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

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06/22/2018 | 10:14pm 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 applications, platform and infrastructure offerings are
delivered to customers worldwide through a variety of flexible and interoperable
IT deployment models, including cloud-based, on-premise, or hybrid, which enable
customer choice and flexibility. We market and sell our offerings globally to
businesses of many sizes, government agencies, educational institutions and
resellers with a worldwide sales force that is employed by our domestic and
international subsidiaries and is positioned to offer the combinations that best
meet customer needs.

We have three businesses: cloud and license; hardware; and services; each of
which comprises a single operating segment. The descriptions set forth below as
a part of Management's Discussion and Analysis of Financial Condition and
Results of Operations and the information contained within Note 15 of Notes to
Consolidated Financial Statements included elsewhere in this Annual Report
provide additional information related to our businesses and operating segments
and align as to how our chief operating decision makers (CODMs), which include
our Chief Executive Officers and Chief Technology Officer, view our operating
results and allocate resources.

Cloud and License Business

Our cloud and license line of business, which represented 82%, 80% and 78% of
our total revenues in fiscal 2018, 2017 and 2016, respectively, markets, sells
and delivers a broad spectrum of applications, platform and infrastructure
technologies through our cloud and license offerings.

Cloud services and license support revenues include:

• license support revenues, which is our largest revenues stream. Oracle

license support grants rights to unspecified product upgrades and

maintenance releases and patches released during the term of the support

period, as well as technical support assistance. Substantially all of our

customers opt to purchase license support contracts when they purchase

Oracle applications, platform and/or infrastructure licenses and

substantially all customers renew their license support contracts annually

in order to continue to benefit from Oracle's research and development

investments that are utilized as a part of unspecified periodic license

updates that may be released and that customers with current license

support contracts are entitled to. Our license support contracts are

generally priced as a percentage of the net fees paid by the customer to

access the license, are generally billed in advance of the support services

        being performed and are generally recognized as revenues ratably as the
        support services are delivered over the contractual terms; and




    •   cloud services revenues, which includes revenues from Oracle Cloud
        Software-as-a-Service (SaaS), Platform-as-a-Service (PaaS) and
        Infrastructure-as-a-Service (IaaS) offerings (collectively, Oracle Cloud
        Services), which deliver applications, platform and infrastructure
        technologies, respectively, via cloud-based deployment models that we

develop functionality for, 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 customer cloud-based,

hybrid IT or other IT infrastructure for a fee for a stated term. The

majority of our Oracle Cloud Services arrangements have durations of 12 to

        36 months and are generally recognized as revenues ratably over the
        contractual period of the contract or, in the case of usage model
        contracts, as the cloud services are consumed. We strive to renew these
        cloud services contracts when they are eligible for renewal.




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Cloud license and on-premise license revenues include revenues from the
licensing of our software products including Oracle Applications, Oracle
Database, Oracle Fusion Middleware and Java, among others which our customers
use for cloud-based, on-premise and other IT environments. Our cloud license and
on-premise license transactions are generally perpetual in nature and are
generally recognized when unrestricted access to the license is granted to the
customer provided all other revenue recognition criteria are met. The timing of
a few large license transactions can substantially affect our quarterly license
revenues, which is different than the typical revenue recognition pattern for
our cloud services and license support revenues in which revenues are generally
recognized ratably over the contractual periods. Cloud license and on-premise
license customers have the option to purchase license support contracts, as
described above.

Providing choice and flexibility to our customers as to when and how they deploy
our applications, platform and infrastructure technologies is an important
element of our corporate strategy. In recent periods, customer demand has
increased for our Oracle Cloud Services. To address customer demand and enable
customer choice, we have introduced certain programs for customers to pivot
their applications, platform and infrastructure licenses and license support to
the Oracle Cloud for new deployments and to migrate to and expand with the
Oracle Cloud for their existing workloads. We expect these trends to continue.

Our cloud services revenues growth and our cloud license and on-premise license
revenues growth 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 services contracts with our existing customers and foreign currency
rate fluctuations. Our license support revenues growth is primarily influenced
by three factors: (1) the continuity of substantially all of our license support
customer contract base renewing their license support contracts and
substantially all customers continuing to purchase license support contracts in
connection with their purchase of a new license; (2) the pricing of license
support contracts sold in connection with the sale of new licenses; and (3) the
pricing of new licenses sold. Customers do so in order to benefit from Oracle's
research and development investments that are utilized as a part of unspecified
periodic license updates that may be released and that customers with current
license support contracts are entitled to.

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

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

        including the high percentage of customers that purchase and renew their
        license support contracts;



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



  •   contributions from our acquisitions.


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

Our cloud and license business' margin has historically trended upward over the
course of the four quarters within a particular fiscal year due to the
historical upward trend of our cloud license and on-premise license 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 10%, 11% and 13% of our total revenues
in fiscal 2018, 2017 and 2016, respectively, provides a broad selection of
hardware products and hardware-related software products including Oracle
Engineered Systems, servers, storage, industry-specific hardware, operating
systems, virtualization, management and other hardware related software, and
related hardware support. Hardware transactions are generally recognized as
revenues upon delivery to the customer provided all other revenue recognition
criteria are met. Our hardware business also offers 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,



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including independent distributors and value-added resellers. Our hardware
support offerings provide customers with unspecified software updates for
software components that are essential to the functionality of our hardware
products and associated software products such as Oracle Solaris. Our hardware
support offerings can also include product repairs, maintenance services and
technical support services. Hardware support contracts are entered into at the
option of the customer, are generally priced as a percentage of the net hardware
products fees and are generally recognized as revenues ratably as the hardware
support services are delivered over the contractual terms.

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

Our quarterly hardware revenues are difficult to predict. Our hardware revenues,
cost of hardware and hardware operating margins that we report are affected by,
among others: our ability to timely manufacture or deliver a few large hardware
transactions; our strategy for and the 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 8% of our total
revenues in fiscal 2018 and 9% of our total revenues in each of fiscal 2017 and
2016. Our services business has lower margins than our cloud and license and
hardware businesses. Our services revenues are impacted by, among others: our
strategy for, and the competitive position of, our services; customer demand for
our cloud and license 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 in fiscal 2017.

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 that we can fund our future acquisitions with our internally
available cash, cash equivalents and marketable securities, cash generated from
operations, additional borrowings or from the issuance of additional securities.
We estimate the financial impact of any potential acquisition with regard to
earnings, operating margin, cash 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

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



  •   Revenue Recognition;




  •   Business Combinations;




  •   Goodwill and Intangible Assets-Impairment Assessments;




  •   Accounting for Income Taxes; and




  •   Legal and Other Contingencies.


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.

Revenue Recognition

Our sources of revenues include:

• cloud and license revenues, which include the sale of: cloud services and

license support; and cloud license and on-premise licenses, which represent

licenses purchased by customers for use in both cloud and on-premise

        deployments;



• hardware revenues, which include the sale of hardware products including

Oracle Engineered Systems, servers, storage, industry-specific hardware;

        and hardware support revenues; and



• services revenues, which are earned from providing cloud-, license- and

hardware-related services including consulting, advanced customer support

and education services.

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

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

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

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



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

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

We enter into arrangements with customers that purchase non-software related
products and services from us at the same time, or within close proximity of one
another (referred to as non-software multiple-element arrangements). Each
element within a non-software multiple-element arrangement is accounted for as a
separate unit of accounting provided the following criteria are met: the
delivered products or services have value to the customer on a standalone basis;
and for an arrangement that includes a general right of return relative to the
delivered products or services, delivery or performance of the undelivered
product or service is considered probable and is substantially controlled by us.
We consider a deliverable to have standalone value if the product or service is
sold separately by us or another vendor or could be resold by the customer.
Further, our revenue arrangements generally do not include a general right of
return relative to the delivered products. Where the aforementioned criteria for
a separate unit of accounting are not met, the deliverable is combined with the
undelivered element(s) and treated as a single unit of accounting for the
purposes of allocation of the arrangement consideration and revenue recognition.
For those units of accounting that include more than one deliverable but are
treated as a single unit of accounting, we generally recognize revenues over the
contractual period of the arrangement, or in the case of our cloud services
offerings, we generally recognize revenues over the contractual term of the
cloud services subscription. For the purposes of revenue classification of the
elements that are accounted for as a single unit of accounting, we allocate
revenue to the respective revenue line items within our consolidated statements
of operations based on a rational and consistent methodology utilizing our best
estimate of relative selling prices of such elements.

