that are essential to the functionality
of our hardware products, such as Oracle Solaris and certain other software
products, and can include product repairs, maintenance services and technical
support services. Hardware support contracts are generally priced as a
percentage of the net hardware products fees and are generally recognized as
revenues as the hardware support services are delivered.



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

Our quarterly hardware revenues are difficult to predict. Our hardware revenues,
cost of hardware and hardware operating margins that we report are affected by:
our ability to timely manufacture or deliver a few large hardware transactions;
our strategy for and the competitive position of our hardware products relative
to competitor offerings; customer demand for competing offerings such as PaaS
and IaaS; the strength of general economic and business conditions; governmental
budgetary constraints; whether customers decide to purchase hardware support
contracts at or in close proximity to the time of hardware product sale; the
percentage of our hardware support contract customer base that renews its
support contracts and the close association between hardware products, which
have a finite life, and customer demand for related hardware support as hardware
products age; customer decisions to either maintain or upgrade their existing
hardware infrastructure to newly developed technologies that are available;
certain of our acquisitions; and foreign currency rate fluctuations.

Services Business

Our services business helps customers and partners maximize the performance of
their investments in Oracle applications, platform and infrastructure
technologies. We believe that our services are differentiated based on our focus
on Oracle technologies, extensive experience, and broad sets of intellectual
property and best practices. Our services offerings include consulting services,
advanced support services and education services and represented 9% of our total
revenues on a trailing 4-quarter basis. Our services business has lower margins
than our cloud and on-premise software and hardware businesses. Our services
revenues are impacted by our strategy for and the competitive position of our
services; customer demand for our cloud and on-premise software and hardware
offerings and the associated services for these offerings; our strategic
emphasis on growing our cloud revenues; certain of our acquisitions; general
economic conditions; governmental budgetary constraints; personnel reductions in
our customers' IT departments; and tighter controls over discretionary spending.

Acquisitions

Our 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 NetSuite Inc. in the second quarter of fiscal 2017.

We expect to continue to acquire companies, products, services and technologies
in furtherance of our corporate strategy. Note 2 of Notes to Condensed
Consolidated Financial Statements included elsewhere in this Quarterly Report
provides additional information related to our recent acquisitions.

We believe that we can fund any 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 (ASC), and
we consider the various staff accounting bulletins and other applicable guidance
issued by the U.S. Securities and Exchange Commission. GAAP, as set forth within
the ASC, requires us to make certain estimates, judgments and assumptions. We
believe that the estimates, judgments and assumptions upon which we rely are
reasonable based upon information available to us at the time that these
estimates, judgments and assumptions are made. These estimates, judgments and
assumptions can affect the reported amounts of assets and liabilities as of the
date of the financial statements as well as the reported amounts of revenues and
expenses during the periods presented. To the extent that there are differences
between these estimates, judgments or assumptions and actual results, our
financial statements will be affected. The accounting policies that reflect our



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more significant estimates, judgments and assumptions and which we believe are the most critical to aid in fully understanding and evaluating our reported financial results include:


  •   Revenue Recognition;




  •   Business Combinations;




  •   Goodwill and Intangible Assets-Impairment Assessments;




  •   Accounting for Income Taxes; and




  •   Legal and Other Contingencies.


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 our critical accounting policies and related
disclosures with the Finance and Audit Committee of the Board of Directors.

During the first quarter of fiscal 2018, there were no significant changes to
our critical accounting policies and estimates. Management's Discussion and
Analysis of Financial Condition and Results of Operations contained in Part II,
Item 7 of our Annual Report on Form 10-K for our fiscal year ended May 31, 2017
provides a more complete discussion of our critical accounting policies and
estimates.

Results of Operations

Impacts of Acquisitions

The comparability of our operating results in the first quarter of fiscal 2018
compared to the same period of fiscal 2017 was impacted by our recent
acquisitions, including our acquisition of NetSuite Inc. during the second
quarter of fiscal 2017. In our discussion of changes in our results of
operations from the first quarter of fiscal 2018 compared to the same period of
fiscal 2017, we may qualitatively disclose the impact of our acquired products
and services (for the one-year period subsequent to the acquisition date) to the
growth in certain of our businesses' 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 provide
quantitative disclosures related to such acquired products and services. Expense
contributions from our recent acquisitions for each of the respective period
comparisons may not be separately identifiable due to the integration of these
businesses 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
any quantified amounts themselves, may provide indications of general trends,
any acquisition information that we provide has inherent limitations for the
following reasons:


• any 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 and services sold would

        have been different; and



• although substantially all of our on-premise 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 SaaS, PaaS and IaaS contracts, the

amounts shown as cloud and on-premise software deferred revenues in our

"Supplemental Disclosure Related to Certain Charges" (presented below) are

        not necessarily indicative of revenue improvements we will achieve upon
        contract renewals to the extent customers do not renew.

Seasonality

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. In each fiscal year,

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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, in particular, our cloud and on-premise software business and
hardware business, are generally affected by seasonal factors in a similar
manner as our revenues as certain expenses within our cost structure are
relatively fixed in the short term.

