EMPLOYEE BENEFIT PLANS

12 Months Ended

May 31, 2016

Employee Benefit Plans [Abstract]

EMPLOYEE BENEFIT PLANS

14. EMPLOYEE BENEFIT PLANS

Stock-based Compensation Plans

Stock Plans

In fiscal 2001, we adopted the 2000 Long-Term Equity Incentive Plan, which provides for the issuance of long-term performance awards, including restricted stock-based awards, non-qualified stock options and incentive stock options, as well as stock purchase rights and stock appreciation rights, to our eligible employees, officers and directors who are also employees or consultants, independent consultants and advisers. In fiscal 2011, our stockholders, upon the recommendation of our Board of Directors (the Board), approved the adoption of the Amended and Restated 2000 Long-Term Equity Incentive Plan (the 2000 Plan), which extended the termination date of the 2000 Plan by 10 years and increased the number of authorized shares of stock that may be issued by 388,313,015 shares. In fiscal 2014, our stockholders, upon the recommendation of our Board, approved a further increase in the number of authorized shares of stock that may be issued under the 2000 Plan by 305,000,000 shares. Under the terms of the 2000 Plan, long-term full value awards are granted in the form of restricted stock units (RSUs) and performance stock units (PSUs). The vesting schedule for RSUs is established by the Compensation Committee and generally requires vesting 25% annually over four years. The vesting schedule for PSUs is also established by the Compensation Committee and currently requires vesting over four fiscal years, if at all, based on performance. Options to purchase common stock are granted at not less than fair market value, become exercisable as established by the Compensation Committee of the Board (generally 25% annually over four years under our current practice) and generally expire no more than 10 years from the date of grant. For each share granted as a full value award under the 2000 Plan, an equivalent of 2.5 shares is deducted from our pool of shares available for grant. As of May 31, 2016, the 2000 Plan had 47 million unvested RSUs outstanding, 4 million unvested PSUs outstanding and stock options to purchase 367 million shares of common stock outstanding of which 246 million shares were vested. As of May 31, 2016, approximately 317 million shares of common stock were available for future awards under the 2000 Plan. To date, we have not issued any stock purchase rights or stock appreciation rights under the 2000 Plan.

In fiscal 1993, the Board adopted the 1993 Directors’ Stock Plan (the Directors’ Plan), which provides for the issuance of RSUs and other stock-based awards, including non-qualified stock options, to non-employee directors. The Directors’ Plan has from time to time been amended and restated. Under the terms of the Directors’ Plan, 10 million shares of common stock are reserved for issuance(including a fiscal 2013 amendment to increase the number of shares of our common stock reserved for issuance by 2 million shares). In prior years, we granted stock options at not less than fair market value, that vest over four years, and expire no more than 10 years from the date of grant. The Directors’ Plan was most recently amended on April 29, 2016 and permits the Compensation Committee of the Board to determine the amount and form of automatic grants of stock awards to each non-employee director upon first becoming a director and thereafter on an annual basis, as well as automatic nondiscretionary grants for chairing certain Board committees, subject to certain stockholder approved limitations set forth in the Directors’ Plan. As of May 31, 2016, approximately 147,000 unvested RSUs and stock options to purchase approximately 3 million shares of common stock (of which approximately 2 million were vested) were outstanding under the Directors’ Plan. As of May 31, 2016, approximately 1 million shares were available for future stock awards under this plan.

In connection with certain of our acquisitions, we assumed certain outstanding restricted stock-based awards and stock options under each acquired company’s respective stock plans. These restricted stock-based awards and stock options generally retain all of the rights, terms and conditions of the respective plans under which they were originally granted. As of May 31, 2016, approximately 491,000 shares of restricted stock-based awards and stock options to purchase 5 million shares of common stock were outstanding under these plans.