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

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

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

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



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

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

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

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

Revenue Recognition for Multiple-Element Arrangements-Arrangements with Software and Non-softwareElements

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

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

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



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

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

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

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

Our customers include several of our suppliers and, occasionally, we have
purchased goods or services for our operations from these vendors at or about
the same time that we have sold our products to these same companies (Concurrent
Transactions). Cloud license and on-premise license agreements, sales of
hardware or sales of services that occur within a common period from the date we
have purchased goods or services from that same customer are reviewed for
appropriate accounting treatment and disclosure. When we acquire goods or
services from a customer, we negotiate the purchase separately from any sales
transaction, at terms we consider to be at arm's length and settle the purchase
in cash. We recognize revenues from Concurrent Transactions if all of our
revenue recognition criteria are met and the goods and services acquired are
necessary for our current operations.

Business Combinations

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



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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,
pre-acquisition contingencies and any contingent consideration, where
applicable. Although we believe that 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. 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 services and license support, and
hardware obligations assumed as part of an acquisition. 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 these assumed obligations plus a normal profit
margin. The estimated costs to fulfill the assumed 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 of our fair value estimates
for these obligations, we did not recognize certain cloud services and license
support revenue amounts and hardware revenue amounts that would have been
otherwise recorded by the acquired businesses as independent entities upon
delivery of the contractual obligations (refer to "Supplemental Disclosure
Related to Certain Charges" below for further discussion). To the extent
customers to 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.

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 pursuant to ASC 420, Exit or Disposal
Cost Obligations. A liability for costs associated with an exit or disposal
activity is recognized and measured at its fair value in our consolidated
statement of operations in the period in which the liability is incurred. When
estimating the fair value of facility restructuring activities, assumptions are
applied regarding estimated sub-lease payments to be received, which can differ
materially from actual results. This may require us to revise our initial
estimates which may materially affect our results of operations and financial
position in the period the revision is made.

For a given acquisition, we may identify certain pre-acquisition contingencies
as of the acquisition date and may extend our review and evaluation of these
pre-acquisition contingencies throughout the measurement period in order to
obtain sufficient information to assess whether we include these contingencies
as a part of the fair value estimates of assets acquired and liabilities assumed
and, if so, to determine their estimated amounts.

If we cannot reasonably determine the fair value of a pre-acquisition
contingency (non-income tax related) by the end of the measurement period, which
is generally the case given the nature of such matters, we will recognize an
asset or a liability for such pre-acquisition contingency if: (1) it is probable
that an asset existed or a liability had been incurred at the acquisition date
and (2) the amount of the asset or liability can be reasonably estimated.
Subsequent to the measurement period, changes in our estimates of such
contingencies will affect earnings and could have a material effect on our
results of operations and financial position.



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

Goodwill and Intangible 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. According to ASC 350, we can opt
to perform a qualitative assessment to test a reporting unit's goodwill for
impairment or we can directly perform the quantitative impairment test. Should
the qualitative assessment be used for any given fiscal year, qualitative
factors to consider include cost factors; financial performance; legal,
regulatory, contractual, political, business, or other factors; entity specific
factors; industry and market considerations, macroeconomic conditions, and other
relevant events and factors affecting the reporting unit. If we determine that
it is more likely than not that the fair value of the reporting unit is less
than its carrying value, a quantitative test is then performed; otherwise, no
further testing is required. For those reporting units tested using a
quantitative approach, we compare the fair value of each reporting unit with the
carrying amount of the reporting unit, including goodwill. If the estimated fair
value of the reporting unit is less than the carrying amount of the reporting
unit, goodwill impairment is recognized for the difference, limited to the
amount of goodwill recognized for the reporting unit.

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
the determination of appropriate market comparables. We base our fair value
estimates on assumptions which we believe to be reasonable but that are
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.

Our most recent annual goodwill impairment analysis, which was performed on March 1, 2018, did not result in a goodwill impairment charge, nor did we recognize an impairment charge in fiscal 2017 or 2016.

We make judgments about the recoverability of purchased finite lived intangible
assets whenever events or changes in circumstances indicate that 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.
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 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 that 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 2018, 2017 or 2016.

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



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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.

On December 22, 2017 the U.S. Tax Cuts and Jobs Act of 2017 (the Tax Act), was
signed into law. The net expense related to the enactment of the Tax Act has
been accounted for during fiscal 2018 based on provisional estimates pursuant to
the SEC Staff Accounting Bulletin No. 118. Subsequent adjustments, if any, will
be accounted for in the period such adjustments are identified. The provisional
estimates incorporate, among other factors, assumptions made based on
interpretations of the Tax Act and existing tax laws and a range of historical
and forecasted financial and tax-specific facts and information, including,
without limitation, the amount of cash and other specified assets anticipated to
be held by the company's foreign subsidiaries on relevant dates and estimates of
deferred tax balances during interim periods pending finalization of those
balances.

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 record deferred tax assets for stock-based compensation awards that result in
deductions on certain of our income tax returns based on the amount of
stock-based compensation recognized and the fair values attributable to the
vested portion of stock awards assumed in connection with a business combination
at the statutory tax rates in the jurisdictions that we are able to recognize
such tax deductions. The impacts of the actual tax deductions for stock-based
awards that are realized in these jurisdictions are generally recognized to our
consolidated statements of operations in the period that a restricted
stock-based award vests or a stock option is exercised with any
shortfall/windfall relative to the deferred tax asset established recorded as a
discrete detriment/benefit to our provision for income taxes in this period.
Such detriment/benefit can materially impact our reported effective tax rate for
fiscal 2018 and prospective periods.

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 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. Although
we believe that



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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.

Results of Operations

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

The comparability of our operating results in fiscal 2018 compared to the
corresponding prior year periods, and of our consolidated balance sheets as of
May 31, 2018 relative to May 31, 2017, was impacted by the U.S. Tax Cuts and
Jobs Act of 2017 (the Tax Act), which was signed into law on December 22, 2017.
Effective January 1, 2018, the Tax Act reduces the U.S. federal corporate tax
rate from 35% to 21%; creates a quasi-territorial tax system that a) generally
allows, among other provisions, companies to repatriate certain foreign source
earnings without incurring additional U.S. income tax for such earnings
generated after December 31, 2017 and b) generally requires companies to pay a
one-time transition tax on certain foreign subsidiary earnings generated prior
to December 31, 2017 that, in substantial part, were previously tax deferred;
creates new taxes on certain foreign sourced earnings; limits deductibility of
certain future compensation arrangements to certain highly compensated
employees; and provides tax incentives for the exportation of U.S. products to
foreign jurisdictions and for the purchase of qualifying capital equipment,
among other provisions.

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

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


$7.8 billion of income tax expense, which we refined by a $166 million

increase as of May 31, 2018 from our initial estimate made in our third

quarter of fiscal 2018 in accordance with SEC Staff Accounting Bulletin

No. 118 (SAB 118), related to the application of the one-time transition

tax to certain foreign subsidiary earnings that were generated prior to

December 31, 2017 and for which such expense was substantially recorded to

non-current income taxes payable in our consolidated balance sheet and

corresponds to the amount we currently expect to periodically settle over

an eight year period as provided by the Tax Act;

partially offset by:


$820 million of income tax benefit, which we refined by a $76 million

increase as of May 31, 2018 from our initial estimate made in our third

quarter of fiscal 2018 in accordance with SAB 118, related to the

remeasurement of our net deferred tax liabilities based on the rates at

        which they are expected to reverse in the future; and



• the net favorable impacts of the Tax Act on our tax profile and effective

        tax rate beginning on January 1, 2018, which we generally expect will
        continue into future periods.


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

We expect the enactment of the Tax Act to generally provide greater flexibility
for us to access and utilize our cash, cash equivalent and marketable securities
balances held by certain of our foreign subsidiaries as of January 1, 2018, as
well as for prospective assets generated by these foreign subsidiaries' future
earnings and profits. We believe we have sufficient cash, cash equivalent and
marketable securities balances, as well as access to other capital resources, if
required, to settle the $7.8 billion one-time transition tax described above.