Presentation of Operating Segment Results and Other Financial Information

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

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

Consistent with our internal management reporting processes, the below operating
segment presentation includes revenues adjustments related to cloud and
on-premise software contracts that would have otherwise been recorded by the
acquired businesses as independent entities but were not recognized in our
consolidated statements of operations for the periods presented due to business
combination accounting requirements. Refer to "Supplemental Disclosure Related
to Certain Charges" below for additional discussion of these items and Note 11
of Notes to Condensed Consolidated Financial Statements included elsewhere in
this Quarterly Report for a reconciliation of the summations of our total
operating segment revenues as presented in the discussion below to total
revenues as presented per our condensed consolidated statements of operations
for all periods presented.

In addition, research and development expenses, general and administrative
expenses, stock-based compensation expenses, amortization of intangible assets,
certain other expense allocations, acquisition related and other expenses,
restructuring expenses, interest expense, non-operating income, net and
provision for income taxes are not attributed to our operating segments because
our management does not view the performance of our businesses including such
items and/or it is impractical to do so. Refer to "Supplemental Disclosure
Related to Certain Charges" below for additional discussion of certain of these
items and Note 11 of Notes to Condensed Consolidated Financial Statements
included elsewhere in this Quarterly Report for a reconciliation of the
summations of total segment margin as presented in the discussion below to total
income before provision of income taxes as presented per our condensed
consolidated statements of operations for all periods presented.

Constant Currency Presentation

Our international operations have provided and are expected to continue to
provide a significant portion of each of our businesses' revenues and expenses.
As a result, each businesses' revenues and expenses and our total revenues and
expenses will continue to be affected by changes in the U.S. Dollar against
major international currencies. In order to provide a framework for assessing
how our underlying businesses performed excluding the effects of foreign
currency rate fluctuations, we compare the percent change in the results from
one period to another period in this Quarterly Report using constant currency
disclosure. To present this information, current and comparative prior period
results for entities reporting in currencies other than U.S. Dollars are
converted into U.S. Dollars at constant exchange rates (i.e., the rates in
effect on May 31, 2017, 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 August 31, 2017 and 2016, our financial statements would
reflect reported revenues of $1.20 million in the first quarter of fiscal 2018
(using 1.20 as the month-end average exchange rate for the period) and
$1.11 million in the first quarter of fiscal 2017 (using 1.11 as the month-end
average exchange rate for the period). The constant currency presentation,
however, would translate the results for the first quarter of fiscal 2018 and
2017 using the May 31, 2017 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.



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Total Revenues and Operating Expenses



                                                Three Months Ended August 31,
                                                       Percent Change
     (Dollars in millions)             2017         Actual       Constant        2016
     Total Revenues by Geography:
     Americas                        $   5,173           7%             7%     $   4,817
     EMEA(1)                             2,539           5%             2%         2,413
     Asia Pacific(2)                     1,475           8%             8%         1,365

     Total revenues                      9,187           7%             6%         8,595
     Total Operating Expenses            6,366           7%             6%         5,954

     Total Operating Margin          $   2,821           7%             6%     $   2,641

     Total Operating Margin %              31%                                       31%
     % Revenues by Geography:
     Americas                              56%                                       56%
     EMEA                                  28%                                       28%
     Asia Pacific                          16%                                       16%
     Total Revenues by Business:
     Cloud and on-premise software   $   7,384           9%             8%     $   6,791
     Hardware                              943          -5%            -6%           996
     Services                              860           6%             5%           808

     Total revenues                  $   9,187           7%             6%     $   8,595

     % Revenues by Business:
     Cloud and on-premise software         81%                                       79%
     Hardware                              10%                                       12%
     Services                               9%                                        9%



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

(2) The Asia Pacific region includes Japan


Excluding the effects of foreign currency rate variations, our total revenues
increased in the first quarter of fiscal 2018 due to growth in our cloud and
on-premise software revenues and services revenues, partially offset by a
decrease in our hardware revenues. The constant currency increase in our cloud
and on-premisesoftware revenues during the first quarter of fiscal 2018 was
attributable to growth in our cloud SaaS and cloud PaaS and IaaS revenues,
growth in our software license updates and product support revenues, and revenue
contributions from our recent acquisitions, and was partially offset by a
decrease in our new software licenses revenues. The constant currency increase
in our services revenues during the first quarter of fiscal 2018 was primarily
attributable to our recent acquisitions. The constant currency decrease in our
hardware revenues during the first quarter of fiscal 2018 was due to reductions
in our hardware products revenues and hardware support revenues as we continued
to place emphasis on the development, marketing and sale of our cloud-based
infrastructure technologies. In constant currency, the Americas region
contributed 67%, the EMEA region contributed 11% and the Asia Pacific region
contributed 22% to the growth in our total revenues during the first quarter of
fiscal 2018.

Excluding the effects of foreign currency rate variations, our total operating
expenses increased during the first quarter of fiscal 2018 relative to the prior
year period due to higher cloud SaaS and cloud PaaS and IaaS expenses resulting
primarily from increased headcount and infrastructure expenses to support the
increase in our cloud SaaS and cloud PaaS and IaaS revenues; higher sales and
marketing expenses, which were primarily attributable to increased headcount in
our cloud and on-premise software business; increased stock-based compensation
expenses; and higher intangible asset amortization due to additional
amortization from intangible assets that we acquired in connection with our
acquisition of NetSuite and other recently acquired companies. These constant
currency expense increases in the first quarter of fiscal 2018 were partially
offset by lower hardware product costs and lower employee related expenses for
our hardware business due to lower hardware



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revenues; and lower software support costs due primarily to lower headcount;
each in the first quarter of fiscal 2018 relative to the corresponding prior
year period.