Restricted stock-based award activity and the number of restricted stock-based awards outstanding were not significant prior to fiscal 2015. The following table summarizes restricted stock-based award activity, including service-based awards and performance-based awards and including awards granted pursuant to Oracle-based stock plans and stock plans assumed from our acquisitions for fiscal 2016 and 2015:

	Restricted Stock-Based Awards Outstanding
(in millions, except fair value)		Weighted-Average Grant Date Fair Value
	Number of
	Shares
Balance, May 31, 2014	1	$	35.29
Granted	28	$	40.73
Canceled	(1)	$	39.52
Balance, May 31, 2015	28	$	40.63
Granted	34	$	38.50
Vested	(7)	$	40.39
Canceled	(3)	$	39.73
Balance, May 31, 2016	52	$	39.29

The total grant date fair value of restricted stock-based awards that vested in fiscal 2016 and 2015 was $261 million and $28 million, respectively. As of May 31, 2016, total unrecognized stock-based compensation expense related to non-vested restricted stock-based awards was $1.3 billion and is expected to be recognized over the remaining weighted-average vesting period of 2.88 years.

In fiscal 2016 and 2015, 2 million and 3 million PSUs were granted, respectively, which vest upon the attainment of certain performance metrics and service-based vesting. Based upon actual attainment relative to the “target” performance metric, certain participants have the ability to be issued up to 150% of the target number of PSUs originally granted, or to be issued no PSUs at all. In fiscal 2016, 463,000 PSUs vested and 4 million PSUs remained outstanding as of May 31, 2016.

The following table summarizes stock option activity and includes awards granted pursuant to Oracle-based stock plans and stock plans assumed from our acquisitions for our last three fiscal years ended May 31, 2016:

	Options Outstanding
(in millions, except exercise price)	Shares Under Option	Weighted-Average
		Exercise
		Price
Balance, May 31, 2013	447	$	25.48
Granted	131	$	31.02
Assumed	5	$	9.02
Exercised	(95)	$	21.51
Canceled	(26)	$	30.60
Balance, May 31, 2014	462	$	27.37
Granted	34	$	40.54
Assumed	3	$	21.98
Exercised	(70)	$	24.49
Canceled	(16)	$	33.76
Balance, May 31, 2015	413	$	28.64
Granted(1)	25	$	40.34
Assumed	1	$	4.97
Exercised	(53)	$	25.13
Canceled	(11)	$	35.19
Balance, May 31, 2016	375	$	29.66

(1) Approximately 7 million of the 25 million stock options granted during fiscal 2016 were to our Chief Executive Officers and Chief Technology Officer and had contractual lives of five years versus the 10-year contractual lives for the other stock options granted.

Options outstanding that have vested and that are expected to vest as of May 31, 2016 were as follows:

	Outstanding Options (in millions)	Weighted-		Weighted-Average Remaining Contract Term (in years)	In-the-Money Options as of May 31, 2016 (in millions)	Aggregate Intrinsic Value(1) (in millions)
		Average
		Exercise
		Price
Vested	253	$	27.52	4.83	245	$	3,232
Expected to vest(2)	115	$	33.91	7.20	76		736
Total	368	$	29.52	5.57	321	$	3,968

__________

(1)	The aggregate intrinsic value was calculated based on the gross difference between our closing stock price on the last trading day of fiscal 2016 of $40.20 and the exercise prices for all “in-the-money” options outstanding, excluding tax effects.
(2)	The unrecognized compensation expense calculated under the fair value method for shares expected to vest (unvested shares net of expected forfeitures) as of May 31, 2016 was approximately $474 million and is expected to be recognized over a weighted average period of 2.02 years. Approximately 7 million shares outstanding as of May 31, 2016 were not expected to vest.

Stock-Based Compensation Expense and Valuation of Stock Awards

We estimated the fair values of our restricted stock-based awards that are solely subject to service-based vesting requirements based upon their intrinsic values as of the grant dates.

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

We estimated the fair values of our stock options using the Black-Scholes-Merton option-pricing model, which was developed for use in estimating the fair values of stock options. Option valuation models, including the Black-Scholes-Merton option-pricing model, require the input of assumptions, including stock price volatility. Changes in the input assumptions can affect the fair value estimates and ultimately how much we recognize as stock-based compensation expense. The fair values of our stock options were estimated at the grant dates or at the acquisition dates for options assumed in a business combination. The weighted-average input assumptions used and resulting fair values of our stock options were as follows for fiscal 2016, 2015 and 2014:

	Year Ended May 31,
	2016		2015		2014
Expected life (in years)		4.8		5.1		4.9
Risk-free interest rate		1.6%		1.7%		1.3%
Volatility		24%		23%		27%
Dividend yield		1.5%		1.2%		1.5%
Weighted-average fair value per share	$	8.49	$	9.62	$	7.47

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

Stock-based compensation was included in the following operating expense line items in our consolidated statements of operations:

	Year Ended May 31,
(in millions)	2016		2015		2014
Sales and marketing	$	220	$	180	$	165
Cloud software as a service and platform as a service		17		10		8
Cloud infrastructure as a service		4		5		4
Software license updates and product support		23		21		22
Hardware products		7		6		5
Hardware support		5		6		6
Services		29		30		29
Research and development		609		522		385
General and administrative		120		148		171
Acquisition related and other		3		5		10
Total stock-based compensation		1,037		933		805
Estimated income tax benefit included in provision for income taxes		(322)		(294)		(260)
Total stock-based compensation, net of estimated income tax benefit	$	715	$	639	$	545

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

Total cash received as a result of option exercises was approximately $1.3 billion, $1.7 billion and $2.0 billion for fiscal 2016, 2015 and 2014, respectively. The aggregate intrinsic value of vesting of restricted stock-based awards and options exercised was $1.0 billion, $1.3 billion and $1.5 billion for fiscal 2016, 2015 and 2014, respectively. In connection with the vesting of restricted stock-based awards and stock option exercises, the tax benefits realized by us were $311 million, $396 million and $480 million for fiscal 2016, 2015 and 2014, respectively. Of the total tax benefits received, we classified excess tax benefits from stock-based compensation of $124 million, $244 million and $250 million as cash flows from financing activities rather than cash flows from operating activities for fiscal 2016, 2015 and 2014, respectively.

Employee Stock Purchase Plan

We have an Employee Stock Purchase Plan (Purchase Plan) that allows employees to purchase shares of common stock at a price per share that is 95% of the fair market value of Oracle stock as of the end of the semi-annual option period. As of May 31, 2016, 54 million shares were reserved for future issuances under the Purchase Plan. We issued 3 million shares under the Purchase Plan in each of fiscal 2016, 2015 and 2014.

Defined Contribution and Other Postretirement Plans

We offer various defined contribution plans for our U.S. and non-U.S. employees. Total defined contribution plan expense was $387 million, $362 million and $357 million for fiscal 2016, 2015 and 2014, respectively. The number of plan participants in our benefit plans has generally increased in recent years as we have hired additional employees and assumed eligible employees from our acquisitions.

In the United States, regular employees can participate in the Oracle Corporation 401(k) Savings and Investment Plan (Oracle 401(k) Plan). Participants can generally contribute up to 40% of their eligible compensation on a per-pay-period basis as defined by the Oracle 401(k) Plan document or by the section 402(g) limit as defined by the U.S. Internal Revenue Service (IRS). We match a portion of employee contributions, currently 50% up to 6% of compensation each pay period, subject to maximum aggregate matching amounts. Our contributions to the Oracle 401(k) Plan, net of forfeitures, were $153 million, $144 million and $134 million in fiscal 2016, 2015 and 2014, respectively.

We also offer non-qualified deferred compensation plans to certain employees whereby they may defer a portion of their annual base and/or variable compensation until retirement or a date specified by the employee in accordance with the plans. Deferred compensation plan assets and liabilities were each approximately $419 million as of May 31, 2016 and were each approximately $408 million as of May 31, 2015 and were presented in other assets and other non-current liabilities in the accompanying consolidated balance sheets.

We sponsor certain defined benefit pension plans that are offered primarily by certain of our foreign subsidiaries. Many of these plans were assumed through our acquisitions or are required by local regulatory requirements. We may deposit funds for these plans with insurance companies, third-party trustees, or into government-managed accounts consistent with local regulatory requirements, as applicable. Our total defined benefit plan pension expenses were $95 million, $69 million and $64 million for fiscal 2016, 2015 and 2014, respectively. The aggregate projected benefit obligation and aggregate net liability (funded status) of our defined benefit plans as of May 31, 2016 was $949 million and $587 million, respectively, and as of May 31, 2015 was $1.0 billion and $599 million, respectively.