Impacts of Acquisitions

The comparability of our operating results in fiscal 2018 compared to fiscal
2017 and in fiscal 2017 compared to fiscal 2016 was impacted by our recent
acquisitions, including our acquisition of NetSuite during the second quarter of
fiscal 2017. In our discussion of changes in our results of operations from
fiscal 2018 compared to fiscal 2017 and fiscal 2017 compared to fiscal 2016, 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




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• the amounts shown as cloud services and license support deferred revenues

and hardware 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.

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

Consistent with our internal management reporting processes, the below operating
segment presentation includes revenues adjustments related to cloud services and
license support contracts and hardware 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 15 of Notes to Consolidated Financial
Statements included elsewhere in this Annual 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 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 three operating segments
because our management does not view the performance of our three businesses
including such items and/or it is impractical to do so. Refer to "Supplemental
Disclosure Related to Certain Charges" below for additional discussion of
certain of these items and Note 15 of Notes to Consolidated Financial Statements
included elsewhere in this Annual 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 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 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, 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 May 31, 2018 and 2017, our financial statements would reflect
reported revenues of $1.16 million in fiscal 2018 (using 1.16 as the month-end
average exchange rate for the period) and $1.11 million in fiscal 2017 (using
1.11 as the month-end average exchange rate for the period). The constant
currency presentation,



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however, would translate the fiscal 2018 results using the fiscal 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.

Total Revenues and Operating Expenses


                                                                           Year Ended May 31,
                                                       Percent Change                             Percent Change
(Dollars in millions)                  2018         Actual       Constant         2017         Actual       Constant         2016
Total Revenues by Geography:
Americas                            $   22,088           5%             5%     $   21,038           3%             3%     $   20,466
EMEA(1)                                 11,410           7%             1%         10,630          -2%             2%         10,881
Asia Pacific(2)                          6,333           4%             3%          6,060           6%             4%          5,700

Total revenues                          39,831           6%             3%         37,728           2%             3%         37,047
Total Operating Expenses                26,152           5%             3%         25,018           2%             3%         24,443

Total Operating Margin              $   13,679           8%             5%     $   12,710           1%             2%     $   12,604

Total Operating Margin %                   34%                                        34%                                        34%
% Revenues by Geography:
Americas                                   55%                                        56%                                        55%
EMEA                                       29%                                        28%                                        29%
Asia Pacific                               16%                                        16%                                        16%
Total Revenues by Business:
Cloud and license                   $   32,444           7%             5%     $   30,218           4%             5%     $   28,990
Hardware                                 3,993          -4%            -6%          4,152         -11%           -10%          4,668
Services                                 3,394           1%            -1%          3,358          -1%             1%          3,389

Total revenues                      $   39,831           6%             3%     $   37,728           2%             3%     $   37,047

% Revenues by Business:
Cloud and license                          82%                                        80%                                        78%
Hardware                                   10%                                        11%                                        13%
Services                                    8%                                         9%                                         9%




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




(2)  The Asia Pacific region includes Japan


Fiscal 2018 Compared to Fiscal 2017:  Excluding the effects of currency rate
fluctuations, our total revenues increased in fiscal 2018 primarily due to
growth in our cloud and license revenues, partially offset by decreases in our
hardware revenues and services revenues. The constant currency increase in our
cloud and license revenues during fiscal 2018 was attributable to growth in our
cloud services and license support revenues as customers purchased our
applications, platform and infrastructure technologies via cloud and license
deployment models and renewed their related contracts to continue to gain access
to our latest technology and support services. To a lesser extent, our cloud and
license revenues also increased due to revenue contributions from our recent
acquisitions. The constant currency decrease in our hardware revenues during
fiscal 2018 was due to the reduction in our hardware products revenues and
hardware support revenues primarily due to the emphasis we placed on the
marketing and sale of our cloud and license technologies. The constant currency
decrease in our services revenues during fiscal 2018 was attributable to
declines in our education and advanced customer support services revenues. In
constant currency, the Americas, EMEA and Asia Pacific regions contributed 78%,
10% and 12%, respectively, to the growth in our fiscal 2018 total revenues.

Excluding the effects of currency rate fluctuations, our total operating
expenses increased during fiscal 2018 primarily due to higher cloud services and
license support expenses resulting primarily from increased headcount and
infrastructure expenses to support the increases in our revenues; higher sales
and marketing expenses related to our cloud and license business; increased
stock-based compensation expenses; higher general and administrative expenses;
increased restructuring expenses; and higher intangible asset amortization.
These constant currency expense increases were partially offset by certain
expense decreases in fiscal 2018, which primarily consisted of lower research
and development expenses primarily related to lower



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employee expenses; and lower hardware products costs and a related decrease in hardware sales and marketing costs, both of which aligned to lower hardware revenues.

In constant currency, our total operating margin increased during fiscal 2018 primarily due to the increase in revenues and total operating margin as a percentage of total revenues remained flat.

Fiscal 2017 Compared to Fiscal 2016:  Excluding the effects of foreign currency
rate variations, our total revenues increased in fiscal 2017 due to growth in
our cloud and license revenues and our services revenues, partially offset by a
decrease in our hardware revenues. The constant currency increases in our cloud
and license revenues during fiscal 2017 and constant currency decreases in our
hardware revenues during fiscal 2017 were primarily attributable to similar
reasons as noted above for the fiscal 2018 changes of each. The constant
currency services revenues increase during fiscal 2017 was primarily
attributable to certain acquisitions. In constant currency, the Americas region
contributed 54%, the EMEA region contributed 24% and the Asia Pacific region
contributed 22% to the growth in our total revenues during fiscal 2017.

Excluding the effects of foreign currency rate variations, our total operating
expenses increased during fiscal 2017 relative to the prior year period due to
higher sales and marketing and research and development expenses, which were
primarily attributable to increased headcount and increased stock-based
compensation expenses; and higher cloud services and license support expenses
resulting primarily from increased headcount and infrastructure expenses to
support the increase in our revenues. These constant currency expense increases
were partially offset by certain expense decreases in fiscal 2017, primarily
lower hardware expenses due to similar reasons noted for the fiscal 2018
decrease above and lower intangible asset amortization in fiscal 2017 due to
certain of our intangible assets that became fully amortized.

In constant currency, our total operating margin increased in fiscal 2017 due to
the increase in our total revenues while total operating margin as a percentage
of revenues was flat.

Supplemental Disclosure Related to Certain Charges

To supplement our 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 and certain other expense and income items that affected our GAAP net income:


                                                                Year Ended May 31,
(in millions)                                         2018            2017             2016
Cloud services and license support deferred
revenues(1)                                         $      47       $     171       $        9
Hardware deferred revenues(1)                               -               -                1
Acquired deferred sales commissions
amortization(2)                                           (22 )           (46 )              -
Amortization of intangible assets(3)                    1,620           1,451            1,638
Acquisition related and other(4)(6)                        52             103               42
Restructuring(5)                                          588             463              458
Stock-based compensation, operating segments(6)           505             415              305
Stock-based compensation, R&D and G&A(6)                1,101             900              729
Income tax effects(7)                                  (1,433 )        (1,233 )           (846 )
Income tax reform(8)                                    6,961               -                -

                                                    $   9,419       $   2,224       $    2,336





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

the cloud services and license support contracts and hardware contracts

assumed. Due to our application of business combination accounting rules, we

did not recognize the cloud services and license support revenue amounts and

hardware 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.




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Index to Financial Statements (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 May 31, 2018,

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




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

                     Total intangible assets, net   $   6,670




(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.



(5) Restructuring expenses during fiscal 2018 and 2017 primarily related to

employee severance in connection with our Fiscal 2017 Oracle Restructuring

Plan (2017 Restructuring Plan). Restructuring expenses during fiscal 2016

primarily related to costs incurred pursuant to our Fiscal 2015

Restructuring Plan (2015 Restructuring Plan) and our Fiscal 2013 Oracle

Restructuring Plan (2013 Restructuring Plan). Additional information

regarding certain of our restructuring plans is provided in the discussion

below under "Restructuring Expenses" and in Note 8 of Notes to Consolidated

     Financial Statements included elsewhere in this Annual Report.