In constant currency, our total operating margin increased during the first
quarter of fiscal 2018, relative to the first quarter of fiscal 2017, due to the
increase in our total revenues, and our total operating margin as a percentage
of total revenues for the first quarter of fiscal 2018 was flat as compared to
the first quarter of fiscal 2017.

Supplemental Disclosure Related to Certain Charges

To supplement our condensed consolidated financial information, we believe that
the following information is helpful to an overall understanding of our past
financial performance and prospects for the future. 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 reported pursuant to GAAP included the following business
combination accounting adjustments and expenses related to acquisitions, as well
as certain other expense and income items that (increased) or reduced our GAAP
net income:



                                                            Three Months Ended
                                                                August 31,
   (in millions)                                           2017           2016

Cloud and on-premise software deferred revenues(1) $ 25 $

18

Acquired deferred sales commissions amortization(2) (11 )

-

   Amortization of intangible assets(3)                        411          

311

   Acquisition related and other(4)(6)                          12          

14

   Restructuring(5)                                            124          

99

   Stock-based compensation, operating segments(6)             124          

86

   Stock-based compensation, R&D and G&A(6)                    278            233
   Income tax effects(7)                                      (512 )         (258 )

                                                         $     451      $     503





(1)  In connection with our acquisitions, we have estimated the fair values of

the cloud SaaS and cloud PaaS and IaaS subscription obligations assumed. Due

to our application of business combination accounting rules, we did not

recognize the cloud SaaS and cloud PaaS and IaaS, revenue amounts as

presented in the above table that would have otherwise been recorded by the

acquired businesses as independent entities upon delivery of the contractual

obligations. To the extent customers for which these contractual obligations

pertain renew these contracts with us, we expect to recognize revenues for

the full contracts' values over the respective contracts' renewal periods.

(2) Certain acquired companies capitalized sales commissions associated with

subscription agreements and amortized these amounts over the related

contractual terms. Business combination accounting rules generally require

us to eliminate these acquired capitalized sales commissions balances as of

the acquisition date and our post-combination GAAP sales and marketing

expenses generally do not reflect the amortization of these acquired

deferred sales commissions balances. This adjustment is intended to include,

and thus reflect, the full amount of amortization related to such balances

     as though the acquired companies operated independently in the periods
     presented.



(3) Represents the amortization of intangible assets, substantially all of which

were acquired in connection with our acquisitions. As of August 31, 2017,

     estimated future amortization expenses related to intangible assets were as
     follows (in millions):




                                          Remainder of fiscal 2018       $   1,179
                                          Fiscal 2019                        1,408
                                          Fiscal 2020                        1,207
                                          Fiscal 2021                        1,021
                                          Fiscal 2022                          918
                                          Fiscal 2023                          567
                                          Thereafter                           886

                                          Total intangible assets, net   $   7,186





(4)  Acquisition related and other expenses primarily consist of personnel
     related costs and stock-based compensation expenses for transitional and

certain other employees, integration related professional services, certain

     business combination adjustments including certain adjustments after the
     measurement period has ended and certain other operating items, net.




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Table of Contents (5) Restructuring expenses during the first quarter of fiscal 2018 and 2017

primarily related to employee severance in connection with our Fiscal 2017

Oracle Restructuring Plan (2017 Restructuring Plan). Additional information

regarding certain of our restructuring plans is provided in the discussion

below under "Restructuring Expenses", Note 6 of Notes to Condensed

Consolidated Financial Statements included elsewhere in this Quarterly

Report, and in Note 9 of Notes to Consolidated Financial Statements included

in our Annual Report on Form 10-K for the fiscal year ended May 31, 2017.

(6) Stock-based compensation was included in the following operating expense

     line items of our condensed consolidated statements of operations (in
     millions):




                                                             Three Months Ended
                                                                 August 31,
                                                           2017               2016
        Cloud SaaS                                     $          9       $          5
        Cloud PaaS and IaaS                                       2                  1
        Software license updates and product support              7                  6
        Hardware                                                  3                  3
        Services                                                 14                  8
        Sales and marketing                                      89                 63

        Stock-based compensation, operating segments            124                 86
        Research and development                                234                195
        General and administrative                               44                 38
        Acquisition related and other                             1                  -

        Total stock-based compensation                 $        403       $        319


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.

(7) 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 the first quarter of

fiscal 2018 and 2017 were calculated based on the applicable jurisdictional

tax rates applied to the items within the table above and resulted in

effective tax rates of 25.0% and 25.5%, respectively, instead of 14.5% and

22.8%, respectively, which represented our effective tax rates as derived

per our condensed consolidated statements of operations, primarily due to

the net tax effects for stock-based compensation expense and acquisition

related items, including the tax effects of amortization of intangible

assets.

Cloud and On-Premise Software Business

Our cloud and on-premise software business engages in the sale, marketing and
delivery of our cloud SaaS and cloud PaaS and IaaS offerings and the licensing
of our software for on-premise and other IT environments with the option to
purchase software license updates and product support contracts. Our cloud SaaS
and cloud PaaS and IaaS offerings are generally subscription based and generally
recognized as revenues over the subscription period. New software licenses
revenues represent fees earned from granting customers licenses, generally on a
perpetual basis, to use our database and middleware and our applications
software products within on-premise and other IT environments and are generally
recognized when unrestricted access to the software license is granted provided
all other revenue recognition criteria are met. Software license updates and
product support revenues are typically generated through the sale of software
support contracts related to on-premise new software licenses purchased by our
customers at their option and are generally recognized as revenues ratably over
the contractual term. We continue to place significant emphasis, both
domestically and internationally, on direct sales through our own sales force.
We also continue to market our offerings through indirect channels. Costs
associated with our cloud and on-premise software business are included in cloud
SaaS, PaaS and IaaS expenses, software license updates and product support
expenses, and sales and marketing expenses. These costs are largely personnel
and infrastructure related including the cost of providing our cloud SaaS, PaaS,
IaaS and software support offerings, salaries and commissions earned by our
sales force for the sale of our cloud and software offerings, and marketing
program costs.



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                                                           Three Months Ended August 31,
                                                                   Percent Change
(Dollars in millions)                            2017          Actual        Constant         2016
Cloud and On-Premise Software Revenues:
Americas(1)                                    $   4,277           10%             10%      $  3,895
EMEA(1)                                            2,020            6%              3%         1,903
Asia Pacific(1)                                    1,112           10%             10%         1,011

Total revenues(1)                                  7,409            9%              8%         6,809
Expenses:
Cloud SaaS, PaaS and IaaS(2)                         580           45%             44%           401
Software license updates and product
support(2)                                           240           -6%             -7%           257
Sales and marketing(2)                             1,684            6%              4%         1,596

Total expenses(2)                                  2,504           11%             10%         2,254

Total Margin                                   $   4,905            8%              7%      $  4,555

Total Margin %                                       66%                                         67%
% Revenues by Geography:
Americas                                             58%                                         57%
EMEA                                                 27%                                         28%
Asia Pacific                                         15%                                         15%
Revenues by Offerings:
Cloud software as a service(1)                 $   1,089           62%             61%      $    674
Cloud platform as a service and
infrastructure as a service(1)                       403           29%             28%           312
New software licenses                                966           -6%             -7%         1,030
Software license updates and product
support(1)                                         4,951            3%      

2% 4,793

Total cloud and on-premise software
revenues(1)                                    $   7,409            9%      

8% $ 6,809

% Revenues by Offerings:
Cloud software as a service(1)                       15%                                         10%
Cloud platform as a service and
infrastructure as a service(1)                        5%                                          5%
New software licenses                                13%                                         15%
Software license updates and product
support(1)                                           67%                                         70%



(1) Includes cloud and on-premise software revenue adjustments related to

certain cloud and software support contracts that would have otherwise been

recorded as revenues by the acquired businesses as independent entities but

were not recognized in our GAAP-based consolidated statements of operations

     for the periods presented due to business combination accounting
     requirements. Such revenue adjustments were included in our operating
     segment results for purposes of reporting to and review by our CODMs. See

"Presentation of Operating Segment Results and Other Financial Information"

     above for additional information.



(2) Excludes stock-based compensation and certain allocations. Also excludes

amortization of intangible assets and certain other GAAP-based expenses,

which were not allocated to our operating segment results for purposes of

reporting to and review by our CODMs, as further described under

"Presentation of Operating Segment Results and Other Financial Information"

above.


Excluding the effects of currency rate fluctuations, total revenues from our
cloud and on-premise software business increased in the first quarter of fiscal
2018 relative to the corresponding prior year period due to growth in our cloud
SaaS and cloud PaaS and IaaS revenues, growth in our software license updates
and product support revenues and revenue contributions from our recent
acquisitions, including our acquisition of NetSuite. These increases in revenues
during the first quarter of fiscal 2018 were partially offset by decreases in
our new software licenses revenues. The increases in our cloud SaaS and cloud
PaaS and IaaS revenues and decreases in our new software licenses revenues
during the first quarter of fiscal 2018 were primarily due to the continued
strategic emphasis we placed on selling, marketing and growing our cloud
offerings and we expect these revenue trends will continue. The increase in our
first quarter of fiscal 2018 software license updates and product support
revenues was a result of substantially all customers electing to purchase
software support contracts in conjunction with their purchase of new software
licenses, and due to the renewal of substantially all of the software support
customer base eligible for renewal during the trailing 4-quarter period. During
the first quarter



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of fiscal 2018, the Americas, EMEA and Asia Pacific regions contributed constant currency regional growth of 70%, 11% and 19%, respectively.

In constant currency, total cloud and on-premise software expenses increased in
the first quarter of fiscal 2018 primarily due to higher cloud SaaS, PaaS and
IaaS expenses resulting primarily from increased headcount and technology
infrastructure expenses that were incurred to support the related cloud SaaS and
cloud PaaS and IaaS revenues increases; and higher sales and marketing expenses
resulting from increased headcount. These expense increases were partially
offset by lower software license updates and product support expenses during the
first quarter of fiscal 2018 due primarily to lower employee related expenses
resulting from lower headcount.

Excluding the effects of currency rate fluctuations, our cloud software and
on-premise software segment's total margin increased during the first quarter of
fiscal 2018 due to the increase in revenues. In constant currency, total margin
as a percentage of revenues decreased during the first quarter of fiscal 2018
relative to the first quarter of fiscal 2017 as our total expenses grew at a
faster rate than our total revenues for this business.