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

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




                                                                Year Ended May 31,
                                                       2018            2017            2016
Cloud services and license support                  $        82     $        54     $        44
Hardware                                                     10              11              12
Services                                                     52              44              29
Sales and marketing                                         361             306             220

Stock-based compensation, operating segments                505             415             305
Research and development                                    921             770             609
General and administrative                                  180             130             120
Acquisition related and other                                 1              35               3

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




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 generally upon termination of

the employees pursuant to the terms of those stock options and restricted

   stock-based awards.



(7) For fiscal 2018, the applicable jurisdictional tax rates applied to our

income before provision for income taxes after adjusting for the effects of

the items within the table above, excluding income tax reform (see footnote

(8) below), resulted in an effective tax rate of 21.1%, which represented our

effective tax rate as derived per our consolidated statements of operations,

primarily due to the exclusion of stock-based compensation expense and

acquisition related items, including the tax effects of amortization of

intangible assets. The income tax effects presented for fiscal 2017 and 2016

were calculated reflecting effective tax rates of 22.8% and 23.2%,

respectively, which represented our effective tax rates as derived per our

consolidated statements of operations, primarily due to the net tax effects

of acquisition related items, including the tax effects of amortization of

    intangible assets, and the net tax effects of stock-based compensation.



(8) The income tax reform adjustments for fiscal 2018 presented in the table

above were due to the our enactment of the Tax Act (refer to "Impacts of the

U.S. Tax Cuts and Jobs Act of 2017" above for additional discussion), which

increased our GAAP provision for income taxes during fiscal 2018.

Cloud and License Business

Our cloud and license business engages in the sale, marketing and delivery of our applications, platform and infrastructure technologies through various deployment models including license support offerings; Oracle

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



                                                                               Year Ended May 31,
                                                            Percent Change                            Percent Change
(Dollars in millions)                       2018         Actual       Constant        2017         Actual       Constant        2016
Cloud and License Revenues:
Americas(1)                               $  18,472           6%             6%     $  17,395           6%             6%     $  16,344
EMEA(1)                                       9,164           9%             3%         8,422          -1%             4%         8,475
Asia Pacific(1)                               4,855           6%             4%         4,572           9%             7%         4,178

Total revenues(1)                            32,491           7%             5%        30,389           5%             6%        28,997
Expenses:
Cloud services and license support(2)         3,447          20%            18%         2,885          13%            15%         2,545
Sales and marketing(2)                        7,219           5%             3%         6,886           5%             6%         6,570

Total expenses(2)                            10,666           9%             7%         9,771           7%             8%         9,115

Total Margin                              $  21,825           6%             4%     $  20,618           4%             5%     $  19,882

Total Margin %                                  67%                                       68%                                       69%
% Revenues by Geography:
Americas                                        57%                                       57%                                       56%
EMEA                                            28%                                       28%                                       29%
Asia Pacific                                    15%                                       15%                                       15%
Revenues by Offerings:
Cloud services and license support(1)     $  26,301          10%             7%     $  23,971          10%            11%     $  21,721
Cloud license and on-premise license          6,190          -4%            -5%         6,418         -12%           -11%         7,276

Total revenues(1)                         $  32,491           7%             5%     $  30,389           5%             6%     $  28,997

Revenues by Ecosystem:
Applications revenues(1)                  $  11,113          10%             8%     $  10,098           8%             9%     $   9,353
Platform and infrastructure revenues(1)      21,378           5%             3%        20,291           3%             4%        19,644

Total revenues(1)                         $  32,491           7%             5%     $  30,389           5%             6%     $  28,997




(1) Includes cloud services and license support revenue adjustments related to

certain cloud services and license support contracts that would have

otherwise been recorded as revenues by the acquired businesses as independent

entities but were not recognized in our GAAP-based 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 expense allocations. Also

excludes amortization of intangible assets and certain other GAAP-based

expenses, which were not allocated to our operating segment results for

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

"Presentation of Operating Segment Results and Other Financial Information"

above.


Fiscal 2018 Compared to Fiscal 2017:  Excluding the effects of currency rate
fluctuations, total revenues from our cloud and license business increased in
fiscal 2018 due to growth in our cloud services and license support revenues and
revenue contributions from our recent acquisitions. The increases in our
constant currency cloud



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services and license support revenues during fiscal 2018 were primarily due to
the purchase and renewal of our cloud-based services and license support
services, and due to contributions from our recent acquisitions. These revenues
increases were partially offset by decreases in our cloud license and on-premise
license revenues during fiscal 2018. In constant currency, our total
applications revenues and total platform and infrastructure revenues grew during
fiscal 2018 as customers continued to deploy our applications, platform and
infrastructure technologies through a wide array of different deployment models
that we offer that enable customer choice. In constant currency, the Americas
region contributed 71%, the EMEA region contributed 15% and Asia Pacific region
contributed 14% of the constant currency revenues growth for this business
during fiscal 2018.

In constant currency, total cloud and license expenses increased in fiscal 2018
primarily due to higher cloud services and license support expenses and higher
sales and marketing expenses, both of which increased primarily due to higher
employee related expenses from higher headcount. In addition, our constant
currency cloud services and license support expenses increased during fiscal
2018 due to higher technology infrastructure expenses that supported the growth
in our revenues.

Excluding the effects of currency rate fluctuations, our cloud and license segment's total margin increased during fiscal 2018 primarily due to the increase in revenues for this segment while total margin as a percentage of revenues decreased slightly due to expenses growth for this segment.

Fiscal 2017 Compared to Fiscal 2016:  Excluding the effects of currency rate
fluctuations, total revenues, total expenses and total margin from our cloud and
license business each increased in fiscal 2017 relative to fiscal 2016 due to
similar reasons as noted above for the increases in fiscal 2018 relative to
fiscal 2017. During fiscal 2017, the Americas, EMEA and Asia Pacific regions
contributed 63%, 20% and 17%, respectively, of the constant currency revenues
growth for this business.

Excluding the effects of currency rate fluctuations, our cloud and license business' total margin as a percentage of revenues decreased in fiscal 2017 as our total expenses grew at a faster rate than our total revenues for this business.



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Hardware Business

Our hardware business' revenues are generated from the sales of our Oracle
Engineered Systems, server, storage, and industry-specific hardware products
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 hardware support 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.



                                                                        Year Ended May 31,
                                                     Percent Change                           Percent Change
(Dollars in millions)                 2018        Actual       Constant        2017        Actual       Constant        2016
Hardware Revenues:
Americas(1)                         $  2,001          -4%            -4%     $  2,089         -13%           -13%     $  2,405
EMEA(1)                                1,201          -2%            -7%        1,221         -11%            -7%        1,377
Asia Pacific(1)                          791          -6%            -9%          842          -5%            -6%          887

Total revenues(1)                      3,993          -4%            -6%        4,152         -11%           -10%        4,669
Expenses:
Hardware products and support(2)       1,551          -4%            -7%        1,623         -20%           -19%        2,031
Sales and marketing(2)                   635         -23%           -25%          820          -5%            -4%          867

Total expenses(2)                      2,186         -11%           -13%        2,443         -16%           -15%        2,898

Total Margin                        $  1,807           6%             4%     $  1,709          -4%            -2%     $  1,771

Total Margin %                           45%                                      41%                                      38%
% Revenues by Geography:
Americas                                 50%                                      51%                                      52%
EMEA                                     30%                                      29%                                      29%
Asia Pacific                             20%                                      20%                                      19%



(1) Includes hardware revenue adjustments related to certain hardware 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 expense allocations. Also

excludes amortization of intangible assets and certain other GAAP-based

expenses, which were not allocated to our operating segment results for

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

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


Excluding the effects of currency rate fluctuations, total hardware revenues
decreased in fiscal 2018 and 2017, each relative to the corresponding prior year
period, due to lower hardware products revenues and, to a lesser extent, lower
hardware support revenues. The decreases in hardware products revenues in both
fiscal 2018 and 2017, each relative to the corresponding prior year period, were
primarily attributable to our continued emphasis on the marketing and sale of
our cloud-based infrastructure technologies, which resulted in reduced sales
volumes of certain of our hardware product lines and also impacted the volume of
customers that purchased hardware support contracts.

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



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In constant currency, total margin and total margin as percentage of revenues
for our hardware segment increased during fiscal 2018 and 2017, each relative to
the corresponding prior year period, due to expense decreases in each of these
periods.

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.