Hardware Business

Our hardware business revenues are generated from the sales of our Oracle
Engineered Systems, computer server, storage, and industry-specific hardware
products for on-premise IT environments that are generally recognized as
revenues upon delivery to the customer provided all other revenue recognition
criteria are met. Our hardware business also earns revenues from the sale of
hardware support contracts purchased by our customers at their option and are
generally recognized as revenues ratably as the services are delivered over the
contractual term. The majority of our hardware products are sold through
indirect channels such as independent distributors and value-added resellers and
we also market and sell our hardware products through our direct sales force.
Operating expenses associated with our hardware business include the cost of
hardware products, which consists of expenses for materials and labor used to
produce these products by our internal manufacturing operations or by
third-party manufacturers, warranty expenses and the impact of periodic changes
in inventory valuation, including the impact of inventory determined to be
excess and obsolete; the cost of materials used to repair customer products; the
cost of labor and infrastructure to provide support services; and sales and
marketing expenses, which are largely personnel related and include variable
compensation earned by our sales force for the sales of our hardware offerings.



                                                 Three Months Ended August 31,
                                                          Percent Change
  (Dollars in millions)                 2017           Actual       Constant        2016
  Hardware Revenues:
  Americas                           $      485            -8%            -8%     $     527
  EMEA                                      271            -1%            -4%           274
  Asia Pacific                              187            -4%            -4%           195

  Total revenues                            943            -5%            -6%           996
  Expenses:
  Hardware products and support(1)          366            -4%            -5%           381
  Sales and marketing(1)                    170           -15%           -16%           203

  Total expenses(1)                         536            -8%            -9%           584

  Total Margin                       $      407            -1%            -2%     $     412

  Total Margin %                            43%                                         41%
  % Revenues by Geography:
  Americas                                  51%                                         53%
  EMEA                                      29%                                         28%
  Asia Pacific                              20%                                         19%



(1) Excludes stock-based compensation and certain allocations. Also excludes

amortization of intangible assets and certain other GAAP-based expenses,

which were not allocated to our operating segment results for purposes of

reporting to and review by our CODMs, as further described under

"Presentation of Operating Segments and Other Financial Information" above.



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Excluding the effects of currency rate fluctuations, total hardware revenues
decreased in the first quarter of fiscal 2018, relative to the first quarter of
fiscal 2017, due to our continued emphasis on the development, marketing and
sale of our cloud-based infrastructure technologies, which resulted in reduced
sales volumes of most of our on-premise hardware product lines during the first
quarter of fiscal 2018 and also impacted the volume of customers that purchase
hardware support contracts.

Excluding the effects of currency rate fluctuations, total hardware products
expenses decreased in the first quarter of fiscal 2018, relative to the first
quarter of fiscal 2017, due primarily to lower hardware products costs and lower
employee related expenses, which aligned to lower hardware revenues.

In constant currency, total margin for our hardware segment decreased on a
constant currency basis in comparison to the corresponding prior year period
primarily due to the decrease in our total revenues for this segment. In
constant currency, total margin as a percentage of revenues increased for our
hardware segment in the first quarter of fiscal 2018 due to lower expenses.

Services Business

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



                                             Three Months Ended August 31,
                                                      Percent Change
      (Dollars in millions)         2017           Actual       Constant        2016
      Services Revenues:
      Americas                   $      435             5%             5%     $     413
      EMEA                              248             6%             3%           236
      Asia Pacific                      177            11%            12%           159

      Total revenues                    860             6%             6%           808
      Total Expenses(1)                 665             0%            -1%           665

      Total Margin               $      195            37%            38%     $     143

      Total Margin %                    23%                                         18%
      % Revenues by Geography:
      Americas                          51%                                         51%
      EMEA                              29%                                         29%
      Asia Pacific                      20%                                         20%



(1) Excludes stock-based compensation and certain allocations. Also excludes

certain other GAAP-based expenses, which were not allocated to our operating

     segment results for purposes of reporting to and review by our CODMs, as
     further described under "Presentation of Operating Segments and Other
     Financial Information" above.


Excluding the effects of currency rate fluctuations, our total services revenues
increased in the first quarter of fiscal 2018 relative to the first quarter of
fiscal 2017 due to constant currency increases in our consulting revenues, which
were primarily attributable to our recent acquisitions. During the first quarter
of fiscal 2018, the Americas, EMEA and Asia Pacific regions contributed constant
currency regional growth of 37%, 17% and 46%, respectively.

In constant currency, total services expenses increased during the first quarter
of fiscal 2018 primarily due to an increase in headcount related expenses
associated with our consulting offerings, primarily attributable to higher
consulting expense contributions from our recent acquisitions. These constant
currency expense increases during the first quarter of fiscal 2018 were
partially offset due to a $30 million charge recorded during the first quarter
of fiscal 2017 which increased our expenses in the corresponding prior year
period.

In constant currency, total services margin and total margin as a percentage of
total services revenues increased in the first quarter of fiscal 2018, relative
to the first quarter of fiscal 2017, primarily due to the increase in



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revenues in the first quarter of fiscal 2018 and the $30 million charge that was recorded during the first quarter of fiscal 2017.

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



                                               Three Months Ended August 31,
                                                      Percent Change
      (Dollars in millions)           2017         Actual       Constant        2016
      Research and development(1)   $   1,340           1%             0%     $   1,325
      Stock-based compensation            234          20%            20%           195

      Total expenses                $   1,574           4%             3%     $   1,520

      % of Total Revenues                 17%                                       17%



(1) Excluding stock-based compensation


On a constant currency basis, total research and development expenses increased
during the first quarter of fiscal 2018 relative to the corresponding prior year
period primarily due to higher stock-based compensation.

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


                                                Three Months Ended August 31,
                                                         Percent Change
    (Dollars in millions)              2017           Actual       Constant        2016
    General and administrative(1)   $      276             0%            -1%     $     277
    Stock-based compensation                44            16%            16%            38

    Total expenses                  $      320             2%             1%     $     315

    % of Total Revenues                     3%                                          4%



(1) Excluding stock-based compensation


On a constant currency basis, total general and administrative expenses
increased during the first quarter of fiscal 2018 relative to the corresponding
prior year period due primarily to increased employee related expenses
associated with higher headcount and higher stock-based compensation expenses,
partially offset by lower professional services expenses that were primarily
legal related.

Amortization of Intangible Assets:  Substantially all of our intangible assets
are acquired through our business combinations. We amortize our intangible
assets over, and monitor the appropriateness of, the estimated useful lives of
these assets. We also periodically review these intangible assets for potential
impairment based upon relevant facts and circumstances. Note 5 of Notes to
Condensed Consolidated Financial Statements included elsewhere in this Quarterly
Report has additional information regarding our intangible assets and related
amortization.



                                                            Three Months Ended August 31,
                                                                     Percent Change
(Dollars in millions)                             2017           Actual        Constant         2016
Developed technology                           $      190            40%             40%      $     136
SaaS, PaaS and IaaS agreements and related
relationships                                         151           140%            140%             63
Software support agreements and related
relationships                                          31            -3%             -3%             32
Other                                                  39           -51%            -51%             80

Total amortization of intangible assets        $      411            32%             32%      $     311





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Amortization of intangible assets increased during the first quarter of fiscal 2018 relative to the corresponding prior year period due to additional amortization from intangible assets that we acquired in connection with our recent acquisitions, primarily our acquisition of NetSuite.

Acquisition Related and Other Expenses:  Acquisition related and other expenses
consist of personnel related costs and stock-based compensation for transitional
and certain other employees, integration related professional services, and
certain business combination adjustments including certain adjustments after the
measurement period has ended and certain other operating items, net. Stock-based
compensation expenses included in acquisition related and other expenses
resulted from unvested restricted stock-based awards and stock options assumed
from acquisitions whereby vesting was accelerated upon termination of the
employees pursuant to the original terms of those restricted stock-based awards
and stock options.



                                                                 Three Months Ended August 31,
                                                                          Percent Change
(Dollars in millions)                                2017            Actual         Constant           2016
Transitional and other employee related costs     $         9            15%              12%       $        8
Stock-based compensation                                    1              *                *                -
Professional fees and other, net                            3           -33%             -33%                5
Business combination adjustments, net                      (1 )        -256%            -239%                1

Total acquisition related and other expenses $ 12 -17%

             -17%       $       14





* Not meaningful


On a constant currency basis, acquisition related and other expenses decreased
in the first quarter of fiscal 2018 primarily due to lower professional fees and
the favorable impacts of business combination adjustments.

Restructuring Expenses:  Restructuring expenses resulted from the execution of
management approved restructuring plans that were generally developed to improve
our cost structure and/or operations, often in conjunction with our acquisition
integration strategies. 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 6 of Notes to Condensed
Consolidated Financial Statements included elsewhere in this Quarterly Report
and Note 9 of Notes to Consolidated Financial Statements included in our Annual
Report on Form 10-K for the fiscal year ended May 31, 2017.



                                            Three Months Ended August 31,
                                                    Percent Change
       (Dollars in millions)      2017           Actual       Constant         2016
       Restructuring expenses   $     124             25%           22%     $       99



Restructuring expenses in the first quarter of fiscal 2018 and 2017 primarily
related to our 2017 Restructuring Plan. Our management approved, committed to
and initiated the 2017 Restructuring Plan in order to restructure and further
improve efficiencies in our operations. In the first quarter of fiscal 2018, our
management supplemented the 2017 Restructuring Plan in to reflect additional
actions that we expect to take. The total estimated restructuring costs
associated with the 2017 Restructuring Plan are up to $1.1 billion and will be
recorded to the restructuring expense line item within our condensed
consolidated statements of operations as they are incurred. The total estimated
remaining restructuring costs associated with the 2017 Restructuring Plan were
approximately $475 million as of August 31, 2017 and the majority of the
remaining costs are expected to be incurred through the end of fiscal 2018. Our
estimated costs are subject to change in future periods.

The majority of the initiatives undertaken by our 2017 Restructuring Plan were
effected to implement our continued move toward developing, marketing and
selling our cloud-based offerings. These initiatives impacted certain of our
sales and marketing and research and development operations that supported our
on-premise business. Cost savings that are expected to be realized pursuant to
our 2017 Restructuring Plan initiatives are primarily expected to be offset by
investments in resources and geographies that best address the development,
marketing and sale of our cloud-based offerings as customer preferences pivot to
the Oracle Cloud.