                                                                          Year Ended May 31,
                                                      Percent Change                              Percent Change
(Dollars in millions)                2018         Actual        Constant         2017         Actual        Constant         2016
Services Revenues:
Americas                           $  1,653           -4%             -4%      $  1,725            0%              0%      $  1,728
EMEA                                  1,046            6%              0%           987           -4%              2%         1,028
Asia Pacific                            695            7%              5%           646            2%              0%           635

Total revenues                        3,394            1%             -1%         3,358           -1%              0%         3,391
Total Expenses(1)                     2,739            3%              0%         2,668            1%              3%         2,634

Total Margin                       $    655           -5%             -6%      $    690           -9%             -7%      $    757

Total Margin %                          19%                                         21%                                         22%
% Revenues by Geography:
Americas                                49%                                         51%                                         51%
EMEA                                    31%                                         30%                                         30%
Asia Pacific                            20%                                         19%                                         19%



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

excludes amortization of intangible assets and certain other GAAP-based

expenses, which were not allocated to our operating segment results for

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

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


Fiscal 2018 Compared to Fiscal 2017:  Excluding the effects of currency rate
fluctuations, our total services revenues decreased during fiscal 2018 due
primarily to revenue declines in our advanced customer services and education
revenues. Constant currency decreases in our services revenues in the Americas
region were partially offset by a constant currency services revenues increase
in the Asia Pacific region, while services revenues in the EMEA region were
flat.

In constant currency, total services expenses were flat during fiscal 2018. Total margin and total margin as a percentage of total services revenues decreased in fiscal 2018 due to the revenue decreases for this segment.

Fiscal 2017 Compared to Fiscal 2016:  Excluding the effects of currency rate
fluctuations, our total services revenues were flat in fiscal 2017. Constant
currency increases in our consulting revenues during fiscal 2017, which were
primarily attributable to our recent acquisitions, were substantially offset by
constant currency decreases in our education revenues. On a constant currency
basis, modest services revenues growth in the EMEA region during fiscal 2017 was
offset by services revenues declines in the Asia Pacific region, while the
Americas region was flat.

In constant currency, total services margin and total margin as a percentage of
total services revenues decreased and total services expenses increased during
fiscal 2017, primarily due to an increase in expenses associated with our
consulting offerings, primarily higher consulting expense contributions from our
recent acquisitions.



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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,
                                                        Percent Change                          Percent Change
(Dollars in millions)                    2018        Actual       Constant        2017       Actual      Constant        2016
Research and development(1)            $  5,170           -4%           -5%     $  5,389          4%            5%     $  5,178
Stock-based compensation                    921           20%           20%          770         26%           26%          609

Total expenses                         $  6,091           -1%           -2%     $  6,159          6%            7%     $  5,787

% of Total Revenues                         15%                                      16%                                    16%



(1) Excluding stock-based compensation


Fiscal 2018 Compared to Fiscal 2017:  On a constant currency basis, total
research and development expenses decreased during fiscal 2018, primarily due to
lower fiscal 2018 employee related expenses related to lower headcount resulting
from the restructuring of certain of our research and development operations
during fiscal 2018. These fiscal 2018 cost savings were partially offset by
investments in the development of our cloud-based offerings and by higher
stock-based compensation during fiscal 2018.

Fiscal 2017 Compared to Fiscal 2016: On a constant currency basis, total research and development expenses increased in fiscal 2017, primarily due to increased employee related expenses and 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.


                                                                            Year Ended May 31,
                                                         Percent Change                           Percent Change
(Dollars in millions)                     2018        Actual       Constant 

2017 Actual Constant 2016 General and administrative(1)

           $  1,109            6%            4%     $  1,046           1%             3%     $  1,035
Stock-based compensation                     180           38%           38%          130           9%             9%          120

Total expenses                          $  1,289           10%            8%     $  1,176           2%             3%     $  1,155

% of Total Revenues                           3%                                       3%                                       3%



(1) Excluding stock-based compensation


Fiscal 2018 Compared to Fiscal 2017:  Excluding the effects of currency rate
fluctuations, total general and administrative expenses increased in fiscal 2018
due to increased employee related expenses from increased headcount and higher
stock-based compensation.

Fiscal 2017 Compared to Fiscal 2016:  Excluding the effects of currency rate
fluctuations, total general and administrative expenses increased in fiscal 2017
primarily due to similar reasons noted above, which were partially offset by
lower professional services expenses that were primarily legal related.



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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 generally upon termination of
the employees pursuant to the original terms of those restricted stock-based
awards and stock options.



                                                                                    Year Ended May 31,
                                                                 Percent Change                            Percent Change
(Dollars in millions)                             2018        Actual      

Constant 2017 Actual Constant 2016 Transitional and other employee related costs $ 48 15%

            13%     $     41          -10%           -8%     $     45
Stock-based compensation                               1         -98%           -98%           35        1,046%        1,046%            3
Professional fees and other, net                       3         -90%           -90%           33          238%          243%           10
Business combination adjustments, net                  -         100%           100%           (6 )         62%           56%          (16 )

Total acquisition related and other expenses $ 52 -50%

-50% $ 103 145% 147% $ 42



Fiscal 2018 Compared to Fiscal 2017:  On a constant currency basis, acquisition
related and other expenses decreased in fiscal 2018 primarily due to lower
stock-based compensation expenses and were also offset by certain benefits we
recorded to professional fees and other, net during fiscal 2018.

Fiscal 2017 Compared to Fiscal 2016:  On a constant currency basis, acquisition
related and other expenses increased in fiscal 2017 primarily due to higher
stock-based compensation expenses as a result of our acquisition of NetSuite and
higher professional fees. In addition, we recognized an acquisition related
benefit of $19 million in fiscal 2016, which decreased acquisition related and
other expenses during this period.

Amortization of Intangible Assets:  Substantially all of our intangible assets
were acquired through our business combinations. We amortize our intangible
assets over, and monitor the appropriateness of, the estimated useful lives of
these assets. We also periodically review these intangible assets for potential
impairment based upon relevant facts and circumstances. Note 6 of Notes to
Consolidated Financial Statements included elsewhere in this Annual Report has
additional information regarding our intangible assets and related amortization.



                                                                           Year Ended May 31,
                                                         Percent Change                          Percent Change
(Dollars in millions)                     2018       Actual       Constant  

2017 Actual Constant 2016 Developed technology

                    $    758         15%            15%     $    660          18%            18%     $    559
Cloud services and license support
agreements and related relationships         731         40%            40%          524         -14%           -14%          606
Other                                        131        -51%           -51%          267         -44%           -44%          473

Total amortization of intangible
assets                                  $  1,620         12%            12%     $  1,451         -11%           -11%     $  1,638



Fiscal 2018 Compared to Fiscal 2017:  Amortization of intangible assets
increased in fiscal 2018 due to additional amortization from intangible assets
that we acquired in connection with our acquisitions, primarily our acquisition
of NetSuite.

Fiscal 2017 Compared to Fiscal 2016:  Amortization of intangible assets
decreased in fiscal 2017 due to a reduction in expenses associated with certain
of our intangible assets that became fully amortized, partially offset by
additional amortization from intangible assets that we acquired in connection
with our acquisitions made in fiscal 2017, including those associated with our
acquisition of NetSuite.

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



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cost structure prospectively. For additional information regarding our restructuring plans, see Note 8 of Notes to Consolidated Financial Statements included in our Annual Report.


                                                                            Year Ended May 31,
                                                         Percent Change                           Percent Change
(Dollars in millions)                     2018        Actual      Constant        2017         Actual        Constant        2016
Restructuring expenses                  $    588          27%           22%     $    463             1%             4%     $    458



Restructuring expenses in fiscal 2018 and fiscal 2017 primarily related to our
2017 Restructuring Plan which is substantially complete. Restructuring expenses
in fiscal 2016 primarily related to our 2015 Restructuring Plan which is
complete. Our management approved, committed to and initiated these plans in
order to restructure and further improve efficiencies in our operations. We may
incur additional restructuring expenses in future periods due to the initiation
of new restructuring plans or from changes in estimated costs associated with
existing restructuring plans.

The majority of the initiatives undertaken by our 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. Cost savings
realized pursuant to our 2017 Restructuring Plan initiatives were primarily
offset by investments in resources and geographies that address the development,
marketing and sale of our cloud-based offerings as customer preferences pivot to
the Oracle Cloud.