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Interest Expense:



                                            Three Months Ended August 31,
                                                     Percent Change
        (Dollars in millions)      2017           Actual       Constant    
   2016
        Interest expense        $      469            13%            13%     $     416



Interest expense increased in the first quarter of fiscal 2018, relative to the
first quarter of fiscal 2017, primarily due to higher average borrowings
resulting from our issuance of $14.0 billion of senior notes in July 2016. This
increase in interest expense during the first quarter of fiscal 2018 was
partially offset by a reduction in interest expense resulting from the maturity
and repayment of $1.0 billion of floating rate senior notes in July 2017.

Non-Operating Income, net:  Non-operating income, net consists primarily of
interest income, net foreign currency exchange gains (losses), the
noncontrolling interests in the net profits of our majority-owned subsidiaries
(primarily Oracle Financial Services Software Limited and Oracle 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.



                                                  Three Months Ended August 31,
                                                           Percent Change
(Dollars in millions)                   2017            Actual       Constant        2016
Interest income                      $      257             45%            45%     $     177
Foreign currency losses, net                 (4 )          -65%           -70%           (13 )
Noncontrolling interests in income          (47 )           32%            32%           (35 )
Other income (loss), net                     27             37%            37%            19

Total non-operating income, net      $      233             57%            

57% $ 148

On a constant currency basis, our non-operating income, net for the first quarter of fiscal 2018 increased, relative to the first quarter of fiscal 2017, primarily due to higher interest income resulting from higher cash, cash equivalent and short-term investment balances and higher interest rates.

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 certain
earnings considered as indefinitely reinvested in foreign operations, state
taxes, the U.S. research and development tax credit, settlements with tax
authorities, the tax effects of stock-based compensation and the U.S. domestic
production activity deduction. Future effective tax rates could be adversely
affected by an unfavorable shift of earnings weighted to jurisdictions with
higher tax rates, by unfavorable changes in tax laws and regulations, by adverse
rulings in tax related litigation, or by shortfalls in stock-based compensation
realized by employees relative to stock-based compensation that was recorded for
book purposes, among others.



                                              Three Months Ended August 31,
                                                     Percent Change
      (Dollars in millions)          2017         Actual       Constant         2016
      Provision for income taxes   $     375         -31%           -31%     $      541

      Effective tax rate               14.5%                                      22.8%


Provision for income taxes in the first quarter of fiscal 2018 decreased,
relative to the first quarter of fiscal 2017 in substantial part to the
favorable impact of excess tax benefits recognized on stock-based compensation
expense and a favorable change in jurisdictional mix of our earnings recognized
in the first quarter of fiscal 2018. This favorable impact was partially offset
by higher income before provision for income tax during the first quarter of
fiscal 2018.



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Liquidity and Capital Resources


                                                   August 31,                   May 31,
(Dollars in millions)                                 2017         Change         2017
Working capital                                    $    53,109          6%     $   50,337
Cash, cash equivalents and marketable securities   $    66,897          1%  

$ 66,078


Working capital:  The increase in working capital as of August 31, 2017 in
comparison to May 31, 2017 was primarily due to the favorable impacts to our net
current assets resulting from our net income during the first quarter of fiscal
2018 and proceeds from stock option exercises. These favorable working capital
movements were partially offset by cash used for repurchases of our common stock
and cash used to pay dividends to our stockholders during the first quarter of
fiscal 2018. Our working capital may be impacted by some or all of the
aforementioned factors in future periods, the amounts and timing of which are
variable.

Cash, cash equivalents and marketable securities:  Cash and cash equivalents
primarily consist of deposits held at major banks, Tier-1 commercial paper and
other securities with original maturities of 90 days or less. Marketable
securities consist of Tier-1 commercial paper debt securities, corporate debt
securities and certain other securities. The increase in cash, cash equivalents
and marketable securities at August 31, 2017 in comparison to May 31, 2017 was
primarily due to cash inflows generated by our operations and cash inflows from
stock option exercises during the first quarter of fiscal 2018 and were
partially offset by certain cash outflows, primarily the repayment of
$4.8 billion of borrowings, repurchases of our common stock, payments of cash
dividends to our stockholders and cash used for capital expenditures. Cash, cash
equivalents and marketable securities included $58.3 billion held by our foreign
subsidiaries as of August 31, 2017, a significant portion of which was generated
from the earnings of these foreign subsidiaries that we consider as indefinitely
reinvested in our foreign operations outside the United States. These
undistributed earnings that are considered as indefinitely reinvested overseas
would be subject to U.S. income tax if 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 loss in our condensed
consolidated balance sheets and is also presented as a line item in our
condensed consolidated statements of comprehensive income included elsewhere in
this Quarterly Report). As the U.S. Dollar generally weakened against certain
major international currencies during the first quarter fiscal 2018, the amount
of cash, cash equivalents and marketable securities that we reported in U.S.
Dollars for these subsidiaries increased on a net basis as of August 31, 2017
relative to what we would have reported using constant currency rates from the
May 31, 2017 balance sheet date.

Days sales outstanding, which we calculate by dividing period end accounts
receivable by average daily sales for the quarter, was 35 days at August 31,
2017 compared with 44 days at May 31, 2017. The days sales outstanding
calculation excludes the impact of any revenue adjustments resulting from
business combinations that reduced our acquired cloud and on-premise software
obligations to fair value.