Interest Expense:



                                                                                Year Ended May 31,
                                                             Percent Change                            Percent Change
(Dollars in millions)                        2018         Actual      Constant         2017         Actual       Constant         2016
Interest expense                          $    2,025          13%           13%     $    1,798           23%           23%     $    1,467



Fiscal 2018 Compared to Fiscal 2017:  Interest expense increased in fiscal 2018
primarily due to higher average borrowings resulting from our issuance of
$10.0 billion of senior notes in November 2017, which was partially offset by a
reduction in interest expense resulting from the maturity and repayment of
$6.0 billion of senior notes in fiscal 2018. See Recent Financing Activities
below and Note 7 of Notes to Consolidated Financial Statements included
elsewhere in this Annual Report for additional information regarding our
borrowings.

Fiscal 2017 Compared to Fiscal 2016:  Interest expense increased in 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 fiscal 2017 was partially offset by a reduction in interest expense
resulting from the maturity and repayment of $2.0 billion of senior notes in
January 2016.

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



                                                                                Year Ended May 31,
                                                              Percent Change                            Percent Change
(Dollars in millions)                        2018         Actual       Constant        2017          Actual      Constant        2016
Interest income                           $    1,201          50%            49%     $     802           49%           50%     $     538
Foreign currency losses, net                     (74 )       -51%           -58%          (152 )         38%           49%          (110 )
Noncontrolling interests in income              (135 )        14%            14%          (118 )          2%            2%          (116 )
Other income (loss), net                         245         237%           237%            73        1,136%        1,145%            (7 )

Total non-operating income, net           $    1,237         105%           106%     $     605           98%           96%     $     305





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Fiscal 2018 Compared to Fiscal 2017:  On a constant currency basis, our
non-operating income, net for fiscal 2018 increased primarily due to higher
interest income in fiscal 2018 resulting from higher cash, cash equivalent and
short-term investment balances and higher interest rates, lower foreign currency
losses in fiscal 2018, and an increase in other income, net in fiscal 2018
related to higher net realized gains on the sale of certain marketable
securities.

Fiscal 2017 Compared to Fiscal 2016:  On a constant currency basis, our
non-operating income, net for fiscal 2017 increased primarily due to higher
interest income resulting from higher cash, cash equivalent and short-term
investment balances and higher interest rates. In addition, we incurred higher
other income, net during fiscal 2017 related to investment gains for our
deferred compensation plan investments that we held and classified as trading in
comparison to net losses for such investments during fiscal 2016. The
aforementioned favorable movements in non-operating income, net during fiscal
2017 were partially offset by higher foreign currency losses, net during fiscal
2017.

Provision for Income Taxes:  Our effective tax rates for each of the periods
presented were the result of the mix of income earned in various tax
jurisdictions that apply a broad range of income tax rates. In fiscal 2018, the
Tax Act was signed into law. The more significant provisions of the Tax Act as
applicable to us are described above under "Impacts of the U.S. Tax Cuts and
Jobs Act of 2017". Our provision for income taxes for the fiscal 2018 presented
varied from the 21% U.S. statutory rate imposed by the Tax Act due primarily to
the January 1, 2018 effective date of the Tax Act, the impacts of the Tax Act
upon adoption, state taxes, the U.S. research and development tax credit,
settlements with tax authorities, the tax effects of stock-based compensation,
and the U.S. domestic production activity deduction. Prior to the January 1,
2018 effective date of the Tax Act, our provision for income taxes historically
differed from the tax computed at the previous U.S. federal statutory income tax
rate due primarily to certain earnings considered as indefinitely reinvested in
foreign operations, state taxes, the U.S. research and development tax credit,
settlements with tax authorities, the tax effects of stock-based compensation
and the U.S. domestic production activity deduction. 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.



                                                                          Year Ended May 31,
                                                        Percent Change                            Percent Change
(Dollars in millions)                   2018         Actual       Constant        2017         Actual       Constant        2016
Provision for income taxes           $    9,066         315%           315%     $  2,182          -14%           -15%     $  2,541

Effective tax rate                        70.3%                                     18.9%                                    22.2%


Fiscal 2018 Compared to Fiscal 2017:  Provision for income taxes increased in
fiscal 2018, relative to fiscal 2017, primarily due to the net unfavorable
impacts due to our initial accounting for the enactment of the Tax Act on
January 1, 2018 (refer to "Impacts of the U.S. Tax Cuts and Jobs Act of 2017"
above for additional information) and, to a lesser extent, by the tax effect of
higher income before provision for income taxes (determined after taking into
account the net favorable impact of the Tax Act on our tax profile) during
fiscal 2018; an unfavorable shift in jurisdiction mix of earnings in fiscal
2018; and a decrease in unrecognized tax benefits due to settlements with tax
authorities and other events during fiscal 2018. These unfavorable impacts to
our provision for income taxes were partially offset by higher fiscal 2018
realized excess tax benefits related to stock-based compensation expense.

Fiscal 2017 Compared to Fiscal 2016:  Provision for income taxes in fiscal 2017
decreased relative to fiscal 2016 primarily due to the favorable impact of
excess tax benefits recognized in fiscal 2017 that related to stock-based
compensation, which were recorded as a benefit to provision for income taxes in
fiscal 2017, in comparison to fiscal 2016 when such benefits were recognized as
an increase to additional paid in capital. To a lesser extent, the provision for
income taxes in fiscal 2017 also benefited from a favorable jurisdictional mix
of earnings, as well as net favorable changes in fiscal 2017 relating to
unrecognized tax benefits from audit settlements, statute of limitation
releases, and other events.



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Liquidity and Capital Resources


                                                                    As of May 31,
(Dollars in millions)                      2018          Change         2017          Change         2016
Working capital                          $  56,769           13%      $  50,337            7%      $  47,105
Cash, cash equivalents and marketable
securities                               $  67,261            2%      $  66,078           18%      $  56,125


Working capital:  The increase in working capital as of May 31, 2018 in
comparison to May 31, 2017 was primarily due to our issuance of $10.0 billion of
long-term senior notes in November 2017 (refer to Recent Financing Activities
Below for additional information), the favorable impacts to our net current
assets resulting from our net income during fiscal 2018 and cash proceeds from
stock option exercises. These favorable working capital movements were partially
offset by cash used for repurchases of our common stock, cash used to pay
dividends to our stockholders, cash used for capital expenditures and cash used
for acquisitions in fiscal 2018.

The increase in working capital as of May 31, 2017 in comparison to May 31, 2016
was primarily due to our issuance of $14.0 billion of long-term senior notes in
July 2016, the favorable impacts to our net current assets resulting from our
net income during fiscal 2017 and cash proceeds from stock option exercises.
These favorable working capital movements were partially offset by cash used for
acquisitions, including $9.0 billion of net cash used for our acquisition of
NetSuite in the second quarter of fiscal 2017, cash used for repurchases of our
common stock, cash used to pay dividends to our stockholders and cash used for
capital expenditures.

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 May 31, 2018 in comparison to May 31, 2017 was
primarily due to the issuance of $12.5 billion of cash inflows from fiscal 2018
debt issuances (refer to Recent Financing Activities Below for additional
information), cash inflows generated by our operations and cash inflows from
stock option exercises. These cash inflows were partially offset by certain
fiscal 2018 cash outflows, primarily $11.3 billion of repurchases of our common
stock, the repayment of $9.8 billion of borrowings, payments of cash dividends
to our stockholders and cash used for capital expenditures.

As a result of the enactment of the Tax Act on January 1, 2018, we expect
greater flexibility in accessing and utilizing our cash, cash equivalent and
marketable securities balances held by certain of our foreign subsidiaries, as
well as prospective assets generated by these foreign subsidiaries' future
earnings and profits. We believe we have sufficient cash, cash equivalent and
marketable securities balances and access to additional capital resources, if
required, to settle the $7.8 billion one-time transition tax described under
"Impacts of the U.S. Tax Cuts and Jobs Act of 2017" above.

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
consolidated balance 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 weakened against certain major
international currencies during 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 May 31, 2018 relative to what we
would have reported using constant currency rates from our May 31, 2017 balance
sheet date.