                                                            Three Months Ended August 31,
(Dollars in millions)                                     2017          Change         2016
Net cash provided by operating activities              $     6,566          12%     $    5,875
Net cash used for investing activities                 $    (1,818 )       

-65% $ (5,203 ) Net cash (used for) provided by financing activities $ (5,441 ) 171% $ 7,712


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. Over the course
of a fiscal year, we also have historically generated cash from the sales of new
software licenses, cloud SaaS, PaaS and IaaS offerings, hardware offerings and
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 products, taxes and leased facilities.



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Net cash provided by operating activities increased during the first quarter of fiscal 2018 due primarily to higher net income during the first quarter of fiscal 2018 relative to the corresponding prior year period.

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

Net cash used for investing activities decreased in the first quarter of fiscal
2018 relative to the first quarter of fiscal 2017 primarily due to a decrease in
cash used to purchase marketable securities and other investments, net of
proceeds received from sales and maturities and a decrease in cash used for
acquisitions, net of cash acquired.

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

Net cash used in financing activities in the first quarter of fiscal 2018 was
$5.4 billion in comparison to net cash provided by financing activities of
$7.7 billion during the first quarter of fiscal 2017. The change in financing
activities cash flows in the first quarter of fiscal 2018 relative to the
corresponding prior year period was primarily related to debt related cash flows
for which we had debt repayments of $4.8 billion in the first quarter of fiscal
2018 in comparison to $10.2 billion of cash inflows form borrowings, net of
repayments, in the first quarter of fiscal 2017. These unfavorable financing
cash flows during the first quarter of fiscal 2018 relative to the corresponding
prior year period were partially offset by higher cash inflows from stock option
exercises and lower cash outflows related to stock repurchases, each during the
first quarter of fiscal 2018 relative to the corresponding prior year period.

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



                                                            Trailing 4-Quarters Ended August 31,
(Dollars in millions)                                       2017              Change          2016
Net cash provided by operating activities              $       14,817               8%     $   13,679
Capital expenditures                                           (2,195 )     

111% (1,042 )

Free cash flow                                         $       12,622               0%     $   12,637

Net income                                             $        9,713                      $    8,986

Free cash flow as percent of net income                          130%                            141%


Long-Term Customer Financing:  We offer certain of our customers the option to
acquire our software products, hardware products and services offerings through
separate long-term payment contracts. We generally sell these contracts that we
have financed for our customers on a non-recourse basis to financial
institutions within 90 days of the contracts' dates of execution. We generally
record the transfers of amounts due from customers to financial institutions as
sales of financing receivables because we are considered to have surrendered
control of these financing receivables. We financed $191 million and
$107 million, respectively, or approximately 20% and 10%, respectively, of our
new software licenses revenues in the first quarters of fiscal 2018 and 2017.

Contractual Obligations:  During the first quarter of fiscal 2018, there were no
significant changes to our estimates of future payments under our fixed
contractual obligations and commitments as presented in Part II, Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations included in our Annual Report on Form 10-K for our fiscal year ended
May 31, 2017.

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



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Table of Contents

addition, we believe that 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 are material to investors.

Restricted Stock-Based Awards and Stock Options

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

We recognize that restricted stock-based awards and stock options dilute
existing stockholders and have sought to control the number of stock-based
awards granted while providing competitive compensation packages. Consistent
with these dual goals, our cumulative potential dilution since June 1, 2014 has
been a weighted-average annualized rate of 1.2% per year. The potential dilution
percentage is calculated as the average annualized new restricted stock-based
awards or stock options granted and assumed, net of restricted stock-based
awards and stock options forfeited by employees leaving the company, divided by
the weighted-average outstanding shares during the calculation period. This
maximum potential dilution will only result if all restricted stock-based awards
vest and all stock options are exercised. Of the outstanding stock options at
August 31, 2017, which generally have a ten-year exercise period, 14.9% have
exercise prices higher than the market price of our common stock on such date.
In recent years, our stock repurchase program has more than offset the dilutive
effect of our stock-based compensation program. However, we have recently
reduced the level of our stock repurchases and we may modify the levels of our
stock repurchases in the future depending on a number of factors, including the
amount of cash we have available for acquisitions, to pay dividends, to repay or
repurchase indebtedness or for other purposes. At August 31, 2017, the maximum
potential dilution from all outstanding restricted stock-based awards and
unexercised stock options, regardless of when granted and regardless of whether
vested or unvested and including stock options where the strike price is higher
than the market price as of such date, was 10.8%.

Recent Accounting Pronouncements

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

© Edgar Online, source Glimpses

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Financials ($)
Sales 2018 39 632 M
EBIT 2018 17 639 M
Net income 2018 10 400 M
Finance 2018 13 773 M
Yield 2018 1,43%
P/E ratio 2018 19,73
P/E ratio 2019 18,40
EV / Sales 2018 4,70x
EV / Sales 2019 4,32x
Capitalization 200 B
Chart ORACLE CORPORATION
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Technical analysis trends ORACLE CORPORATION
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Income Statement Evolution
Consensus
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Mean consensus OUTPERFORM
Number of Analysts 34
Average target price 56,1 $
Spread / Average Target 16%
EPS Revisions
Managers
NameTitle
Safra Ada Catz Co-Chief Executive Officer & Director
Mark V. Hurd Co-Chief Executive Officer & Director
Lawrence Joseph Ellison Executive Chairman & Chief Technology Officer
Karl Braitberg Senior Vice President-Worldwide Operation
Mark E. Sunday Chief Information Officer & Senior Vice President
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