The increase in cash, cash equivalents and marketable securities at May 31, 2017
in comparison to May 31, 2016 was primarily due to cash inflows generated by our
operations during fiscal 2017, $13.6 billion of net cash inflows from fiscal
2017 debt issuances, net of debt repayments, and cash inflows from fiscal 2017
stock option



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exercises. These fiscal 2017 cash inflows were partially offset by certain
fiscal 2017 cash outflows, primarily acquisitions, including our acquisition of
NetSuite, repurchases of our common stock, payments of cash dividends to our
stockholders, and cash used for capital expenditures. Additionally, our reported
cash, cash equivalents and marketable securities balances as of May 31, 2017
decreased on a net basis in comparison to May 31, 2016 as the U.S. Dollar
generally strengthened in comparison to most major international currencies
during fiscal 2017.



                                                                Year Ended May 31,
(Dollars in millions)                      2018         Change         2017         Change         2016
Net cash provided by operating
activities                              $   15,386           9%     $   14,126           3%     $   13,685
Net cash used for investing
activities                              $   (5,625 )       -74%     $  (21,494 )       317%     $   (5,154 )
Net cash (used for) provided by
financing activities                    $   (9,982 )       210%     $    

9,086 -191% $ (9,980 )


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

Fiscal 2018 Compared to Fiscal 2017:  Net cash provided by operating activities
increased during fiscal 2018 primarily due to higher net income after adjusting
for the one-time income tax accounting effects of our adoption of the Tax Act
(refer to "Impacts of the U.S. Tax Cuts and Jobs Act of 2017" for additional
discussion).

Fiscal 2017 Compared to Fiscal 2016: Net cash provided by operating activities increased during fiscal 2017 primarily due to the cash favorable effects of higher net income in fiscal 2017 in relation to fiscal 2016.

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.

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

Fiscal 2017 Compared to Fiscal 2016:  Net cash used for investing activities
increased in fiscal 2017 relative to fiscal 2016 primarily due to an increase in
cash used for acquisitions, net of cash acquired in fiscal 2017, an increase in
cash used to purchase marketable securities and other investments (net of
proceeds received from sales and maturities) in fiscal 2017 and increased
capital expenditures primarily related to our fiscal 2017 real estate purchases
and investments in equipment to support our infrastructure to deliver our cloud
services.

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.

Fiscal 2018 Compared to Fiscal 2017:  Net cash used for financing activities in
fiscal 2018 was $10.0 billion in comparison to net cash provided by financing
activities of $9.1 billion during fiscal 2017. The increase in cash used for
financing activities during fiscal 2018 was primarily due to increased stock
repurchase activity in fiscal 2018 (we used $11.3 billion in fiscal 2018 for
stock repurchases in comparison to $3.6 billion in fiscal 2017) and debt related
cash flows for which we had $2.6 billion of cash inflows from borrowings, net of
repayments, in fiscal 2018 in comparison to $13.6 billion of cash inflows from
borrowings, net of repayments, in fiscal 2017.

Fiscal 2017 Compared to Fiscal 2016:  Net cash provided by financing activities
in fiscal 2017 was $9.1 billion in comparison to net cash used for financing
activities of $10.0 billion during fiscal 2016. The change in financing
activities cash flows during fiscal 2017 in comparison to fiscal 2016 was
primarily related to borrowing activities,



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net of debt repayments and stock repurchase activity. We received $13.6 billion
of net cash inflows from borrowing activities during fiscal 2017 in comparison
to $1.8 billion of net cash inflows from fiscal 2016 borrowing activities. In
addition, we significantly reduced our stock repurchase activity in fiscal 2017,
using $3.6 billion, in comparison to fiscal 2016 when we used $10.4 billion.

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:



                                                               Year Ended May 31,
(Dollars in millions)                 2018           Change           2017            Change           2016
Net cash provided by operating
activities                        $     15,386            9%      $     14,126             3%      $     13,685
Capital expenditures                    (1,736 )        -14%            (2,021 )          70%            (1,189 )

Free cash flow                    $     13,650           13%      $     12,105            -3%      $     12,496

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

Free cash flow as percent of
net income                                357%                            130%                             140%


Long-Term Customer Financing:  We offer certain of our customers the option to
acquire licenses, cloud services, hardware 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 $1.5 billion in fiscal 2018,
$912 million in 2017 and $1.2 billion in fiscal 2016, respectively, or
approximately 24%, 14% and 16% of our cloud license and on-premise license
revenues in fiscal 2018, 2017 and 2016, respectively.

Recent Financing Activities:

Cash Dividends:  In fiscal 2018, we declared and paid cash dividends of $0.76
per share that totaled $3.1 billion. In June 2018, our Board of Directors
declared a quarterly cash dividend of $0.19 per share of our outstanding common
stock payable on July 31, 2018 to stockholders of record as of the close of
business on July 17, 2018. Future declarations of dividends and the
establishment of future record and payment dates are subject to the final
determination of our Board of Directors.

Swap Agreements:  In May 2018, we entered into certain cross-currency interest
rate swap agreements to manage the foreign currency exchange risk and interest
rate risk associated with our €750 million of 3.125% senior notes due July 2025
(July 2025 Notes) by effectively converting the fixed-rate, Euro denominated
July 2025 Notes, including the annual interest payments and the payment of
principal at maturity, to variable-rate, U.S. Dollar denominated debt. The
economic effect of the swap agreement was to eliminate the uncertainty of the
principal balance in U.S. Dollars associated with the July 2025 Notes by fixing
the principal amount of the July 2025 Notes at $868 million and modify the
related fixed interest obligations so that the interest payable on these notes
became variable based on LIBOR. As of May 31, 2018, our July 2025 Notes had an
effective interest rate of 5.17% after considering the effects of the
aforementioned cross-currency interest rate swap arrangement. We are accounting
for these cross-currency interest rate swap agreements as fair value hedges
pursuant to ASC 815, Derivatives and Hedging (ASC 815).

In April 2018, we entered into certain interest rate swap agreements that have
the economic effect of modifying the fixed interest obligations associated with
our $1.5 billion of 6.50% senior notes due April 2038 (April 2038 Notes), so
that the interest payable on these notes became variable based on LIBOR. As of
May 31, 2018, our April 2038 Notes had effective interest rates of 5.65% 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.



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Additional details regarding our senior notes and related interest rate swap
agreements are included in Notes 7 and 10 of Notes to Consolidated Financial
Statements, included elsewhere in this Annual Report.

Revolving Credit Agreements:  In May 2018, we entered into three revolving
credit agreements with JPMorgan Chase Bank, N.A., as initial lender and
administrative agent (the 2018 Credit Agreements) and borrowed $2.5 billion
pursuant to these agreements. The 2018 Credit Agreements provided us with
short-term borrowings for working capital and other general corporate purposes.
Interest for the 2018 Credit Agreements is based on either (1) a LIBOR-based
formula or (2) the Base Rate formula, each as set forth in the 2018 Credit
Agreements. The borrowings are due and payable on June 28, 2018, which is the
termination date of the 2018 Credit Agreements. Additional details regarding the
2018 Credit Agreements are included in Note 7 of Notes to Consolidated Financial
Statements included elsewhere in this Annual Report.

Common Stock Repurchase Program:  Our Board of Directors has approved a program
for us to repurchase shares of our common stock. During fiscal 2018, our Board
of Directors approved expansions of our stock repurchase program totaling
$24.0 billion. As of May 31, 2018, approximately $17.8 billion remained
available for stock repurchases pursuant to our stock repurchase program. We
repurchased 238.0 million shares for $11.5 billion, 85.6 million shares for
$3.5 billion, and 271.9 million shares for $10.4 billion in fiscal 2018, 2017
and 2016, 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 payments, our debt repayment obligations or repurchases of our debt,
our stock price, and economic and market conditions. Our stock repurchases may
be effected from time to time through open market purchases and pursuant to a
Rule 10b5-1 plan. Our stock repurchase program may be accelerated, suspended,
delayed or discontinued at any time.

Senior Notes: In November 2017, we issued $10.0 billion of senior notes comprised of the following:

$1.25 billion of 2.625% senior notes due February 2023;




  •   $2.00 billion of 2.95% senior notes due November 2024;




  •   $2.75 billion of 3.25% senior notes due November 2027;




  •   $1.75 billion of 3.80% senior notes due November 2037; and




  •   $2.25 billion of 4.00% senior notes due November 2047.


We issued the senior notes for general corporate purposes, which may include
stock repurchases, payment of cash dividends on our common stock, repayment of
indebtedness and future acquisitions. Additionally, in fiscal 2018, we repaid
$3.5 billion of senior notes pursuant to their terms. Additional details
regarding our senior notes are included in Note 7 of Notes to Consolidated
Financial Statements included elsewhere in this Annual Report.

Contractual Obligations:  The contractual obligations presented in the table
below represent our estimates of future payments under our 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, 2018:



                                                                            Year Ending May 31,
(Dollars in millions)                   Total           2019          2020 

2021 2022 2023 Thereafter Principal payments on borrowings(1) $ 60,927 $ 4,500 $ 4,500 $ 2,446 $ 8,250 $ 3,750 $ 37,481 Interest payments on borrowings(1) 26,959 1,938 1,805 1,732 1,629 1,492 18,363 Operating leases(2)

                        1,639            377           314           248           184           144             372
Purchase obligations and other(3)          1,375            757           291           189           114            24               -

Total contractual obligations $ 90,900 $ 7,572 $ 6,910 $ 4,615 $ 10,177 $ 5,410 $ 56,216




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(1)  Represents the principal balances and interest payments to be paid in
     connection with our senior notes and other borrowings outstanding as of
     May 31, 2018 after considering:



• certain interest rate swap agreements for certain series of senior notes

that have the economic effect of modifying the fixed-interest obligations

associated with these senior notes so that they effectively became variable

pursuant to a LIBOR-based index. Interest payments on these senior notes

have been presented in the table above after consideration of these fixed to

variable interest rate swap agreements based upon the interest rates

applicable as of May 31, 2018 and are subject to change in future periods;

• interest payments on our floating-rate senior notes that are based upon the

interest rates applicable to the senior notes as of May 31, 2018 and are

       subject to change in future periods;



• certain cross-currency swap agreements for our €1.25 billion 2.25% senior

notes due 2021 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 with a

fixed annual interest rate. Principal and interest payments for these senior

notes were calculated and presented in the table above based on the terms of

       these cross-currency swap agreements; and



• certain cross-currency interest rate swap agreements for our €750 million

3.125% senior notes due July 2025 that have the economic effect of

converting our fixed-rate, Euro-denominated debt, including annual interest

payments and the payment of principal at maturity, to a variable-rate, U.S.

Dollar-denominated debt. Principal and interest payments for these senior

notes were calculated and presented in the table above based on the terms of

       these cross-currency interest rate swap agreements.



Refer to Notes 7 and 10 of Notes to Consolidated Financial Statements included

elsewhere in this Annual Report for additional information related to our

   notes payable and other borrowings and related derivative agreements.



(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 $61 million in

facility obligations, net of estimated sublease income, for certain vacated

     locations in accrued restructuring on our consolidated balance sheet at
     May 31, 2018.



(3) Primarily represents amounts associated with agreements that are enforceable

and 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 the amounts presented above, as they are generally entered

into in order to secure pricing or other negotiated terms and are difficult

to quantify in a meaningful way.


As of May 31, 2018, we had $6.6 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 contractual
obligations table above due to the uncertainty as to when they might be settled.
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
2019. We are involved in claims and legal proceedings. All such claims and
obligations have been excluded from the contractual obligations table above due
to the uncertainty of claims and legal proceedings and associated estimates and
assumptions, all of which are inherently unpredictable and many aspects of which
are out of our control. Notes 14 and 17 of Notes to Consolidated Financial
Statements included elsewhere in this Annual Report includes additional
information regarding these contingencies.

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, including the
$7.8 billion one-time transition tax described under "Impacts of the U.S. Tax
Cuts and Jobs Act of 2017" above. In addition, we believe that we could fund our
future acquisitions, dividend payments and repurchases of common stock or debt
with our internally available cash, cash equivalents and marketable securities,
cash generated from operations, additional borrowings or from the issuance of
additional securities.

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.

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Selected Quarterly Financial Data

Quarterly revenues, expenses and operating income have historically been
affected by a variety of seasonal factors, including the structure of 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 technology industry. These factors have historically 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 similar manner as our
revenues (in particular, our cloud and license business and hardware business)
as certain expenses within our cost structure are relatively fixed in the short
term. We expect these trends to continue in fiscal 2019.

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 annual data due to rounding.



                                                               Fiscal 2018 Quarter Ended (Unaudited)
(in millions, except per share amounts)         August 31           November 30         February 28          May 31
Revenues                                       $      9,187        $       9,621       $       9,771        $  11,251
Gross profit                                   $      7,254        $       7,656       $       7,769        $   9,071
Operating income                               $      2,821        $       3,069       $       3,410        $   4,380
Net income (loss)                              $      2,210        $       2,233       $      (4,024 )      $   3,408
Earnings (loss) per share-basic                $       0.53        $        0.54       $       (0.98 )      $    0.84
Earnings (loss) per share-diluted              $       0.52        $        

0.52 $ (0.98 ) $ 0.82

                                                               Fiscal 2017 Quarter Ended (Unaudited)
(in millions, except per share amounts)         August 31           November 30         February 28          May 31
Revenues                                       $      8,595        $       9,035       $       9,205        $  10,892
Gross profit                                   $      6,819        $       7,237       $       7,314        $   8,889
Operating income                               $      2,641        $       3,037       $       2,959        $   4,073
Net income                                     $      1,832        $       2,032       $       2,239        $   3,231
Earnings per share-basic                       $       0.44        $        0.50       $        0.55        $    0.78
Earnings per share-diluted                     $       0.43        $        0.48       $        0.53        $    0.76

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, 2015 has
been a weighted-average annualized rate of 1.7% 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 stock options are exercised. Of the outstanding stock options at
May 31, 2018, which generally have a ten-year exercise period, approximately 19%
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 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 May 31,
2018, the maximum potential dilution from all outstanding restricted stock-based
awards and



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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 9.8%.

During fiscal 2018, the Compensation Committee of the Board of Directors
reviewed and approved the annual organization-wide stock-based award grants to
selected employees, all stock-based award grants to executive officers and any
individual grant of restricted stock units of 62,500 or greater. Each member of
a separate executive officer committee, referred to as the Plan Committee, was
allocated a fiscal 2018 equity budget that could be used throughout the fiscal
year to grant equity within his or her organization, subject to certain
limitations established by the Compensation Committee.

Restricted stock-based award and stock option activity from June 1, 2015 through May 31, 2018 is summarized as follows (shares in millions):

Restricted stock-based awards and stock options outstanding at May 31, 2015

441

Restricted stock-based awards and stock options granted                     

240

Restricted stock-based awards and stock options assumed                     

17

Restricted stock-based awards vested and issued and stock options exercised

                                                                    (260 )
Forfeitures, cancellations and other, net                                   

(45 )

Restricted stock-based awards and stock options outstanding at May 31, 2018

393

Weighted-average annualized restricted stock-based awards and stock options granted and assumed, net of forfeitures and cancellations

70

Weighted-average annualized stock repurchases                                (199 )
Shares outstanding at May 31, 2018                                          

3,997

Basic weighted-average shares outstanding from June 1, 2015 through May 31, 2018

4,152

Restricted stock-based awards and stock options outstanding as a percent of shares outstanding at May 31, 2018

9.8%

Total restricted stock-based awards and in the money stock options outstanding (based on the closing price of our common stock on the last trading day of fiscal 2018) as a percent of shares outstanding at May 31, 2018

8.4%

Weighted-average annualized restricted stock-based awards and stock options granted and assumed, net of forfeitures and cancellations and before stock repurchases, as a percent of weighted-average shares outstanding from June 1, 2015 through May 31, 2018

1.7%

Weighted-average annualized restricted stock-based awards and stock options granted and assumed, net of forfeitures and cancellations and after stock repurchases, as a percent of weighted-average shares outstanding from June 1, 2015 through May 31, 2018

-3.1%


Our Compensation Committee approves the annual organization-wide stock-based
award grants to certain employees. These annual stock-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, if any, and
the impact of these pronouncements on our consolidated financial statements, if
any, see Note 1 of Notes to Consolidated Financial Statements included elsewhere
in this Annual Report.

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